ECONOMIC UPDATE: SUSTAINABLE TRADE
Europe. Much of this trade is not measured however – France’s exports as shown in Figure 3 are not reported reliably and China and Vietnam had not provided export data for processed oak hardwood. Their imports are divergent by nearly 22% (China) and 28% (Vietnam), suggesting again that there is considerable irregularity in reporting in this closely scrutinised sector (see Figure 4, page 32).
What is also striking about Figure 4 is that Italy has such a high difference between what it says it is importing and what it actually imports after the mirroring process is taken into account. Italy is a major manufacturer of furniture and imports about 80% of its timber. It is therefore highly exposed to the illegal log trade and it appears to be particularly severe for untreated oak.10
A satellite image
showing the effects of deforestation
in the Gran Chaco region, Paraguay
Regulatory challenge Clearly, there is a regulatory challenge, which goes beyond the economic development challenge highlighted above and runs through the trade system itself. It has to be addressed both via business reporting requirements and through effective incentivisation. The current and proposed requirements put pressure on businesses for sustainability disclosure.
dominant across Europe, Russia and into China, as well as in North America.
Figure 3 on page 32 shows that seven of the top 10 untreated oak exporters have a major discrepancy between what they say they are exporting and what they actually export, once the mirrored flow is taken into account. Only the US, as the largest exporter, is actually over-reporting its exports, since the difference is negative.
By contrast, France, Germany and Russia are respectively the second, fourth and fifth largest exporters globally of this type of deciduous hardwood, but there is a major discrepancy between what these countries say they are exporting and what they actually export; amounting to 87% for France, almost 56% for Germany and just over 30% for Russia. Worse still, Denmark and Canada show mirrored differences of 580% and 219% respectively – given that they are small values overall, this suggests they severely under-report their exports.
The largest importers of untreated oak are China and Vietnam. Around 80% of France’s exports of oak go to these two countries where it is processed and sent back to
Visit us at
flow.db.com
Rather, there needs to be a shift in the way financial services provision works with the regulators to incentivise sustainability throughout the supply chain. This is manifested most explicitly through the compliance function: if a company is not complying with reporting standards, that is easy to measure and monitor and decisions can be made accordingly. However, there is far more that needs to be done. For example, sustainability standards and benchmarks need to be agreed consistently across the world so that banks can manage their own and their clients’ legal and regulatory risks.
What is clear, however, is that governments, businesses and banks are beginning to align around the complexity of this agenda. There is an understanding that this task cannot be undertaken by one part of the system alone. For example, if the credit system is to be used to encourage compliance with a more complex definition of sustainability, there needs to be a shared definition both of sustainability, and of what can be usefully measured within that definition, and a tough global regulatory system alongside it. This goes beyond existing know-your-
Trade in products associated with sustainable
development is at the core of any new reporting that is introduced
customer and anti-money laundering considerations to a broader concept of sustainability ‘kite marks’ that are comprehensive and accepted by all. An equivalent on the consumer side is the ‘Fair Trade’ mark allocated to businesses for compliance to a code of sustainability criteria. Applying a sustainability kite mark from a credit assurance process would require collaboration, measurement and tracking on a colossal scale using the methodologies of ‘spatial finance’.11
This framework would ensure that the process of allocating accreditation would be outside of sensitive transactional or commercial frameworks between banks and their clients, and therefore independent and replicable.
The issues of sustainability, economic inclusion and equality of opportunity are much harder to track, yet this data shows that the information is out there somewhere. Digging deeper into these issues is essential if the investment and regulatory systems are to step up with a framework that everyone can both understand and embed in their businesses.
Dr Rebecca Harding is CEO of Coriolis Technologies and an independent trade economist
Sources 1
See
https://on.ft.com/3eQw47L at
ft.com 2 See
https://on.ft.com/3llPS3S at
ft.com 3 See
https://on.ft.com/3vuDa7w at
ft.com
4 See
https://bit.ly/3bSzLrG at
bakermckenzie.com 5
See
https://bit.ly/3rUHASW at
news.bloomberglaw.com
6 See
https://bit.ly/3rTyiqx at
cdsb.net 7 See
https://bbc.in/3dWlbz7 at
bbc.co.uk 8 See
https://bit.ly/3tr7LB6 at
forest-trends.org 9 See
https://bit.ly/3vuFzzd at
ec.europa.eu 10 See
https://bit.ly/3s5qcLi at
salvaleforeste.it 11 See
https://bit.ly/2Q9A6xE at
wwf.org.uk
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