5 minute read 17 Jun 2021
Hiking in green tropical jungle

How sustainable trade can support net zero targets

Authors
Sally Jones

EY UK Trade Strategy and Brexit Leader

Trade Strategy Partner. Helping companies and governments enhance trade. Mother of three. Astronomer.

Matthew Bell

EY UK&I Climate Change and Sustainability Services Leader

Climate change and sustainability leader. Engaging in purposeful change and creating long-term value for global organizations. Savvy in science and technology.

Harry Gaskell

EY UK&I Purpose & Sustainability Leader

Helping businesses create a sustainable impact and generate long-term value. Angel investor. Marathon runner. Father of two.

Contributors
5 minute read 17 Jun 2021

Cross-border operations are key to meeting sustainability and ESG goals. We outline three steps to building a sustainable trade strategy.

In brief:

  • How to define sustainable trade and its key principles.
  • Why trade and environmental policies are converging.
  • Practical steps businesses can take to embed sustainable trade practices in their supply chains and wider operations.

Companies need to address their trade strategy in order to meet net zero targets. Sustainability should be embedded in cross-border operations across the entirety of their activity – from supply chains through to business mobility. We look at why companies should prioritise sustainable trade practices and outlines the steps they should take to achieve this.

What is sustainable trade?

Sustainable trade is the exchange of goods and services that generate social and environmental benefits which go beyond the mere creation of economic value. Sustainable trade also promotes the preservation and reuse of environmental resources or reduces poverty and inequality. Individual initiatives such as FairTrade are part of this movement, but, increasingly, public and private initiatives are looking at the full lifecycle of products and related services as they are traded internationally. Key principles of sustainable trade include:

  • Best practice starts at home: Companies should create a greener supply chain, reduce the carbon costs of business mobility, and embrace new environmental technologies.
  • Helping others: As sustainable production and consumption expands, the growing market for environmental goods, services and technologies creates new business opportunities.
  • Building resilience: A sustainable trade strategy should improve resilience to environmental shocks and resource shortages.

Sustainable trade means the exchange of goods and services that generate social and environmental benefits which go beyond the mere creation of economic value.

 

Trade and sustainability is converging

Trade policies are evolving to support wider environmental goals at both the international and national level. At the recent G7 summit, G7 leaders agreed (pdf),“on the need for the world’s leading democratic nations to unite behind a shared vision to ensure the multilateral trading system is reformed, […], to be free and fair for all, more sustainable, resilient and responsive to the needs of global citizens.”

Governments around the world are taking a number of different approaches to achieve these aims. For instance, the UK Government has eliminated tariffs on green products, including solar panels and wind turbines. The EU’s proposed new Carbon Border Adjustment Mechanism, expected by the end of 2022, will cover a number of products such as steel and concrete. Additionally, there are ongoing negotiations for an international Agreement on Climate Change, Trade and Sustainability (ACCTS).

Three steps to sustainable trade

Sustainable trade is an integral part of using the world’s resources responsibly and achieving net zero targets. To achieve a sustainable trade strategy, companies should consider the following steps:

1. Embed sustainability

Supply chain visibility is the key to understanding a company’s sustainability impact. Each organisation must be able to trace the source of every product and raw material, and confirm that extraction, manufacturing, transportation and working practices are sustainable. That’s not easy or cheap. 

It means establishing standards that meet their own ambitions and satisfy relevant regulations – and ensuring that the sustainable procurement strategy vets every supplier. Businesses also need systems that monitor and measure their environmental impact, treatment of workers and support for communities where they source goods and services.

There are opportunities to benefit from sustainable incentive schemes. The UK Government is one of the world’s leading providers of export credit support for sustainable and green projects like renewable energy, biodiversity conservation, affordable housing and food security.

Businesses must also be prepared for how climate change will disrupt their supply chains and look to build resiliency. The sudden and global impact of the COVID-19 pandemic on global supply chains is a precursor of the many potential shocks facing businesses’ operations as a result of climate change. Shifting rain patterns, and extreme weather events including forest fires, flooding, and drought can threaten both availability of products and trading routes. 

2.Keep on top of evolving policy and regulations

Regulations are constantly evolving at a national and transnational level. Examples include the US-led Kimberley Process for diamond certification, the EU Conflict Minerals Regulationthe UK’s Modern Slavery ActSwitzerland’s counter proposal to the Responsible Business Initiative (pdf), and the UK’s focus on reducing deforestation in supply chains

Also of note is the EU Sustainable Products Initiative, scheduled for late 2021, which aims to make products in the EU market more sustainable by banning harmful ingredients and ensuring re-usability, recyclability and energy-efficiency. To understand their business impact, it’s vital to keep abreast of these and other emerging rules.

3. Get serious about sustainability reporting

Non-financial disclosure is becoming as important as traditional company reporting. Investors and ratings agencies will analyse company reports to determine whether the organisation is meeting its sustainability targets, factoring this into their overall assessment of corporate performance.

Although there are a range of sustainable reporting frameworks, there is no single, global standard. The most prominent guidance comes from the Taskforce on Climate-related Financial Disclosures (TCFD), which is part of the G20’s Financial Stability Board. Common metrics include carbon footprint, renewable energy, management of climate risk, equal pay, diversity and inclusion, anti-corruption, and community engagement.

Businesses that report sustainable performance thoroughly and accurately are also likely to better understand the many risks from climate change (particularly across the multiple jurisdictions in which they operate) and how their international trade strategy can help to support these objectives. A robust approach to reporting can focus attention on sustainability targets and ensure that sustainable trade is taken seriously across the organisation.

Sustainability and trade strategy

Embedding and strengthening sustainable trade practices is just one factor companies need to consider and adapt to. The UK’s new independent trade policy, regulatory change, geopolitical risk and technological developments are just some of the wider trends and disruptions strategic businesses cannot assess in isolation. Developing a strategic approach to trade issues is therefore critical. Businesses need to:

  • Consider how they embed sustainability within their trade strategy
  • Understand the opportunity of value-led sustainability for supply chain or business mobility strategies
  • Improve decision-making and increase operational and performance effectiveness to deliver long-term value

Summary

Embedding and prioritising sustainable trade practices across their cross-border operations can help businesses in meeting net zero and wider environment, social and governance (ESG) objectives. The strongest trade strategies take a holistic view of wider trends, policies and disruptions impacting an organisation.

About this article

Authors
Sally Jones

EY UK Trade Strategy and Brexit Leader

Trade Strategy Partner. Helping companies and governments enhance trade. Mother of three. Astronomer.

Matthew Bell

EY UK&I Climate Change and Sustainability Services Leader

Climate change and sustainability leader. Engaging in purposeful change and creating long-term value for global organizations. Savvy in science and technology.

Harry Gaskell

EY UK&I Purpose & Sustainability Leader

Helping businesses create a sustainable impact and generate long-term value. Angel investor. Marathon runner. Father of two.

Contributors