UK banks over 30% more likely to lose out on green trade finance opportunities than Swiss rivals
Almost nine-in-ten UK banks or financial services organisations have lost out on green trade finance opportunities, compared with only 56% in Switzerland, new research reveals.
With pressure from governments and international bodies for the global trade finance system to incentivise carbon-reduction and sustainability, 90% of financial organisations in Switzerland and 96% in the UK say they view sustainability concerns as a medium or high priority. Yet there are major differences in capabilities. Only 73% of Swiss trade finance organisations are currently able to screen carriers and vessels in any way, compared with 92% in the UK.
The research was conducted for Pole Star, the global leader in maritime risk intelligence among 350 heads of trade, compliance, and finance in UK and Swiss-based banks and financial services organisations.
It shows how continued reliance on manual processes and ad hoc solutions undermines efforts to make global trade more sustainable. On average, Swiss trade finance organisations’ compliance departments spend 43% of their time screening for sustainability, compared with 50% among UK banks.
“Banks in Switzerland may be better than UK counterparts at seizing green finance opportunities but the reality is that sustainability screening and the ability to demonstrate compliance in both countries is pretty woeful,” said Simon Ring, Global Head of Maritime Trade Technologies & ESG, Pole Star.
Most trade finance organisations in both countries cannot screen carriers’ vessels engaged in commodity transactions for their emissions-reductions, although the UK is slightly ahead. Currently 31% of UK trade finance organisations can do this, compared with 27% in Switzerland. Only 15% of Swiss organisations can screen a commodity transaction for modern slavery and workforce wellbeing, compared with 33% in the UK. And just 14% of Swiss trade finance businesses screen commodity transactions for deforestation compared with 29% in the UK.
Despite the obvious sustainability screening difficulties of banks revealed in the research, only 36% of Swiss-based trade finance organisations and 31% in the UK say end-to-end screening of transaction ecosystems for sustainability is one of their three biggest challenges. In the UK, 40% of organisations cite the problem of having to use multi-point solutions instead of single, integrated service (selected by 22% in Switzerland).
“This is a major commercial oversight, meaning financial institutions will continue to miss out on important new revenues. It also means institutions are poorly prepared for governmental pressure to link finance to reduced emissions and climate-change goals. This is certain to increase in the wake of the COP26 climate conference and implementation of carbon-reducing EU regulations.”
The research showed, however, there is increasing awareness of the shortfall in digital screening capability within banking and finance. More than four-in-ten financial organisations in the UK and Switzerland want sustainability screening integrated into their compliance software. Nearly three-in-ten want high-quality data on individual vessels’ carbon emissions.
But banks and institutions are also hindered by significant screening problems among carriers, forwarders, and charterers. The research found less than half of all such shipping industry organisations are currently able to demonstrate compliance with sustainability or screening requirements.