A sustainable trade ecosystem is ASEAN’s best route to building resilience
Maisie Chong Head, Transaction Banking, Singapore and Head, Trade and Working Capital, ASEAN & South Asia
28 Feb 2024
For decades, countries worldwide — and particularly in Asia — have experienced huge rewards from globalisation. Trade has boosted economies and livelihoods, helping to pull millions out of poverty.
However, that trajectory may be at risk. The 2023 Hinrich-IMD Sustainable Trade Index notes signs of what it calls “slowbalisation”, linked to heightened geopolitical tensions, increasingly protectionist trade policies, and changes in global supply chains. Fragmentation, it warns, could undermine how trade can promote sustainable development.
Notwithstanding these, ASEAN is well placed to thrive. The emergence of high-growth corridors internally and to Africa and the Middle East, and the rising integration of ASEAN suppliers into the global trade ecosystem as international businesses move their supply chains closer to end-consumers, will see the region boost its share of global commerce. According to our Future of Trade report, intra-ASEAN trade is expected to climb nearly 9 per cent annually over the next decade.
Future-proofing ASEAN trade
How can ASEAN extend the positive elements of trade, to ensure that the bloc continues to be commercially relevant for businesses in the region and beyond? The answer lies in creating a genuinely sustainable trade ecosystem, which has been of increasing importance to consumers, and in meeting core environmental, social and governance (ESG) goals.
ASEAN has trended positively in the sustainability space. To take just two examples of many: Thailand has sustainability at the heart of its overall economic development plan, Thailand 4.0. For Singapore, it’s committed to advancing its sustainable development agenda through the Green Plan 2030. Vietnam is also pressing ahead on sustainability, in projects such as renewables and infrastructure, that have been supported through collaborations with financial institutions. Last year, Standard Chartered played a part in this by arranging trade loan financing worth up to US$100 million for state-owned Bank for Investment and Development of Vietnam (BIDV), to boost the availability of green finance for businesses and projects.
Still, there are specific ESG goals to address for ASEAN to create a more robust and sustainable trade ecosystem. On environment, a green data ecosystem that supports credible reporting on climate action is essential. On the social front, inclusive and sustainable finance is necessary to promote social equity – supporting businesses, including women-led and micro businesses. Finally, better governance rests on implementing standardised regulations to drive resilient trade within the region.
Better sustainability-linked data drives funding
For one, data transparency is crucial. Access to high-quality sustainability data will help financial institutions scale up the provision of capital for sustainability-linked projects, including for trade financing, and improved risk-measurement.
Singapore leads in this aspect. In 2020, the Monetary Authority of Singapore (MAS) launched Project Greenprint, supported by Standard Chartered and other industry players, to boost the provision of good data on sustainability. Two years later, fintech firm STACS launched its ESG registry as part of Project Greenprint, using blockchain to capture and maintain firms’ ESG certifications and data.
With greater transparency and accountability, financial institutions can better channel capital where it’s most needed, driving greater adoption of sustainable finance.
Driving sustainable trade finance
Governance is also crucial when it comes to trade finance. Standard Chartered’s approach is covered by our Sustainable Trade Finance Proposition, which sets out principles to help businesses implement more sustainable practices across their ecosystems, including building more resilient supply chains.
Any trade finance provided must adhere to the framework, which aligns with both our corporate Key Performance Indicators (KPIs) on sustainability and of regulators we work with. Our extensive on-ground expertise in ASEAN countries ensures we aid clients in driving climate action and community impact, be it by sharing best practices on managing costs, or the sustainability steps undertaken by their peers.
Technology is another tool clients can leverage in their green transition. For instance, Standard Chartered worked with one of the world’s leading chocolate producers to create a digital, multi-currency supply chain finance solution that ensures key suppliers (including those in Malaysia and Singapore) get paid early. This serves to boost supplier loyalty.
Our solution also helps the client reconcile and net invoices among multiple parties, resulting in a final payment and netted cashflow. This seamless, end-to-end financing experience helps accelerate the client’s digitisation journey and simplify its trade processes.
Placing people at the heart of sustainability
The E in ESG rightly gets plenty of attention. Climate change, after all, is a vital concern. Standard Charted has assisted clients in cutting CO2 emissions, improving energy efficiency or revamping logistics. For example, an ASEAN airport sought to reduce noise and meet a range of environmental targets. To counter this, we devised a supplier finance programme that ensured a range of incentives, such as more affordable financing, if their suppliers adhered to KPIs.
The social aspect of ESG is also a strong focus for Standard Chartered. For example, in 2023 we provided loan facilities to a digital business that enables unserved individuals and micro-SMEs in Malaysia and Indonesia to get access to financial services, with an average loan size of US$50,000.
More broadly, we’ve also devised financial products that can help clients meet their sustainability goals. Our Sustainable Account enables corporate clients to keep access to their cash for day-to-day liquidity requirements, while investing surplus funds to support the UN Sustainable Development Goals.
In addition, our sustainable trade loan offering for financial institutions also provides these clients liquidity to support the underlying trade flows associated with sustainable development.
Partnering to build a more sustainable approach
One of the most fascinating aspects of trade finance in recent years has been the marked change in clients increasingly prioritising sustainability across their supply chain ecosystems. With demand for sustainable trade financing among our clients in ASEAN doubling in 2023 from the prior year, we expect this positive trend to continue.
As demand gathers pace, it will contribute to more resilient regional trade and strengthen ASEAN’s economy more broadly, which can also be further developed through greater standardisation in regulations. All this should see a more sustainable trade ecosystem emerge to benefit the region.
Ultimately, success will be a matter of partnership between regulators, governments, financial institutions and corporates. While the trajectory is promising, there is much for everyone to contribute to. The rewards are profound – driving climate action, greater community impact and a just transition — all of which are crucial to the growth and development of sustainable trade in ASEAN and beyond.