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Industry interview: how technology is helping trade finance go green

02 November, 2020Ouida Taaffe

The European Bank for Reconstruction and Development (EBRD) is at the intersection of technology and sustainable finance. Ouida Taaffe talks to the ERBD’s Maria Mogilnaya about how Covid-19 has made people – including banks – think more long term, accelerating the move towards greener trade finance.

Ship in sunset“This year, the trade finance focus at the EBRD has been on essential goods,” says Dr Maria Mogilnaya, Principal Banker, Trade Facilitation Programme, EBRD.

“But we are tilting toward green. And the pandemic will speed up so many of our green workstreams.”

A focus on essential goods might sound as if EBRD’s trade finance section has been quiet. However, the development bank supported a record €1.8bn in trade finance transactions in the first six months of 2020.

It also increased the exposure limit of its Trade Facilitation Programme (TFP) to €3bn from €2bn. Reasons for the demand include:

  • commercial banks cutting their trade finance limits in emerging markets
  • greater demand for letters of credit as supply chains fractured, and
  • requests for longer payment terms.

Trade finance lines for critical goods

Dr Mogilnaya says that, during the Covid-19 lockdowns, there were food shortages in some of the countries supported by the EBRD. Others lacked essential medical supplies. That meant that the EBRD’s partner banks used their trade finance lines for trade in critical goods.

But the fragilities exposed by the Covid-19 crisis have also focused minds on the changes required to make supply chains more resilient, more local and – at the end of the day – greener.

“The crisis is helping people to think longer-term,” says Dr Mogilnaya.

“You can buy something that is cheaper, but it will break in two years. Or, you can buy something more expensive that will last ten. Green technology is more expensive, but one needs to have a longer-term view when it comes to sustainability. It’s not just about the immediate cost.”

Dr Mogilnaya says people understand that greening the economy is a process. “What is green today may not be green tomorrow, as the standards and requirements get stricter to speed up the transition.”

She points out that, in Poland, LED lighting is no longer considered ‘green’ because it is mandatory under EU regulations and the transition to sustainable lighting has already happened. In other countries served by the EBRD, however, incandescent light bulbs are still in use – at least for now.

Technology, innovation and greener trade finance

The EBRD currently co-operates with four of the main blockchain consortia in trade finance.

“Our technology focus is ‘let’s go straight to green’,” says Dr Mogilnaya. “We have set our own requirements to go beyond the national regulations and to contribute to the objectives of the Paris Agreement. In our own regions we can be a beacon of green.”

She says that the main roadblocks to the digitisation of trade finance are legal and regulatory. In general, banks want to make the shift.

Dr Mogilnaya believes one of the main benefits of the digitisation of trade finance, will be giving the EBRD – and its partner banks – more space to work with clients in innovative ways.

The EBRD’s work on digitisation has started at home. It is, for example, partnering with NTT Data on its Open Innovation Contest – challenging competitors to automate the assessment of its green trade finance transactions. The winner will use data from publicly available and searchable databases of green technologies and materials.

The Green Technology Selector

One of those databases could be the EBRD’s Green Technology Selector, which launched as a website in 2018 and as a mobile app in early in 2020. It lists over 18,000 technologies pre-assessed as green and helps banks to identify green technologies and check the green credentials of projects they finance. And it allows businesses and individuals to find green technologies, such as renewable energy sources.

The Green Tech Selector also lets users see which technologies are supported by the Green Trade Facilitation Programme (Green TFP) and the Green Economy Financing Facilities.

The EBRD’s Green Economy Transition (GET) approach aims to help build low carbon, green and resilient economies. Under this, the EBRD intends that more than 50% of its annual business volume will be green by 2025. 

“Going green will not necessarily mean the loss of jobs,” says Dr Mogilnaya. “Automation will mean that people have time to work on adding more value.”

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