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New digitisation technologies and the promotion of sustainable financing

Heloisa Slav
Master of Laws from Fundação Getúlio Vargas.
Attorney at law in São Paulo and Lisbon
Law firms in São Paulo and Geneva

 

 

Since 2015, following the adoption of the Paris Agreement, several measures have been implemented by local governments, on a global scale, aiming at the transition towards a hipocarbonic economy (i.e. a series of actions designed for collective reduction of greenhouse gas emissions in all economic sectors) with an agenda which promotes the sustainable usage of ecosystems and mitigate the causes leading to biodiversity loss.

There are various published papers which predict that the risks related to climate changes and environmental degradation will have a significant impact on the economy and the global financial system. As a result of such research, the best practices regarding the management of environmental, social and governance risks are guiding the regulation and oversight of financial activities across the world, especially the process being currently implemented in Europe by the European Central Bank (ECB) – whose guidelines are also being followed by the Brazilian Central Bank – which intends to redirect traditional investment streams to sustainable investment options, thus embedding sustainability in risk assessment and promoting transparency and long-term planning.

Within the trade finance ecosystem several international financial institutions, particularly the European ones, already demand, as a requirement for the approval of new clients or new transactions with current clients, the clients’ undertaking to adopt transition measures and policies which are aligned with the best environmental sustainability practices and which must be adopted or followed not only by the client itself but also by the commercial partners inserted in the client’s respective value chain.

In other words, any given client of a financial institution undertakes – once in the transition phase – not only to demonstrate that it actively enforces the practices established in accordance with the new environmental sustainability policies but also to prove that it requires its clients to commit to such agenda as well. As a result, commercial relationships are becoming more and more interdependent and solidary, in light of the need of a stable and sustainable business chain. We are truly before a new era of the global financial market.

The technological revolution is notoriously present in different sectors of the global economy, acting as a tool in the identification, development, oversight and management of the governance practices and policies which are aligned with the environmental, social and sustainability agendas.

However, the technological initiatives of the financial market, led by innovative FinTech companies, have collaborated in the creation of a platform able to integrate and consolidate several activities, players and international trade transactions through the digitisation process, with the purpose of uniting existing business practices and systems and financing the international trade value chain through smart methods within financial markets, a challenge which only increases in difficulty as one tries to expand such system and insert small and medium companies in the global picture.

Accordingly, our initiatives have attempted to collaborate in the debates involving concepts and criteria related to financing methodologies in the context of international commodities trading and how such new technologies may be significant tools in this new era. The understanding of the complex business environment of cross-border transactions (which are affected by financial, operational, political, institutional and regulatory matters), is a crucial step towards the implementation of financial models and legal instruments which conform to the structuring of trade finance and enable the promotion of mechanisms capable of managing and mitigating risks undertaken by a foreign financier.

As many developed and emerging economies became much more incorporated in the world economy, with the increased importance of foreign trade for many such economies, commercial relationships have become more interdependent, which strongly evidenced the need of a financially stable and sustainable value chain.

That is the reason why financial institutions are constantly improving the risk management and mitigation mechanisms in their trade finance operations, chiefly the ones involving emerging economies.

The technological revolution presents itself as a great ally in the management and massive collection of data which make more precise and reliable information available, in real time, offering digital solutions for remote tracking which are able to mitigate risks and create a relevant database which may be utilized not only for pre-financing due diligence, but also for compliance checks concerning the adoption of environmental, social and governance practices by the borrowers of the funds, an increasingly important procedure that has become a prerequisite in the financial market.

In light of the above, CHamBR also intends to put forward for debate among the players how new technologies and modern digitisation processes have been evaluated and customized so as to improve the comprehension of interrelationships among the market agents (financier, producer, industry, trader, exporter, importer and service providers) within the business chain and to harmonize the financial market demands (in particular the demands of the sector specialized in trade finance), contributing to the implementation of solutions which allow for greater transparency, efficiency and sustainability in the business chain.

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