Hi, Natasha. Welcome to the event it's really good to have you on, we're very fortunate. So you're Global Head of Trade at JP Morgan. You spent 15 years at Citi before that so you've got, of course, a lot of expense and views on the topic we're going to discuss today. I won't spend too much time on introducing the question itself because we've got only 15 minutes. So I wanted to dive straight in perhaps one of the questions on the sector.

So we've got I guess two big trends over the last 12 to 18 months obviously the pandemic, which has disrupted some supply chains, or at least have had an impact on them. And then we've got a boom ESG investment which has got immensely popular with investor, especially green investment but yes in general as well. Could you perhaps set out how these two trends have impacted supply chain finance?

Sure. I mean maybe it's worth coming back for one second to what supply chain finances is for. We originally saw the explosion in supply chain finance come out of the global financial crisis in 2008, and what really drove that was big powerful multinational buyers realizing that they needed to worry about the sustainability of their supply chain. They needed to worry about the health of their smaller suppliers that one small supplier failing can actually stop the production line of a really big company.

And so we really saw supply chain finance take off from there as a way to support suppliers and to financially help them. And supply chain finance at its heart if it's done right is a tool for benefiting the smaller supplier. They get earlier payment, they get cheaper financing than they would otherwise have been able to get. And so to me it's a very logical extension to go from there into the space of ESG where more and more big corporations are starting to sign up to sustainability goals. They're starting to sign up to ESG targets of a huge variety of different things.

And a lot of those targets require the compliance of their suppliers. If you are signing up to reducing your carbon emissions maybe a lot of that ties into your logistics or your sourcing or how your suppliers are behaving. And as well as that comes an increasing demand for accountability and transparency. So again if you're a big corporation you're signing up to these targets your consumers, your investors, your regulators, they expect to see that you are proving that you can hit them.

So you are asking your suppliers to do more, to report more, to behave differently, and with that comes a cost. And here's supply chain finance a tool that is designed to benefit the supplier to reduce their costs to improve their financial position. It's a very natural combination and so you see these program's starting to hit the market where supply chain finance can be used to create a financial incentive for the supplier to go along with that sustainability policy to report something to behave differently.

Whereas in another world they might have used that to get the supplier to sign up to their e-invoicing platform for example, or it might have sat alongside a discussion around contract negotiation for payment terms. So to me very natural partnership, supply chain finance is there to benefit the supplier. ESG compliance for many big corporates requires the supplier to do something different. You put the two together and you can actually get something done.

You mentioned carbon emissions and indeed I think the E in ESG is what is out of mind for most people and typically for investors, we can see that now. What about the S and the G is that something that- do you have many examples of incentives and efforts being done in that space. For sure the S and the G

have become significantly more important in the last 12 months. For sure the focus has always been on the E primarily up until now I think that will continue, I don't think that's going to change.

You see increasingly the investor pressure on large companies, you see regulators starting to test their muscle in terms of what they can require from banks and from corporates. And so I definitely think that the E is where a lot of the market has gone. And if you look at, for example, the prevalence of green lending, green loans, green bonds, compared to maybe social linked loans or similar.

You can see the vast proportion that still focused on environmental but in the last 12 months I have seen an increase in interest from big corporates who are very focused on the social aspect. And that's often driven by the nature of their business or the geographies in which they operate. So I've seen cases where, for example I've seen a big corporate based in the US who was interested in supply chain finance type solution that would support specifically small minority owned suppliers in their supply base.

And that raises all kinds of interesting questions about, how do you define a small minority owned supplier? How do you measure that? How do you make it transparent accountable? How do you show your investors what you're doing? But also I've seen examples of sort of ESG linked structures where people have used a governance goal, or a social goal as the trigger for perhaps a variance in price in the trade lending they're talking about.

So for example I've seen one company that was focused on the number of women in senior positions in the command chain. They had signed up to a hard target for how many women they were going to promote and they wanted to tie that to a financial incentive in a trade finance lending. And that comes with some governance concerns of its own from the Lenders perspective because a target like that by definition is going to be self supported by the company.

Whereas a lot of environmental or broader social targets the I think the ideal structure that a lender is looking for is one where the borrowers adherence to those targets is reported by a third party. There's a kind of impartial monitoring and there are lots of Syntax and similar companies popping up who will do environmental or social audits of a company give them a score report on how they're performing.

So when you start to get into the social and governance goals compared to the environmental goals it does open up a bit of a new conversation around, how are you going to measure and report that? But definitely as a topic it's a lot more prevalent with big corporates than it was a year ago.

That's really interesting and it actually that just raises another question, which is what should be the role of the lender in that particular aspect? So the E, S and the G particular which are most subjective but should the lender be involved in auditing if this target are cheap for example.

It's a very interesting question. I think everyone in the space is very nervous about being accused of green wash, if you like on the E least. Being accused of doing these things for PR purposes but not being able to show that they are genuinely providing some kind of social benefit. And so there is definitely-- we as lenders put together the frameworks for these things. There is definitely going to be pressure coming from us I think and on us to demonstrate transparency, accountability, where are the fact that these claims about ESG compliance are coming from?

So I certainly think that from a lender's perspective it's always going to be preferable if we can get third party accountability. If there's an auditor or some kind of impartial party whose reporting will be used in determining the price of the lending. And I've certainly seen that, I think one thing that I've been saying to big corporates that I've been talking to is the vast majority of big corporations have a sustainability report they bring out that they report on their targets every year.

And associated with that an awful lot of companies have already got third party auditors in looking at their environmental performance, looking indeed at their social performance and reporting that back so that that data can be put out to shareholders in the sustainability report. So in my conversations with companies, a lot of them get very nervous about we measure this, how are we going to report it?

And my first suggestion is always go out and see what you already have because you may find that you're already measuring the stuff. You already have a third party company doing work for you and then it becomes quite straightforward from the lender's perspective to tie that into to a trade finance lending. However, to answer your question properly I do think that some targets do not lend themselves to third party audit.

The example I gave just now about governance and female representation at senior levels in a company that's really going to be very difficult for a third party to audit unless they're going to come in and count heads. Fundamentally the company is going to have to report that and companies set their own targets, they are very often specifically defined by the business line of the company. I think from a lender's perspective there's got to be some flexibility to support that.

So it's a difficult area, we're all trying to figure out what the framework is going to be. And one of the challenges we all have is that there are no industry standards yet for what is an ESG compliant trade finance facility. Over and over on the loan side you have the element green loan standards. You have the United Nations sustainable development goals. Over in the EU the taxonomies is coming which is going to be an AU specific definition of environmentally valuable projects.

And all these standards are out there but there is no commonly accepted standard for trade finance. And there are some industry groups working hard on that particularly the ICC, the International Chamber of Commerce. But I think there's probably a little bit of time still to go before we all have a standard that is globally accepted to say that the green loan standards from the LMA.

And in the meantime, it's going to be up to the lenders to come up with frameworks for what they consider acceptable for ESG linked lending. And we're all just going to have to give it our best shot and come up with something that is as transparent and as accountable as we can.

I guess a related question is, given that there are only so many objectives that you can push at once how should corporates to achieve that they should prioritize? Should they have a scorecard with 10, 15 objectives across the ES energy, or just one of them? What's the optimal way to define a strategy?

I mean clearly you can do both. And there are lots of standards out, there are companies like Sustainalitics or similar who will give a company overall score against a variety of measures of ESG. I would say, however, that in my conversations with large corporates the vast majority of them already know which target is their a priority. If you look at maybe the way activist investors are pushing a fossil fuel company you would expect carbon emission in the renewables transition to be number one on their list.

I've talked to two food manufacturing companies for whom the key target from their perspective is driven by consumer pressure and it's about using free range eggs in their food instead of buying eggs or perhaps sustainably produced palm oil. And so I think personally that it's often better to link your financing to one specific target, it helps with the transparency. You can then be crystal clear that you are reporting against one concrete target you can evidence your progress as a company and you can link that directly to the financing cost.

But at the end of the day, if a company has signed up to a scorecard. If that's what their investors that consumers are looking for I don't see why you shouldn't use that. One of the benefits of trade lending is at the end of the day trade finance is just another form of lending any target you can set for a green loan or an ESG linked-loan you can use just as well for trade finance.

And generally where do you think the pressure is coming from, you alluded to it in the case of food companies typically customers asking for it? But if we generate a little bit, where is the pressure coming from to make supply chains more sustainable?

I categorize this into three. I think for definitely consumers are very engaged in this space and particularly I think in Europe, North America you see that, a great deal. So any company that's got a consumer at the end of their supply chain, whether they are retail themselves, or they are FMCG, or they're right back at the-- they're producing the palm oil, for example, they have to pay a lot of attention to that. And the rise of social media also means that bad news travels really fast. So if you seem to have messed up on any area you can be facing a boycott 24 hours later and you need to deal with that very, very rapidly.

So for sure consumers are playing a big, big part in the drivers here. The second one is investors and you see that as I've given us an example of privacy in this conversation the fossil fuel companies, the energy companies. You see activist investors getting more and more involved in certain industries and they are very focused on the E of the ESG as almost always an environmental conversation. and clearly those companies are going to have to respond.

And then finally, the one that I think a lot of companies haven't thought about yet but they should be is the regulators. Because certainly in the EU the EU itself the ECB have started making extensive noises about how they expect to be a big powerhouse and they expect all corporates, whether FI banks or corporations to think about their ESG performance. But also now you have obviously the US re-entering, the Paris Accords, you have China starting to set targets around emissions.

And so regulation is coming both in terms of, what you're doing-- the actual structures of lending. For example that can be accounted for as green or ESG linked but also the reporting that the bank and maybe in future the corporates are going to be required to do in terms of their ESG performance. So between those three I think you'd be a very lucky corporation not to have one of those pressures on you. And probably for many companies it's all 3 and that's where the pressure is going to come from. It's only getting greater and it's very clear that's going to continue for the foreseeable future.

And if I have the time perhaps to squeeze one last question very quickly. What should be the role in lenders and also corporates in helping the supply chain achieve those targets? So not just track them, not just wanted them to see achieve them but practically speaking providing the tools to know the resources perhaps in achieving those targets?

I think that's a really interesting question and that's where you come back from the broadest base of trade finance into supply chain finance in particular. For example in the press we recently did the ESG linked Bridgestone supply chain finance deal which requires suppliers to sign up not only to improving their environmental performance but to sign up to third party reporting through an audit company, Cavadias.

And the feedback from the suppliers has been fascinating because universally I think it has been positive. And some of them have been very enthusiastic about the fact that they really want to improve their ESG performance. They want to become more environmentally friendly. They'd like the idea of signing up to report their performance but it costs money, there's an associated cost to do this.

And I really think that they benefit from the financial incentive. At the end of the day supply chain finance is designed to reduce their cost of doing business. It gives them a direct financial benefit and if they can then spend that on improving sustainability performance and reporting that makes them stronger as a business across all of their customers not just Bridgestone. So I definitely think there's a place for that.

And as big corporations get more actively involved with their supply base which is a trend that's been going on for a long time anyway. There's a really healthy partnership there between a big corporation with a lot of resources who can bring all these tools to play and the smaller companies who would really like to do something but have to deal with the cost.

Glad you've helped. Not to share, that's a great note to finish on. It's all we have time for today unfortunately. So thank you very much for joining us. Thank you all for listening. Stay tuned for the rest of the event.