JPM ESG Master Class Session 1.mp4

[MUSIC PLAYING]

Hello, delegates. And thank you for joining us for this Masterclass Session 1 on ESG for trade. My name is Natasha Condon. I am the global head of Core Trade at J.P. Morgan. My team provide solutions that serve clients for risk mitigation, for liquidity, for working capital, for sales growth, for digital efficiency, and increasingly nowadays the ESG.

So it's my pleasure to have a chance to talk to you for this session today and also to introduce you to the series that we're going to be launching with this one session. So this is going to be a full MasterClass series. This is the first one. It's an introduction. It's designed to give you a sense of what ESG is, why you should care about it, what ESG is likely to mean for trade in the near future, and some of the options you might have as a corporate for putting ESG related solutions in place yourself.

The next one is going to be a bit more around what's out there in the market, what multilateral agencies, for example, are doing, what development institutions are doing, what options are out there for you as a corporate. The following session will be a really interesting case study, a very innovative solution with a major corporate, and they will be coming to talk about that solution.

And in the last session, we will cover technology and data, which is obviously incredibly important to anything relating to ESG, where there is, I think, justifiably in some cases some cynicism in the market around things that are branded as green or socially beneficial. And therefore, it's the data and the technology that will allow us to prove that what we're doing is genuinely bringing a benefit over time. At the end of that last session, we're also going to have a live Q&A.

So if you have any questions that arise for you during any of the four sessions that are coming, please make a note, join us for that one, and bring your questions with you. So with that, let me talk about what we're going to cover in this specific session. So first of all, we're going to talk about ESG, which stands, as I'm sure you know, for environmental, social, and governance.

And another-- it is often also referred to as sustainability, so a little bit of a catchall title for anything that touches any of these three topics. We're going to talk about why you as a corporate should care about those things. Where are the pressures coming from the market for you need to care about them other than the moral imperative, clearly. We're going to talk a bit about how you define green or ESG-linked trade and what that means in practice.

And we're going to talk a bit about the industry environment and where we think regulators are going to go into the space. So with that, let me start with a bit of an introduction. ESG has increasingly become a fixture in global finance. I think the estimate nowadays is that there's more than 40 trillion of assets out there in the market, which are managed in some way with regard to sustainability or ESG.

Now, what is driving that? Other than the moral imperativity again, I think we all acknowledge that one, there are specific pressures coming that apply to corporates from different angles. So one of the major ones is, I'm sure everybody has seen, is coming from consumers. Anybody who's in the consumer value chain, anybody who's in the supply chain by the consumer at one end, clearly cares a lot about consumer pressure.

We've seen cases in the market where, for example, companies have been boycotted because there's been bad news about them in the press-- they've been seen to be performing environmentally unfriendly practices, or treating their employees badly. And so there is a lot of pressure, I think, on the consumer supply chain that's coming directly from the customer base. That's not necessarily true across the market where we see pressure more specifically on other sectors is, for example, coming from investors.

And, again, I'm sure you've seen plenty of stories around activist investors, companies who are coming under pressure from investors to show that they have got a plan to improve their sustainability performance. There's been some noise around that particularly, for example, in the fossil fuel space and for companies whose businesses depend very heavily on fossil fuels. And then last but definitely not least, there's the regulators.

Now, I think the EU is probably the most developed in terms of governmental authorities that we're talking about, what they're going to require in terms of green. The EU, in fact, is developing something called the "taxonomy," which is going to be a legal definition on the environmental side of what counts as green, what activities you can do, which can be defined as improving the environment in a whole variety of different ways, which is going to be very useful to us. Because such a task doesn't otherwise exist, and everybody is coming up with their own definitions.

But the pressure from regulators is in no way limited to Europe. The Chinese government has made some very public noise around targets. They want to set the carbon emissions. The US is just about to go back into the Paris Accords. And so this is the pressure that we think is going to apply, I think, globally over time.

And so once you combine all these different things-- pressure from consumers, pressure from investors, pressure from regulators, it adds up to a very strong sense among locals. Of course, I've talked, too, that it's about time they did something about it. Now, what that actually is going to mean is a whole different question.

So let's talk for a second around green and ESG-linked, which are two different kinds of ESG that can be-- ESG solutions can be applied to financing. What does it really mean when we talk about green trade, for example? So if you look at the global markets, we already have some well accepted products out there. We have green bonds. We have green loans.

And when the LMA came out with their standards for green loans, those are very simple. They're very transparent. They're very-- you read them, and we think how utterly sensible. They are about use of the proceeds. Or is the money that you're lending going to a green purpose? Is it being monitored, is it being transparently reported, are you accountable to show that that money is really going where you said it went to? Incredibly sensible.

And you can to some extent take that and apply it to a trade finance transaction, right? If I lend you some money to build a wind farm, I think we can probably all agree that that's green trade, right? We allowed for a renewable energy project to go ahead because of that financing. But if I issue a performance bond for you to support the building of that wind farm, what do we do then? Because there's no proceeds under that transaction, right?

The whole point in our performance bond, for example, is that there's no claim on the guarantee unless something has gone wrong. It works like an insurance policy. Now, clearly to mind, that's a green transaction where the windfall might not have got built if we didn't issue that bond. But it's not as simple as just taking the loan standards and lifting and dropping them into trade. And especially when you get into the trade finance instruments that are contingent like a guarantee, it gets a bit more complicated.

So here we have a problem that the use of proceeds is a fairly straightforward measure. There's money going out the door. Or there's an instrument being issued that supports a specific purpose that is green, but there's no industry guidelines. There are no rules that are publicly accepted. There's no regulator who have set those rules yet for trade finance to tell us what counts.

And I think there is a certain amount of nervousness amongst the corporate clients out there that obviously nobody wants to in good faith launch a sustainable facility or green facility and then be accused of greenwash. And so one of the other thing that I very much hope is going to happen soon is there's a lot of industry working groups putting together guidelines that will hopefully help to define these products in the future, so that people who are putting together sustainable financing solutions now will know that those will qualify under anyone's definition later.

So green as a use of proceeds solution is pretty straightforward. But if you are not a company that builds wind farms and you still want to contribute to sustainability in your business in your counterparties, in your community, how are you going to do that? And that's why the alternative structure comes in, which is generally known as ESG-linked.

And ESG-linked loans are already a widespread solution in the marketplace. And the way that works is simply the financing solution is designed to create a financial incentive for you to do something that's sustainable. So for example, you might say, I am going to as a company increase the representation of women at senior levels by one third in the next three years. And if I hit that target, you as a lender are going to reduce my pricing by an agreed amount.

And so you are building a financial incentive into your business to improve your sustainability performance. And the whole world can see that you have put your money where your mouth is in the stakes of some actual hard dollars on getting that done. And that can be extended into creating an incentive for almost any kind of sustainable target. I've talked to clients who are looking at, for example, transitioning their supplies from-- I talked to one client who was moving from battery eggs to free range eggs in they food business.

And that was a commitment they had made publicly. And they wanted to consider an ESG-linked solution for that. Many other examples similarly-- you can create an incentive with an ESG-linked structure to do almost anything. And where it gets really interesting in trade is that those incentives don't just have to be for you. There are lots of companies out there where they have a sustainability policy around their core business. But the actual parties who need to help them to hit that are their supplier base or even their customer base.

And you can structure an ESG-linked trade facility to create those incentives not just for you, but for your suppliers, for example. If your supply is on a supply chain financed program and meet certain sustainability criteria, how can you structure your trade financing program to give them a financial incentive to do that? There's also an important point in there around how these incentives are just structured and what we're trying to achieve.

I think the key point I want to make, there is that you don't have to-- there's not an absolute target for achieving sustainability with a particular corporate should aim to get to. Because the risk that happens in the market. And I think the way sometimes the press talks about ESG is that-- is to suggest that there are green corporates and not green corporates. And that there's a group who are not going to be able to hit the sustainability targets.

This is an incremental journey. The idea with ESG-linked is you can create an incentive to improve performance gradually over time, either for you, or your suppliers, or your counterparties. And therefore, everybody, any corporate in the market can use this as their tool to gradually improve their sustainability performance.

One thing I do want to highlight in that regard as well is that where the green lending tends to be very focused on the "E" of ESG, so the environmental aspect. Where ESG-linked really comes into its own is when you get into the "S," the social aspect of ESG. And this is something where we've seen a real increase during 2020.

And you're not going to be surprised by that because clearly, among other things, COVID and pandemic relief drove a lot of companies to think about how can they support their counterparties, their small suppliers, for example, indeed, their communities in the countries in which they operate. We also saw a big drive particularly coming out of the US following the death of George Floyd in some of the social upheaval that followed that.

The companies who really wanted to consider how they could use their trade solutions to support, for example, minority owned businesses that they worked with. Or how they could make sure that funding was getting to disadvantaged companies, for example, who might not otherwise have been at the top of their supply list. How can they promote those companies and do more business with them as a way of contributing more to the communities in which they operate?

And that's where ESG-linked structures get really interesting. The nice thing about them is you can use them for any structure. Any type of financing can in theory be structured as ESG-linked. So any trade structure you can design that way. So where does that leave us from a trade marketplace for an industry perspective?

We're in severe need of guidelines. So at the moment, the early adopters and the clients who are moving forward on sustainability, and this now gone well beyond early adopters, I think, into varying mainstream such as solutions. We are looking at how we can provide solutions to those clients, which are transparent and accountable, how we can use digital solutions to monitor what those targets may be. Because it's incredibly important that they should be-- anything you do that's labeled as sustainable, must be transparent and accountable obviously, right?

You cannot expect your consumers, your investors, or your regulators to give you the credit for the good hard work unless you can prove to them the benefits of what you've done. And there's fascinating new tools available. And there's how you can-- how you can monitor these solutions. You have-- I've seen solutions where eco-auditors have gone into-- to look at farmers in fields.

I've seen cases where companies have put cameras into their suppliers factories to make sure that when those suppliers commit that they're not using child labor, they can actually monitor 24/7 whether there are children on the floor of the factory. I've seen drones sent out over the fields. I've seen all kinds of interesting technology solutions being brought to that.

And what that really allows for is much more accurate monitoring much more data that can be used to prove the benefit of what's being done on the sustainability front, which is really good. What I think is missing now is-- the EU taxonomy will come out. We anticipate that there will be much more done by regulators over the next few years to kind of structure and define what green and ESG-linked trade is going to be.

And I'm very much looking forward to that because one of the things we saw with green loans is that when the guidelines came out, when an acceptable industry definition was set, that was when that market really took off like a rocket. And so I anticipate that there will be a big, big expansion in green trade when that happens. But in the meantime, there's plenty going on.

There's a lot of different structures that can be designed. And I think in one of the latest sessions, we're going to talk about a really nice example of that, and you will see how a structure can be designed to be incredibly transparent, and accountable, and rigorous despite the fact that it's working to what sounds initially like a relatively soft ESG-linked target.

So in summary, what I hope you have learned from this brief introductory session is-- what is ESG, why should you care about it, and why should you care more about it over the next few years, what are the types of ESG-linked and green solutions that are out there in the market, and how do they apply to trade? And really I hope it's given you a bit of inspiration around how you could use trade finance solutions to drive sustainability goals within your own business, whatever they may be. So with that, thank you so much for joining us, and I hope you will join us for the next session.

[MUSIC PLAYING] 

JPM ESG Master Class Session 1.mp4

[MUSIC PLAYING]

Hello, delegates. And thank you for joining us for this Masterclass Session 1 on ESG for trade. My name is Natasha Condon. I am the global head of Core Trade at J.P. Morgan. My team provide solutions that serve clients for risk mitigation, for liquidity, for working capital, for sales growth, for digital efficiency, and increasingly nowadays the ESG.

So it's my pleasure to have a chance to talk to you for this session today and also to introduce you to the series that we're going to be launching with this one session. So this is going to be a full MasterClass series. This is the first one. It's an introduction. It's designed to give you a sense of what ESG is, why you should care about it, what ESG is likely to mean for trade in the near future, and some of the options you might have as a corporate for putting ESG related solutions in place yourself.

The next one is going to be a bit more around what's out there in the market, what multilateral agencies, for example, are doing, what development institutions are doing, what options are out there for you as a corporate. The following session will be a really interesting case study, a very innovative solution with a major corporate, and they will be coming to talk about that solution.

And in the last session, we will cover technology and data, which is obviously incredibly important to anything relating to ESG, where there is, I think, justifiably in some cases some cynicism in the market around things that are branded as green or socially beneficial. And therefore, it's the data and the technology that will allow us to prove that what we're doing is genuinely bringing a benefit over time. At the end of that last session, we're also going to have a live Q&A.

So if you have any questions that arise for you during any of the four sessions that are coming, please make a note, join us for that one, and bring your questions with you. So with that, let me talk about what we're going to cover in this specific session. So first of all, we're going to talk about ESG, which stands, as I'm sure you know, for environmental, social, and governance.

And another-- it is often also referred to as sustainability, so a little bit of a catchall title for anything that touches any of these three topics. We're going to talk about why you as a corporate should care about those things. Where are the pressures coming from the market for you need to care about them other than the moral imperative, clearly. We're going to talk a bit about how you define green or ESG-linked trade and what that means in practice.

And we're going to talk a bit about the industry environment and where we think regulators are going to go into the space. So with that, let me start with a bit of an introduction. ESG has increasingly become a fixture in global finance. I think the estimate nowadays is that there's more than 40 trillion of assets out there in the market, which are managed in some way with regard to sustainability or ESG.

Now, what is driving that? Other than the moral imperativity again, I think we all acknowledge that one, there are specific pressures coming that apply to corporates from different angles. So one of the major ones is, I'm sure everybody has seen, is coming from consumers. Anybody who's in the consumer value chain, anybody who's in the supply chain by the consumer at one end, clearly cares a lot about consumer pressure.

We've seen cases in the market where, for example, companies have been boycotted because there's been bad news about them in the press-- they've been seen to be performing environmentally unfriendly practices, or treating their employees badly. And so there is a lot of pressure, I think, on the consumer supply chain that's coming directly from the customer base. That's not necessarily true across the market where we see pressure more specifically on other sectors is, for example, coming from investors.

And, again, I'm sure you've seen plenty of stories around activist investors, companies who are coming under pressure from investors to show that they have got a plan to improve their sustainability performance. There's been some noise around that particularly, for example, in the fossil fuel space and for companies whose businesses depend very heavily on fossil fuels. And then last but definitely not least, there's the regulators.

Now, I think the EU is probably the most developed in terms of governmental authorities that we're talking about, what they're going to require in terms of green. The EU, in fact, is developing something called the "taxonomy," which is going to be a legal definition on the environmental side of what counts as green, what activities you can do, which can be defined as improving the environment in a whole variety of different ways, which is going to be very useful to us. Because such a task doesn't otherwise exist, and everybody is coming up with their own definitions.

But the pressure from regulators is in no way limited to Europe. The Chinese government has made some very public noise around targets. They want to set the carbon emissions. The US is just about to go back into the Paris Accords. And so this is the pressure that we think is going to apply, I think, globally over time.

And so once you combine all these different things-- pressure from consumers, pressure from investors, pressure from regulators, it adds up to a very strong sense among locals. Of course, I've talked, too, that it's about time they did something about it. Now, what that actually is going to mean is a whole different question.

So let's talk for a second around green and ESG-linked, which are two different kinds of ESG that can be-- ESG solutions can be applied to financing. What does it really mean when we talk about green trade, for example? So if you look at the global markets, we already have some well accepted products out there. We have green bonds. We have green loans.

And when the LMA came out with their standards for green loans, those are very simple. They're very transparent. They're very-- you read them, and we think how utterly sensible. They are about use of the proceeds. Or is the money that you're lending going to a green purpose? Is it being monitored, is it being transparently reported, are you accountable to show that that money is really going where you said it went to? Incredibly sensible.

And you can to some extent take that and apply it to a trade finance transaction, right? If I lend you some money to build a wind farm, I think we can probably all agree that that's green trade, right? We allowed for a renewable energy project to go ahead because of that financing. But if I issue a performance bond for you to support the building of that wind farm, what do we do then? Because there's no proceeds under that transaction, right?

The whole point in our performance bond, for example, is that there's no claim on the guarantee unless something has gone wrong. It works like an insurance policy. Now, clearly to mind, that's a green transaction where the windfall might not have got built if we didn't issue that bond. But it's not as simple as just taking the loan standards and lifting and dropping them into trade. And especially when you get into the trade finance instruments that are contingent like a guarantee, it gets a bit more complicated.

So here we have a problem that the use of proceeds is a fairly straightforward measure. There's money going out the door. Or there's an instrument being issued that supports a specific purpose that is green, but there's no industry guidelines. There are no rules that are publicly accepted. There's no regulator who have set those rules yet for trade finance to tell us what counts.

And I think there is a certain amount of nervousness amongst the corporate clients out there that obviously nobody wants to in good faith launch a sustainable facility or green facility and then be accused of greenwash. And so one of the other thing that I very much hope is going to happen soon is there's a lot of industry working groups putting together guidelines that will hopefully help to define these products in the future, so that people who are putting together sustainable financing solutions now will know that those will qualify under anyone's definition later.

So green as a use of proceeds solution is pretty straightforward. But if you are not a company that builds wind farms and you still want to contribute to sustainability in your business in your counterparties, in your community, how are you going to do that? And that's why the alternative structure comes in, which is generally known as ESG-linked.

And ESG-linked loans are already a widespread solution in the marketplace. And the way that works is simply the financing solution is designed to create a financial incentive for you to do something that's sustainable. So for example, you might say, I am going to as a company increase the representation of women at senior levels by one third in the next three years. And if I hit that target, you as a lender are going to reduce my pricing by an agreed amount.

And so you are building a financial incentive into your business to improve your sustainability performance. And the whole world can see that you have put your money where your mouth is in the stakes of some actual hard dollars on getting that done. And that can be extended into creating an incentive for almost any kind of sustainable target. I've talked to clients who are looking at, for example, transitioning their supplies from-- I talked to one client who was moving from battery eggs to free range eggs in they food business.

And that was a commitment they had made publicly. And they wanted to consider an ESG-linked solution for that. Many other examples similarly-- you can create an incentive with an ESG-linked structure to do almost anything. And where it gets really interesting in trade is that those incentives don't just have to be for you. There are lots of companies out there where they have a sustainability policy around their core business. But the actual parties who need to help them to hit that are their supplier base or even their customer base.

And you can structure an ESG-linked trade facility to create those incentives not just for you, but for your suppliers, for example. If your supply is on a supply chain financed program and meet certain sustainability criteria, how can you structure your trade financing program to give them a financial incentive to do that? There's also an important point in there around how these incentives are just structured and what we're trying to achieve.

I think the key point I want to make, there is that you don't have to-- there's not an absolute target for achieving sustainability with a particular corporate should aim to get to. Because the risk that happens in the market. And I think the way sometimes the press talks about ESG is that-- is to suggest that there are green corporates and not green corporates. And that there's a group who are not going to be able to hit the sustainability targets.

This is an incremental journey. The idea with ESG-linked is you can create an incentive to improve performance gradually over time, either for you, or your suppliers, or your counterparties. And therefore, everybody, any corporate in the market can use this as their tool to gradually improve their sustainability performance.

One thing I do want to highlight in that regard as well is that where the green lending tends to be very focused on the "E" of ESG, so the environmental aspect. Where ESG-linked really comes into its own is when you get into the "S," the social aspect of ESG. And this is something where we've seen a real increase during 2020.

And you're not going to be surprised by that because clearly, among other things, COVID and pandemic relief drove a lot of companies to think about how can they support their counterparties, their small suppliers, for example, indeed, their communities in the countries in which they operate. We also saw a big drive particularly coming out of the US following the death of George Floyd in some of the social upheaval that followed that.

The companies who really wanted to consider how they could use their trade solutions to support, for example, minority owned businesses that they worked with. Or how they could make sure that funding was getting to disadvantaged companies, for example, who might not otherwise have been at the top of their supply list. How can they promote those companies and do more business with them as a way of contributing more to the communities in which they operate?

And that's where ESG-linked structures get really interesting. The nice thing about them is you can use them for any structure. Any type of financing can in theory be structured as ESG-linked. So any trade structure you can design that way. So where does that leave us from a trade marketplace for an industry perspective?

We're in severe need of guidelines. So at the moment, the early adopters and the clients who are moving forward on sustainability, and this now gone well beyond early adopters, I think, into varying mainstream such as solutions. We are looking at how we can provide solutions to those clients, which are transparent and accountable, how we can use digital solutions to monitor what those targets may be. Because it's incredibly important that they should be-- anything you do that's labeled as sustainable, must be transparent and accountable obviously, right?

You cannot expect your consumers, your investors, or your regulators to give you the credit for the good hard work unless you can prove to them the benefits of what you've done. And there's fascinating new tools available. And there's how you can-- how you can monitor these solutions. You have-- I've seen solutions where eco-auditors have gone into-- to look at farmers in fields.

I've seen cases where companies have put cameras into their suppliers factories to make sure that when those suppliers commit that they're not using child labor, they can actually monitor 24/7 whether there are children on the floor of the factory. I've seen drones sent out over the fields. I've seen all kinds of interesting technology solutions being brought to that.

And what that really allows for is much more accurate monitoring much more data that can be used to prove the benefit of what's being done on the sustainability front, which is really good. What I think is missing now is-- the EU taxonomy will come out. We anticipate that there will be much more done by regulators over the next few years to kind of structure and define what green and ESG-linked trade is going to be.

And I'm very much looking forward to that because one of the things we saw with green loans is that when the guidelines came out, when an acceptable industry definition was set, that was when that market really took off like a rocket. And so I anticipate that there will be a big, big expansion in green trade when that happens. But in the meantime, there's plenty going on.

There's a lot of different structures that can be designed. And I think in one of the latest sessions, we're going to talk about a really nice example of that, and you will see how a structure can be designed to be incredibly transparent, and accountable, and rigorous despite the fact that it's working to what sounds initially like a relatively soft ESG-linked target.

So in summary, what I hope you have learned from this brief introductory session is-- what is ESG, why should you care about it, and why should you care more about it over the next few years, what are the types of ESG-linked and green solutions that are out there in the market, and how do they apply to trade? And really I hope it's given you a bit of inspiration around how you could use trade finance solutions to drive sustainability goals within your own business, whatever they may be. So with that, thank you so much for joining us, and I hope you will join us for the next session.

[MUSIC PLAYING]

JPM ESG Master Class Session 3.mp4

Welcome to this third session of ESG Masterclass at JP Morgan. I am David Perron, head of trade for France, Italy, Belgium, and Luxembourg. And I'm glad to introduce you to Julle Pedersen at Bridgestone for an example of the first-ever bespoke supply chain [INAUDIBLE] installation that integrates an [? ENG. ?]

So I'm Julle Pedersen. I'm the treasurer for Europe, Middle East, India, and Africa for Bridgestone Corporation. Bridgestone Corporation is one of the largest tire manufacturers in the world, about US dollar $32 billion of net sales on an annual basis, operating in 150 countries and over 140,000 employees. We are now moving to become also a mobility solutions provider and moving just from the standard or traditional tire manufacturing business.

About myself. So I'm a treasurer, as I mentioned, over 20 years of experience within the discipline with the multiple roles from risk management to cash management to funding and now, most [? reasonably, ?] working on the trade finance side of things. And last year we run an RFP on the sustainable supply chain finance program. And in that context, I'm now here to share with you a bit about the findings and our journey regarding this.

Yeah, so I will start with the why because sustainability is pretty much on focus on everything that we do and pretty much fundamental to our company. And it's been since-- sold since our founding member of Soichiro Ishibashi said that company to be successful in the long haul, it really needs to provide towards the society. And in this context, then, when we run the RFP or when we are looking at the supply chain financing program, we really put the sustainability in the front and center of the RFP.

And we wanted to just move beyond just the standard KPIs of the supply chain financing, which is [? naturally ?] to liberate the [? gas ?] towards the supply chain, which is in itself already, of course, allows the companies to invest into new targets, which hopefully will be also enhancing towards sustainability.

But we wanted to basically come with something that improves the transparency, because the transparency is the-- it basically brings all of the possible challenges into the surface. And in that context, we can then work together in terms of solving those challenges. And what we want you to have is that the program would have a clear incentive into it so that the suppliers would benefit in terms of-- as they work towards more sustainability.

In terms of the actual design of what we were requesting, one of the key elements for us was the third-party rating point. There were actually a couple of programs done before Bridgestone, which were utilizing company internal KPIs rather than third-party KPIs. And we really wanted to take the subjectivity out of the equation. And we actually have in our global sustainable procurement policy that our suppliers have to have a [INAUDIBLE] rating so it was a good fit for us to have [INAUDIBLE] brought into this discussion.

And what we wanted to have is that, that rating should not be there just for the sake of rating but actually like, you know, would the suppliers be able to advance with their ratings, they would also get true financial benefit out of that so that there should be a clear pricing matrix transparent towards the suppliers that would, let's say, incentivize them to improve.

Yeah, so for us, I mean, actually, sustainability's everywhere. So earlier this year, we actually announced the sustainable revolver in America. But for us here in EMIA, why we chose to work on the sustainable supply chain finance program, particularly, was really about-- it is really a natural way in terms of improving the sustainability. Because we need to work together in terms of the challenges that we are facing because we cannot solve them alone. And in that context, basically, providing an incentive, providing more transparency towards the challenges that the suppliers are facing, and then working together on those challenges, we found that that's really the sweet spot of the ESG, if you will.

Yeah, so, indeed, we looked at the multiple KPIs, even beyond the sustainability, as you can well imagine. So, ERP connectivity, we are running ASAP. So that was really important for us to really have something that is seamlessly integrated into our ERP. The speed of implementation, let's say, the trustworthiness of the consolidating partner is really important because of the program like this where you have multiple banks as being the financiers on the backend. And on the other hand, you have, let's say, the technology provider through the [? Taulia, ?] like it is in our case. And then bringing also the [? ecobodies ?] in from the sustainability side, the consolidation partner was a really important factor for us.

And we selected to go with JP Morgan on that point. Transparent pricing-- actually associated with my previous comment with the multiple parties involved, of course, we want to make sure that it will be a true win-win-win win proposition so that all the parties are getting the fair share. And actually the solution will be sustainable in the long run.

And one final thing I think was important is the easy onboarding process because at the end of the day, we really want to extend this sustainability message and the solution, not only to the biggest players in our direct material suppliers, but also towards the middle [? tier ?] and the smaller suppliers. I mean, that context, easy onboarding process was really important for us. And that's one of the reasons, also, why we also brought the fintech beyond just the normal banking structure.

Yeah, so this is actually a part that is mainly handled by the bank. So for us it's more of a really kind of giving the guidelines towards the bank how we want it to be played. So we are not requiring the rating to absolutely be available at the beginning because, of course, we might be having a new supplier and we want to already extend and partner with them.

But what we expect to have is that they need to get the rating within the reasonable time. And if they did not have that, then we would be, of course, reassessing whether they still can be in the program because the program is really a privilege. And all of the terms and conditions that we have designed are around the fact that this is provided on the privileged basis and working together in a, let's say, collaborative mode.

And beyond that, I would say that the bank has established a connectivity with the [? ecobody ?] so that the ratings will get to be automatically refreshed so that the suppliers would improve their ratings. They would get the benefits, automatically go forward on those rating improvements.

I think that, first of all, I strongly believe it is worth to do. And we have got a really positive response from the suppliers as well as our procurement team. It is really kind of a good talking point and something to present towards your suppliers. And they are really kind of engaging, so it does improve the engagement with the supply chain.

I think that you should be making it a prerequisite to play, rather than just nice to have because it's already there. We have paved the way so banks now know how to deliver it. And the final word that I would have is that just join the movement.

Thank you, Julle. That was very insightful. We heard you talking about [INAUDIBLE]. They will actually join us for the fourth and final session of this ESG Masterclass at JP Morgan, for which you get to sign up from today. 

JPM ESG Master Class Session 4

Welcome back to the fourth and final session of our JP Morgan ESG Master Class series. I hope you've enjoyed the prior three sessions. I hope you have been inspired to think about how you can use trade finance tools to help you hit your ESG goals, whatever they may be.

In this session, we're going to be joined by Sean Barr who is vice president of sales in the Americas at EcoVadis, and Vincent Beerman, senior director of product platform UX and data at Taulia. Together they will talk to you about some of the tools that are available to monitor and audit sustainability efforts, which if you've been paying attention you will know, is a key plank of any successful ESG program. I'll join you again at the end of this session for a live Q&A. We'll answer any questions that may come up for you during this session or may have come up during any of the previous sessions. I hope you enjoy it. See you then.

Hi, there. We're excited to be part of this fourth and final session of the JP Morgan Master Class on Environmental, Social, and Governance. My name is Vincent. I'm the senior director of product for Taulia. We at Taulia are a fintech provider of working capital management solutions. Our alliance with JP Morgan helps companies of all sizes access the value tied up in their supply chain.

Taulia's vision is to create a world where every business thrives by enabling buyers and suppliers to choose when to pay and when to get paid. We believe thriving is not limited to financial performance but should include alignment with your suppliers and customers to improve social capital and stakeholder value through ESG initiatives.

My name is Sean Barr, head of sales in the Americas for EcoVadis. Here at EcoVadis, we envision a global marketplace where ESG intelligence influences every business decision, improving economies, peoples' lives, and the planet we all depend on.

In our effort to live up to that vision, we rate the ESG performance of nearly 80,000 companies in 200 countries, and we work with banks, technology providers, investors, and purchasing departments of the largest organizations in the world to integrate this ESG intelligence into their investment, finance, purchasing, and risk management sustainability programs.

In today's discussion, we'll be going through the challenges, some of the challenges that treasurers face today in terms of monitoring and auditing the sustainability efforts. Tools of the trade-- processes to help monitor and audit the ESG programs, and what are the tangible benefits and how is success ultimately achieved.

Proof of concept-- we'll look at a real-world example of an ESG trade finance platform and how it's being used to support ESG initiatives. And then finally talk about getting started, what are the first steps that the companies can take in order to get moving?

Thinking about challenges, what are some of the challenges do you see treasurers facing today in terms of monitoring and auditing their sustainability efforts?

Treasurers have a hard enough time just getting valid up-to-date information about a supplier's commercial terms out of their increasingly complex ERP landscapes, never mind that company's status as a minority-owned business or their recent improvements relative to environmental, social, or other ESG criteria.

While treasury has levers to incentivize, protect, or reward those businesses through preferential payment practices and access to cheaper liquidity, getting the data to understand which suppliers should have access to these incentives is challenging to say the least.

Yeah, yeah, I couldn't agree more. And I would say, against the backdrop of these challenges, we see just unprecedented pressure on corporations to act for the betterment of society. And this is coming from all directions, coming from investors, coming from consumers, coming from employees, coming from society at large.

A few statistics just to think about on this-- first off, from an investor perspective, more than $30 trillion, over a quarter of the world's entire assets under management, are now considered ESG investments. Second, 55% of the growth in consumer goods market today stems from sustainability market products while those products only make up 16% of the market in total.

Third, millennials today are making up nearly 3/4 of today's workforce, and 64% of them simply will not take a job at a company that does not have strong ESG practices. And then finally, up to 90% of a company's ESG impact actually lies in supply chain. So rightfully, companies are paying attention to these issues. The question becomes, what role can treasurers play in helping their company solve these strategic board-level issues?

When we think about specifically on the supplier monitoring and auditing efforts, the challenges are large. As Vince stated, there's a need to access suppliers and supplier data and the relationship with the suppliers owned by the procurement department. Second, the amount of data that can be considered ESG is absolutely enormous, evolving continuously daily. Third, the logistics of coordinating the collection of this required information from a global supply base is absolutely daunting.

And then finally, analyzing only what is important and material from an ESG perspective for very diverse suppliers, diverse from a category perspective, diverse from a geography perspective, diverse from a size perspective, it's a massive undertaking to try to figure that out.

If that's not enough, then we need to do this in a manner of course that is not overburdening procurement and the buying organization, or more importantly, the suppliers who are facing daily questionnaires, audit requests, and ongoing data requests on a variety of other topics as well.

Sean, what are some of the processes to help monitor and audit these ESG programs?

Typically, what we see is that there's a defined set of outcomes and goals that starts first, and then the processes are built around those. So it's important to have agreement from a high level on those outcomes and goals, and then the process will start to feed around that.

So when ESG is incorporated, for instance, into a trade finance program, the process need to allow for verified data, scalability, a fair and equitable way to quantify the results, and then ultimately an auditable system to back all of the stuff. And the processes, then, to achieve this will include engaging with suppliers, data collection, data verification, data conversion into actionable information and then finally, integration back into the trade finance program.

Today, we help at EcoVadis more than 500 corporate purchasing organizations integrate this ESG information into the procurement process. Those processes include RPs, supplier onboarding, risk management, and general supply and relationship management.

Now each of these processes presents the opportunity to incentivize suppliers to enhance their ESG performance, but arguably, none of them provide a strong direct incentive as supply chain finance. So it's important to note that the fundamental data and ratings used in each of these other processes from a procurement perspective is the same, and once it's obtained and cataloged into a system, it can be easily ported into other processes, other systems, other technology platforms.

For example, if a company has an existing supply chain sustainability program with us, with EcoVadis, that exact same data can easily be integrated into Taulia's platform for trade finance applications. And can you talk a bit about what are the tangible benefits that your clients are seeing and how is success ultimately being achieved?

I mean, aligning with suppliers on shared ESG values is hard. Large companies have thousands of suppliers, and while most have an ESG program of some kind, the struggle is to create levers that drive real change. So often a published manifesto or supplier policy statement is as far as many companies go unfortunately. But for your suppliers, changing their business process to meet those ESG values is hard. Reducing environmental impacts is expensive. Tackling social justice is complex. And none of this comes cheaply.

So this is where trade finance provides real world levers to incentivize real world action on ESG goals. Providing preferential access to cheaper liquidity can give these suppliers the working capital they need to tackle the challenging problems. I mean, changing the world takes teamwork. It also takes money. So helping suppliers get paid faster helps fund the change we want to see.

Can you share a real life example maybe of how this is actually working in practice?

As you may have heard in session 3 of this JP Morgan Master Class series on ESG, JP Morgan, EcoVadis, and Taulia helped Bridgestone launch their ESG-centered supply chain finance program with these exact aims in mind. So deploying technology, data, people, and capital is allowing companies like Bridgestone to offer lower rates on early payments to suppliers who are leaders in environmental stewardship and also to those who show relative improvements year over year, thus both rewarding the best and incentivizing improvement by the rest.

As our audience is thinking about how to get started, what are some of the first steps you recommend companies need to take? Realizing each company is different, how long should they expect it to take to get a program sort of up and running?

As any economist would say, it depends. It varies. But I'd say it's kind of a good rule of thumb-- bring solution partners into the discussion early. Even if you're not ready to launch a program yet, companies like JP Morgan, Taulia, EcoVadis, we have deep experience in understanding the challenges and benefits, for instance, of aligning treasury, procurement, sustainability around programs like this.

In terms of timing, again, it depends on where you're starting from. So for companies that have an existing sustainable procurement program and an existing supply chain finance program, the integration of these two can be carried out quickly. For those starting from scratch on one front or both fronts, I'd say rule of thumb, you could probably expect a minimum of six months until those first ESG-linked transactions are carried out. But Vince, I'd like to flip that same question back to you and hear your perspective on it.

Yeah, I mean, I think you called it out well when you said that 90% of a company's ESG impact comes from their supply chain. And companies can achieve their ESG goals in large part by improving relationships with suppliers who are aligned with their values.

I mean, many enterprises have already established and maybe published their ESG goals, and they've asked suppliers to voluntarily sign up or align with them. For those that haven't yet, first getting clarity on the areas of focus is a great first step. ESG encompasses so many disciplines that without that focus, your company risks never advancing kind of beyond the manifesto stage.

So once you've aligned on the KPIs that you want to measure, you need to determine how to make sure those suppliers' alignment with these goals, which is hard, frankly. Methodologies for measuring your suppliers will vary, but working with a company like EcoVadis who works across industries and around the world to develop best in class practices to benchmark companies of all types and sizes is a great way to get started.

Developing this methodology oftentimes can take quarters or even years to come up with what you want to measure and how. And then, to keep it consistent year over year is challenging. And that's where EcoVadis' established methodology really helps. Then you'll want to select a trade finance partner who has both the technology rails and the philosophical commitment to help you design a program of incentives to create maximum alignment across your entire supply chain.

So the last thing is this isn't a one-time activity. You'll need to stay aligned in your organization across treasury, AP procurement, supply chain, sales, and even partners to ensure that your supply chain thrives and that you can maximize the positive impacts from your program. Sean, any closing remarks before we sign off?

I will just reiterate the last thing you said. This isn't a one-time activity. We call our programs forever programs. So we welcome everybody to reach out to us and look forward to helping drive impact with your ESG initiatives.

Absolutely. It's great to be here with you, Sean. And thank you to JP Morgan, EcoVadis, and Taulia for putting on this event.

Welcome back, everyone. So I hope you enjoyed that. I thought that was awesome and a big thank you to Vince and to Sean for sharing their views on it. This actually concludes sort of-- this is the last of the JP Morgan ESG Master Classes that we've done in partnership with treasury today.

We're going to conclude with a Q&A session. You are welcome to ask any questions that have come up for you during these sessions. So the way we're going to do this is through the chat function in Zoom. If you are on the line right now, if you pull up the chat box, please send to me any questions that may have come to your mind either during this session or any of the previous ones.

Nobody can see the questions you're asking except me. So you are welcome to ask the most basic, the most complicated. If you've got a question that you are embarrassed to ask because it seems like nobody ever explains it and it's something that's really obvious, please do ask it now. I promise I will not call out your name when I cover it.

So for the next half hour or so I'm going to try to cover some of these questions. I also have a list which were submitted by some of you when you registered for this event, and there were actually some really excellent questions in there. So I will also do my best to cover those. So I say please do use the chat box in Zoom to send me your questions. And while we're collecting the first few, I'm just going to take one of the ones that came in from the registration questions and talk to these.

So first question we had from registration was, ESG financing options and how do they fit in corporate strategies with a question mark, which is a very large topic, but I thought it might be helpful to take this one first just to treat this like a little recap for a second of some of the topics you may remember me covering if you did attend the first session and have definitely come up in the ones since then.

So ESG financing options specifically fundamentally fall into two categories. They fall into what's known as the use of proceeds approach or the ESG-linked or sustainability-linked approach. And use of proceeds is fundamentally about what the money is being used for.

So if you are financing the building of a wind farm, if you are exporting solar panels to a country where it's going to be a massive part of their power generation in the future, if you are lending money to support small businesses that have been badly affected by the pandemic or similar, that I think we can probably all agree is a use of proceeds approach. But two Es and one S there for me, two environmental benefit transactions and one social benefit transaction.

And the use of proceeds approach is pretty well established. You see it in the market in the form of green loans. You see it in the form of green bonds. The LMA has standards for green loans, which you can kind of try to move over to trade finance as well, though. I'm talking very generally at this moment. So they also apply to any other form of use of proceeds lending.

And in fact, just a couple of weeks ago, the LMA brought out social principles which attempts to apply the same standards to the S of ESG-- so to try to set up some standards for social lending, which I think in some ways is very difficult to define what the use of funds for social purposes, for social benefit should be. And unsurprisingly, the guidelines they've come up with are quite general.

So there's still perhaps a bit of work for us to do as an industry to figure out how we define a socially valuable use of funds. But nonetheless, it's a start, and we should all be grateful for that. So use of proceeds is the first way to think about ESG financing.

But in some ways, I think a lot of people feel that's a little limiting in the sense that if you are a company that builds wind farms, that's great, but if you are not a company that builds wind farms, then it may not seem quite as obvious to you how use of proceeds approach can work.

For what it's worth, I do think that there are use of proceeds approaches that any company can use. For example, a while ago, I worked with a company that had a big supply chain finance program which they ran for the benefit of many thousands of suppliers. And they had a particular group of suppliers who were small farmers in a particular emerging market that they really wanted to provide additional support for, really motivated by social reasons rather than business reasons.

And so what we looked at was offering, effectively, a [INAUDIBLE] of their supply chain finance program that could be offered on favorable terms to that group of suppliers purely for their benefit, no kind of commercial quid pro quo. And that to me, is pretty close to a use of proceeds approach that the LMA social loan principles would recognize. But in any case, it requires some work to think about your business and what the money is being used for to find that kind of purpose.

So the other ESG financing option, the other way to think about it, is the ESG-linked or sustainability-linked approach. And so this is where you take your own targets-- this is what, for example, Vincent and Sean were talking about just a second ago. This is where you take your own targets, whatever they may be for your specific corporation, and you design a financing that includes an incentive for you to hit that target.

So for example, I worked with a company once that did ESG-linked lending that was connected to an internal target for the representation of women at senior management levels. And that was a statistic that they had declared to the street that they were going to hit.

They reported it publicly every year. And they said they wanted to demonstrate the kind of commitment by building in a price incentive. So the lending that they took was priced X, and then if they hit that target, they would get a little benefit. It would be X minus 5 bips or whatever it was the following year. And it was an ongoing target so they would keep changing the targets as we're going forward.

So here are your two approaches, use of proceeds, what is the money being used for, ESG-linked finance where you build an incentive into some piece of financing, the money may be used for any purpose, but you are incentivizing your business in a transparent and public way to hit the sustainability target that you define. And that, to me, is the right way to think about ESG financing options overall.

And then the second half of that question was, and how do they fit in corporate strategies? Now, like Sean, I'm trying to avoid saying it depends as the answer to any of these questions. But the bit that he and Vince did point out that I thought was exactly the right way to think about it is first the goal, then the process.

So before you start this whole conversation for your specific corporation, you need to decide what your goals are. And later, we'll talk about how they can be measured. And so I think the vast majority of large multinational companies now produce a sustainability report.

They include specific targets. Those are reported on every year. In many cases, there are already certifications from third-party companies or similar built into that. And that, to me, has always been a good place to start. Just go back to basics. Look at the targets your company has signed up for.

I think-- and actually, I wanted to hit this separately, but the following question that I got from the registrations was, how do treasury organizations assist in a company's overall ESG program? And that depends a little bit on where the targets have got to inside your organization.

A few years back, sustainability reports and sustainability targets were getting very rapidly more popular, but those targets were very much held at the C-level, the C-suite. The CEO would have them, maybe the CFO. And I would be talking to a corporate treasurer, and they would be aware of the sustainability targets, but their own personal goals would not-- the sustainability targets would not be in there.

I think that is changing. It's changing both because ESG goals are filtering down everywhere within a company, but it's also changing because we've all seen over the last 5 or 10 years that the role of the treasurer has expanded in a variety of different ways, but in particular, treasurers often get much more involved in things like procurement and things like sales than they did a few years ago.

Obviously, at the same time, they're meant to be digitizing, and the headcounts getting cut, and the smaller team is expected to do more, which is always a challenge. But for sure, for the average corporate treasurer, I think this is much more close to their specific responsibilities now than it was five years ago. I do think we still have a bit of a way to go.

So if you're a corporate treasurer listening to this and you have sustainability goals already in your personal targets, that's great, and clearly that's a good place to start. If you don't, then looking at your corporation's overall targets is obviously a good place to start.

And every company's goals are different. They are driven by different pressures, whether just the ethics of the company, the ethics of your consumers if you're in a consumer supply chain, your investors, your regulators in some cases, your governments.

And every company's got to figure out what their own targets. And a lot of the time, putting that target down in black and white on a piece of paper and defining exactly what it is that you're heading towards will take you 50% of the way towards the structure that's the logical one for you to help your company get there.

So the other thing I did want to mention kind of on that point is that as treasurers get more involved in procurement, they're getting more involved in choosing the suppliers they want to work with as a company. And certainly from a bank perspective, I have seen this increasingly.

We think it's pretty normal now that when we respond to an RFP, we get asked to prove our ESG credentials. Are you the kind of supplier that this client might want to work with? And I do think that is a best practice. And I think very many large companies have adopted it.

But if you haven't, then that is definitely something as a treasurer that you can personally do to improve the ESG performance of your company. It's not the end of the discussion because of course, and again, this came up in the video just now, but the ESG is not a point in time. You could be the highest performer in your industry today, and in two years time, you'll have been left completely behind because it's a journey.

And so when you set those targets and when you look at the counterparties you're dealing with, if I had any advice from an industry perspective, it's that you should be looking at both the credentials of your suppliers, but also, where they are going, what their targets are going to be, not just today, but in a couple of years time. Where is their commitment to keep up with you on your sustainability journey?

So that's really my attempt to answer the kind of what are your options, what can the treasurer do in the treasury organization. Now, I've got a bunch of questions which have come in on the chat so forgive me while I have a quick look to see what some of these are.

So here's one, at what pace are organizations integrating various ESG approaches into their business? Do they incur extra costs for bringing out this change? Yes is the short answer to that. There is no getting around that. At the moment, ESG compliance is a cost. It's a cost for everyone.

It's a cost for you as a treasurer, for example, on the procurement side if that's how you're thinking about it in terms of reforming your processes to help select suppliers the way you want them. It takes extra work for you to set up these structures in your financing-- not masses of extra work so I don't think that's a huge resource drag, but it's there. It requires some effort.

The guys talked just now about the fact that for your suppliers, if your targets require them to comply, they have this cost that they will incur as a result. And from the bank's perspective, I think it's worth noting that there's no magical break built into the capital regulations or anything else that makes it cheaper for us to do ESG-based lending.

Fundamentally, if we are building that price incentive into a program, if we're cutting the price of a program to support ESG-related goals, we're taking the hit for that. Though it's worth mentioning that I think we all believe that at some point in the next few years, some governments may move towards actively giving capital breaks or making the regulatory environment more friendly to green lending or ESG-compliant lending compared to other forms of lending. And that will be very good both for banks and corporates and everybody in the industry.

But at the moment it is a cost, and what you get for it is the higher opinion of your consumers, the more willingness of your customers to buy from you, the reputational benefit in the market, and everything else that is-- the satisfaction of your regulators and your investors and all the other reasons that are driving us in this direction.

But it's a very fair point. There is cost built in, and that's why particularly if you need small counterparties to play ball with you to hit these targets, you should be thinking about how you can help them, whether through a supply chain finance program or any other structure. There are lots of ways that a larger corporation can help a smaller corporation with which it does business, and this is maybe an angle for that.

So just looking for some of the other questions on the chat-- let me see. Here's a technical one I will gladly take, and then I'll go back to something a bit more general. Do you see ESG financing extrapolating to commercial LCs? Yes. So a commercial LC, for anyone who's not familiar, is a letter of credit. It's an instrument that's used typically for sales from a traditionally perhaps almost commonly sales from a developed market into an emerging market where the buyer is in an emerging market.

I absolutely think that you can extrapolate ESG financing to a commercial LC. In fact, to give you an example, we're quite an active user of the European Bank for Reconstruction and Development's sustainable program, and they talk about that program very publicly. It's very interesting in how they look at what they count as environmentally friendly.

And if you ever have time, go and look at that website because there's a so-called technology selector where they look at individual technologies, which country they're being imported into, and whether they represent a real environmental benefit for that particular country. This is a very smart approach.

You might import an electric car to the UK, and it wouldn't be that impressive, but if you imported it into a country where electric cars are incredibly rare, that would qualify because it's a significant improvement in the carbon emissions. So they take quite a sophisticated approach to use of proceeds, and we've done letter of credit transactions for solar panels, for similar type transactions which are qualified.

So use of proceeds works. ESG-linked approach would also work in the sense that you could set up a letter of credit line in either direction, import or export, which had that financial incentive built in for sure. So yes, absolutely, you can extrapolate it.

Maybe I'll just mention one broader point on that, which is the ESG-linked approach or the use of proceeds approach and similar, taking the LMA guidelines or the other public standards that have been published and trying to bring them from the world of green loans into the world of green trade loans or trade financing is not always quite as simple as it looks because, for example, I talked earlier about if you fund the building of a wind farm, clearly that's a green use of proceeds, but what if I'm issuing a big guarantee that performance bonds to support the building of that wind farm?

The wind farm's not getting built unless I do it, but there are no proceeds because the whole point of the guarantee is there's not going to be a claim unless something's gone wrong so no money will change hands. We're just providing a guarantee to support that build. So it's not quite as simple. I think it's quite fashionable at the moment to say, oh, we're just going to take the LMA standards, and we're going to lift them over to trade finance, and it will be very simple.

It's not quite as simple as that, and there's still room for interpretation from individual banks in how they apply these standards, which is not ideal, though we're a lot better off than we were a couple of years ago. So there is still some interpretation and some kind of structure that needs to be put around this for each kind of finance house.

So the last question in the bit about the treasury organization-- I had seven questions from the registrations. I sorted them into three categories. And the first one was really about what the treasury organization can do. I've mentioned two of those. The third one was, what are the common challenges faced by corporates to achieve ESG goals?

And I wanted to use that just to wrap up that section because I think it kind of touches on all the points that have been raised so far in that the first challenge is figuring out what it is that your targets are and what your policy is going to be. The second one is figuring out how you're going to measure that and how you're going to get data that you can rely on. It is not always the easiest thing.

And then the last piece is how can you create a financing structure or something similar that gives you incentives to hit it. And that really is the last piece. In many ways, it's the easy bit. Getting to the target and how you're going to measure it, that's the difficult piece of work. And then this cost, which we shouldn't run away from. So those are the challenges, I think. Those are the key messages that I wanted to kind of bring out for that.

And then, so there's a question here on the chat. Do impact investors look at ESG as a criteria while investing? How easy or difficult is it to look at a responsible exit? Oh, interesting. So I'll talk briefly about that, and this is probably one that we could talk about for a long time offline. But certainly, investors and impact investors are looking at ESG as a criterion while investing.

I think corporates and large investors like pension funds are certainly increasingly focused on ESG. They're being driven that way for many reasons, which we're all familiar with. And there's been a lot of interesting work done in looking at how corporate cash can be used to drive ESG goals. I'm more on the lending side so I won't try to go beyond my level of knowledge here.

But there's some really interesting work being done around for large banks, for example, that process trillions upon trillions of payments and trillions of individual transactions, can we use that data for the benefit of our corporates? Can we provide data that will be helpful for the investor to see where are payments being made to minority-owned businesses, for example? How much money did you spend on renewable energy last year? We have that data in the system somewhere if we can find it and render it useful for the corporate.

I think from a sort of impact investing perspective as well, it's very much, if you're going to prove that what you're doing with ESG is real, and this is a broader point, the market is quite cynical. And so it's very, very important. No company wants to be accused of greenwash or faking what they're doing.

If you are going to genuinely make a difference with your ESG financing structure or with your sustainability policy, you've got to be able to prove that to your investor base, to anyone else. You've got to be able to evidence that what you're doing is really adding value.

And that's where the measurement point comes in, and that's a whole massive topic of its own. But I have some questions in the registration about this as well. So let me talk about that for a second. And obviously, please keep the questions coming through the Zoom, and I'll just kind of jump in between them as I go.

So questions that were asked on measurement here, what are some specific ESG efforts that treasury teams can implement that are tangible and can be measured? So I was trying to think about how to answer that question, and I guess what I came down to is you've got two questions you need to answer.

One of them is, what can be measured in practice? What data is actually available? And who's going to do the measuring for you? Is it you? Are you going to certify your own compliance with your targets, or are you going to get a third party to do that, which obviously comes with benefits in terms of trust maybe, transparency, accountability, but it costs money, and you've got to find the right partner to do it.

The data that you can get nowadays to track your ESG performance is enormously more detailed and high tech than it was a few years ago. I think we talked about this in the first session, but if you want to, you can hire a company that will fly drones over your farmer's fields to check that nobody is working later hours than they were contracted to do and that there's no abuse of the workers taking place.

You can hire a company that will put a 24-hour camera in the corner of the ceiling of your textile factory and track to see that there is no child labor taking place in that factory. You can hire a company that will monitor and certify your use of renewable energy, for example.

So depending on what your target is, there is much more possibility now to measure. There is much more capability. There are companies out there that will do that work for you. But obviously, the harder the data is to collect, the more it's going to cost you. And either you have to do it yourself, or else you have to get a third party to do it and pay the cost of that.

So where you see very large and ambitious targets being made by a corporation, big sustainability goals, we are going to go carbon neutral by 2030, that's a wonderful goal. Probably a company that makes that statement has already got a tracking and measuring infrastructure in place. So why don't you call your sustainability team and see if you can take advantage of that to hook it up to your financing structure?

If you've made very specific targets, all of the eggs that we source in our factories will be free range by a certain date, that's something that probably a relatively light piece of monitoring will be able to evidence. The question of who does the monitoring and whether you really need a third party to do it is kind of one that's under discussion in the industry at the moment.

And I was interested. While I was preparing for this session, I was glancing at the LMA's Principles for Sustainability-Linked Loans, so ESG-linked loans. And they very specifically say they don't have a view. There's no guideline coming from them on whether that information should come from a third party or whether you should self-certify.

So one piece of advice I would have from various conversations with corporate treasury over the last two years is do check in with your sustainability team because a lot of the time, a lot of this tracking is already taking place. You'd be amazed how many companies turn out to already be working with an EcoVadis or similar, and the treasurer doesn't always know. So you may find a lot of this monitoring is already out there, and you can just use it to tie into whatever facility you want to set up.

And then there was a related question, which said, how do you motivate people and measure the progress of the ESG, especially in China? And I thought that was an interesting one, and I was presenting-- I spoke to a group of corporates a couple of weeks ago in Shanghai, and I got some related questions to this.

I think it's very visible to us all that different regions are moving at different paces on this. And part of that is due to how governments are leading the way, how they're choosing to push their industries, their corporates, their economies. So the EU, for example, has been pushing aggressively towards particularly environmental targets for a long time. The US has obviously just reentered the Paris Accords. The government of China has set some pretty tight targets for what they want to do specifically with regard to carbon emissions, and they've also looked at air pollution.

And so we certainly see an effect of that. I've seen corporates in those markets definitely kind of follow that lead in terms of what they are specifically interested in. But it's by no means the only pressure. You may be based in a market where perhaps you're an early adopter, you're a leader by looking at ESG. Other corporations have not caught up yet. But if you are in a supply chain that has a European consumer at the other end, you can bet that that company is thinking about ESG.

And the global economy is so interconnected now that I think it's not really as reasonable as all that. And certainly, I think increasingly in Asia, we have seen a lot more sort of corporates getting interested in this in the last few months. It seems to be a very hot topic right now.

So I think I've got a question on standards I want to cover, and in fact, I've got one on the chat and one on here. So which standards should be adopted for sustainability monitoring? And I do want to cover this because we're sort of coming towards the end of the session, and this is sort of the last of the three big themes that the questions clearly kind of centered around and I wanted to make sure that we covered.

One is, as a treasurer, what can you practically do? Where do you fit into this story? One is, how do you measure this stuff, and how do you think about measuring it? And the last one is, what standards can we apply? What can we do to make this a global and an industry-wide approach so that it's not limited to your interpretation or my interpretation? and in a few years time, somebody brings out some new guidelines and suddenly your facility is not considered green anymore, and everyone's accusing you of greenwash, which is obviously the worst possible outcome.

So as I mentioned earlier on, the LMA principles have taken us a long way. There are three sets. So there's two sets of use of proceeds principles. There's the green loan principles and the social loan principles now, which [INAUDIBLE] well done. Like those a lot. And then there's the ESG-linked one, the sustainability-linked loan principles.

And they're very, very useful as a place to start. They lay out all the basic important stuff, set the target, make it measurable, report it transparently, give yourself accountability. But they're not the be all and end all. They don't get us 100% of the way to a green, ESG-compliant trade finance future.

There are also competing principles out there. If you were very observant, you may have noticed in the video that Sean was wearing his UN Sustainable Development Goals badge on his suit jacket, and the UN SDGs are also used by very many people, particularly in judging social benefit, so in assessing social benefit.

And you would have heard, if you joined the second session of these master classes, [INAUDIBLE], who's the head of the JP Morgan Development Finance Institution, talking about that and how she and her team can look at a EP project or a financing transaction and certify it as compliant with the UN Sustainable Development Goals. And those, I think, are going to continue to be heavily used for quite a while yet.

And then you have governments and regulators coming out with their own. The EU is working on a taxonomy of green on the environmental side, which I think will be very influential once it's sort of finally drafted and published. It's very good. It's very detailed. It has lots of different criteria for what counts as green environmental benefit.

The challenge in my view for that one for trade finance is going to be it requires a great amount of detailed data about the underlying transaction. And when I get an instruction from a corporate to process a letter of credit or to issue a guarantee or to make a loan or to launch a supply chain finance program, I don't necessarily have the data. I have some data on the underlying trade, but I don't necessarily have enough data to satisfy those criteria.

And so I think there's definitely-- there's still an interpretation pieces. There's a bit of translation we need to do from these excellent-- not completely consistent-- but excellent sets of guidelines that are coming out into something that the whole trade industry can adopt. And I think there's a lot of good work being done in that space, particularly the International Chamber of Commerce has been looking at this. Other groups as well have working groups in this space.

So do I think the standards are developed enough that we can start work? Absolutely, the standards are very consistent across the fundamental principles of what makes something ESG compliant, what makes it green, makes it socially beneficial. Where do you define the target for ESG-linked lending? There is enough there that I think we can really kick off something exciting in trade finance.

I'm sure you've seen those exciting graphs that show the steep upward curve of what happened in green loans after the LMA standards came out, and everyone suddenly relaxed and felt now I'm comfortable, now I can set up my green loan, and I know that it will be regarded as green by the industry, by my shareholders, by my regulators.

And that, I think, is what we're about to see in trade. We have enough guidance now that we can move forward. This is happening everywhere. Everyone is starting from the same kind of principles, the same set of guidelines and putting on their own interpretation, but there's not so much variation that I think there is much risk left in the discussion.

So if you were holding off on doing something in ESG-linked trade finance because you weren't quite sure what the frameworks were going to look like, I think we have them now ready to-- the industry as a whole, all the finance-- I think we have them now ready to talk to you about.

Is there still some work to come? Is there a way to go in terms of refining them? Absolutely, but some of the really impressive deals that have been out in the market and some of the new structures that are being launched today, they basically create real, measurable, tangible benefit either from the E or the S or the G perspective, but they are really impressive.

They are accountable. They are transparent. The data is cleanly monitored. It is produced to the market with no interpretation possible. And that transparency and accountability is really what's going to build the confidence, and with the confidence will come the use. There we will see that the takeover of green trade.

So I think I've run out of time so I will wrap up the Q&A here. And I'm really grateful. I'm sorry. There are four questions on the chat, and there are three questions on my list that I did not manage to get to. Obviously, always happy to speak to people separately to cover off any points they wanted to discuss.

Did just want to say before I leave a massive thank you to all of you for joining us, whether you joined us for one session or all four. They're all available on replay. Whether you are currently moving towards doing something, whether you're just thinking about it, whether you are an expert who knows twice as much as millions already implemented stuff, thank you for your interest. You are doing something great. And I hope to see much more green trade finance in the future.

A massive thank you to our speakers, all of whom have been fantastic, and of course to the team at Treasury today who got this done. And with that, I will wrap up the session and say thank you so much once more for attending. And I hope you have a great rest of your day.