Streamlined Approaches to Green Financial Capital for Business Operations

In the realm of finance, a pressing discussion revolves around the slower application of green finance to Working Capital Finance and Cash Management. This issue was recently highlighted by financial experts Laurie Chesné, Vincent Lauras, and Fady Weessa.

The market is in need of a comprehensive framework to effectively implement sustainable working capital solutions. As it stands, total sustainable debt issuance reached an impressive $1,740 billion in 2024, signifying a growing interest in sustainability.

Sustainability within the value chain is crucial for supporting companies' transition journeys. Recognizing this, green deposits are being offered as a solution to support clients' sustainability efforts and fit short-term strategies.

CIB has taken steps in this direction, developing a Green Weighting Factor and Green Deposit Framework, complete with annual audits of fund allocation.

On November 9, 2022, the International Chamber of Commerce (ICC) launched the Principles for Sustainable Trade Finance, marking a significant step forward. The ICC is also focusing on developing Principles for Social Trade Finance and sustainability-linked trade finance frameworks.

The integration of sustainability-oriented strategies for working capital and cash surplus is a new trend, underscoring the growing importance of sustainability in finance. Collaboration among businesses, financial institutions, and market bodies is essential for driving the widespread adoption of sustainable trade finance.

With the recent rise in interest rates, the importance of working capital optimization is becoming increasingly pronounced. Short-term deposits have emerged as a valuable tool for liquidity management, providing a pathway for corporate social responsibility (CSR) initiatives.

Green Deposits support clients by earmarking funds to a pool of assets including environmentally friendly projects, corporate loans, and green bonds. However, the complexity of tracing environmental and social impacts across intricate global supply chains is a factor contributing to the slower adoption of sustainable practices in trade, supply chain, and receivables financing.

Overcoming challenges related to complexity, standardization, and regulation through a global cooperative approach will be crucial for fully integrating sustainability into working capital optimization. The Working Capital Finance and Cash Management areas lag behind other sectors in adopting green financing because their activities focus on short-term liquidity and operational efficiency, which are less directly linked to long-term sustainability projects that qualify for green finance.

The ICC Principles for Green Trade Finance, published in October 2024, were inspired by the Green Loan Principles (GLPs) from the Loan Market Association (LMA). Sustainability-linked trade finance products are gaining traction, with active work on sustainable working capital deals.

Initially, companies and financial institutions focused on long-term horizons in developing sustainable financing and investment strategies. However, the publication of the ICC Principles for Green Trade Finance offers a welcome tool for users aiming at structuring green finance offers. The market is progressively working towards harmonizing and standardizing sustainable trade finance.