Comments on SWIFT and ICC’s Announcement Regarding Collaboration

The announcement confirms that for supply chain participants the adherence to sustainability practices has gone beyond a “nice to have.” Poor performance in sustainability practices has serious business impacts on a company’s trade operations, to the point that the SWIFT KYC Registry has been integrated with the International Chamber of Commerce’s (ICC’s) Sustainable Trade Finance Guidelines specifically to enable financial institutions to identify environmental, social, and governance (ESG) risks in their supply chains.

The announcement validates Aite Group’s anticipation that ESG provides new risk patterns of a company’s trade business that require KYC evaluation indicators to go beyond financial risk. Aite Group’s report Ethical SCF and the Late Payments Directive: Forging Stronger Links (September 2014) anticipated the need to build a common repository of what it called “ethical” practices, and that sounds today like a premonition of what SWIFT and ICC have just announced. The report reads:

The importance of public opinion in buying goods from or trading business with socially responsible companies is becoming a strong business-selection criterion. It is also a reason why those companies that do not fulfill the criteria of corporate social responsibility are being heavily hit with negative brand reputation.

[Banks] must provide advisory support and anticipate requests for help for any activity that their corporate clients are undertaking to adhere to new regulatory requirements (e.g., the EU Directive on Late Payments), adapt to policy-driven reporting rules (e.g., the EU Directive on Disclosure of Non-Financial and Diversity Information), or enter a group of socially responsible corporations. Such support—which does not generate any revenue—will instead multiply the business opportunities banks can create for their corporate clients.

[…] Banks must take on the difficult task of supporting corporate clients that want to be financially fair with their supply chain partners, but not at the detriment of worsening their own working-capital values.

The importance of sustainable practices among corporations is a key area of Aite Group’s research. In 2019 I led a United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT) project that produced the recommendation paper “Minimal common sustainability criteria for Sustainable Procurement processes to select Micro, Small and Medium sized Enterprise suppliers.” The document provides a minimum set of common criteria to select sustainable suppliers and meet increasing governments’ and consumers’ demand for products and services that achieve value for money, while complying with fundamental environmental, social, and health standards. Serendipity has turned some of the recommendations of that paper into what the SWIFT/ICC KYC Registry has now implemented:

It  is  advisable  to  utilize  a  dedicated  Environmental Management System  to  assess  and  manage  green  and  social  performances.  The  system  may  use  standardized  questionnaires  and  connect  to  e-procurement  platforms,  which  range  in  complexity  from  electronic  bulletins  (where  simple  tenders  and  contract  notices  are  posted)  to  full  e-procurement  systems  in  which  the  whole  procurement  process  is  conducted.  Other  tools  used include internal financial software, online product catalogues, scorecards, or plans and performance reports.

Final recommendations:

The integrated SWIFT/ICC KYC Registry provides an industry standard that spares corporations with multiple banking partners from having to provide ESG information in differing formats through bilateral exchanges. Aite Group recommends that this utility expand its reach beyond financial institutions to be immediately available to all trade stakeholders: importers, exporters, logistics operators, shippers, customs agencies, insurance companies, export credit agencies. They all contribute to enrich the value of the KYC registry data.

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