In the summer, BAFT (Bankers Association for Finance and Trade), the leading global industry association for international transaction banking, released a white paper aimed at tackling a serious issue the industry faces:
How can we integrate a sustainable approach to trade finance transactions?
BAFT has answered that question with a practical white paper: Trade Finance Sustainability Guidelines for Transaction Banking.
In this article, we review why these guidelines are needed, which parties within trade finance transactions and investments need to consider them, and how they can be implemented in a practical sense.
Why do financial institutions (FIs), asset managers, and corporations need sustainable guidelines?
These guidelines are needed for several reasons. Starting with what BAFT outlined in the press release:
“The Guidelines address a critical gap in the sustainable finance landscape by translating broad sustainability principles into practical guidance for transaction banking.”
As BAFT states, transaction banking in the trade finance sector is “a business defined by short tenors, high transaction volumes, multi-party structures, complex supply chains and activity across multiple jurisdictions.” Making implementing sustainable financing more challenging.
“While sustainable finance frameworks have advanced significantly since 2023, much of the focus has remained on investment banking strategies, term lending and asset-based approaches.”
“Trade finance requires a more nuanced, operationally workable approach that reflects how transactional banking is delivered in practice.”
With that in mind, let’s take a closer look at the BAFT guidelines.
Banks and asset managers: To request a demo of our end-to-end trade finance software solutions, click here.
BAFT Guidelines for Sustainable Trade Finance Transactions
BAFT says these were created to “provide financial institutions in markets at different stages of development with a minimum baseline to assess the sustainability of trade transactions consistently and uniformly, while preserving flexibility for local market context and existing due-diligence processes.”
Here is the BAFT summary of the guidelines:
- Sustainability is broader than climate. The 17 United Nations Sustainable Development Goals (SDGs) extend beyond environmental considerations alone, and trade finance frameworks need to recognize initiatives that deliver social, economic and environmental impact across the full SDG spectrum.
- Trade finance delivers on the SDGs. Trade finance contributes positively to several of the UN SDGs, particularly in developing markets. The African Development Bank’s (AfDB) Fifth Trade Finance Report (May 2026) puts unmet African demand at $74-92 billion for 2024.
- Fit for purpose, market by market. Sustainability priorities vary across markets, so assessment approaches must fit those market factors: assessment by the bank that knows the client and the local market, within its existing due diligence processes and three lines of defense, with process integrity verified by international counterparties.
- Complementary guidance where existing frameworks do not fully reach. The Guidelines provide governance guidance and practical alternatives for markets where existing frameworks fall short, including SMEs, developing markets, and high-volume, low-value trade. Institutions applying the ICC Principles for Sustainable Trade Finance, the EU Taxonomy, or the Equator Principles can continue using those frameworks alongside the BAFT Guidelines, with the BAFT Guidelines serving as a complementary minimum baseline. The clearest gap they fill is depth across the trade chain: they provide a basis for one bank to consider a sustainability designation made by another bank earlier in the chain, with responsibility ultimately remaining with the relying bank.
- Safeguards built into the minimum baseline, proportionately. The Guidelines propose embedding a proportionate do-no-significant-harm screen and greenwashing controls into the baseline itself, helping ensure that broader inclusion does not mean a lower standard.
- An agenda for further work, and delivery on commitments already made. More work is needed on models that weigh social, economic and environmental trade-offs and can be implemented in local markets. The Guidelines give the industry a concrete instrument for the Sevilla Commitment’s call to strengthen trade finance for developing-country MSMEs and the Washington Declaration participants’ aim of halving the trade finance gap by 2030.
For more information, you can download them in full here.
Can trade finance play a role in ESG-centric investments and initiatives?
We can’t deny the importance of the climate crisis. But you might be wondering whether trade finance can play a role in ESG-centric choices.
The answer is yes, it can.
The appetite for these choices varies depending on where you operate in the world.
Right now, in America, the appetite for ESG-based investments, initiatives, and projects is muted. But not gone.
However, as BNP Paribas confirms, “commitment to sustainability remains strong across Europe and Asia.”
“One recent survey shows 58% of UK and European asset managers plan to increase impact allocations in the next year, with none intending to reduce them.”
Supporting that: “Europe is set to remain the most significant contributor [to ESG investment growth] . . . Small, but expanding markets like Japan, Canada and Australia could also support gains”, according to an ESG report by Bloomberg Intelligence (BI).
In 2025, business and political leaders gathered at the 28th annual Milken Global Conference.
One of its core activities is supporting climate change initiatives, including redeploying capital and improving our resilience to climate change. Milken is one conference where climate change is taken seriously.
Justin Worland, reporting for TIME Magazine, found the appetite for finance-based solutions stronger than ever.
Throughout the conference, attendees discussed financial solutions that could make this work, including “carbon markets and blended finance, where public or philanthropic dollars are combined with return-oriented investment.”
Worland said this “Includes new vehicles like private credit, an emerging asset class where investors outside of typical banks lend directly to companies.”
Now we’ve gone full circle. Trade finance can be sustainable. Whether the finance comes from private credit, asset management firms, or FIs with ESG funds.
The guidelines in this article from BAFT make it easier for trade finance programs to configure themselves more sustainably.
Image from a Nordea sustainable shipping case study: Wallenius Wilhelmsen’s wind-powered RoRo vessel. Photo credit: Wallenius Wilhelmsen.
Is it worth improving the sustainability of trade finance investments?
According to a survey by Stanford Graduate School of Business researchers and the MSCI Sustainability Institute, the answer is also yes.
This survey of 47 institutional investors with $250 billion AuM found that the main reason that investors put money into ESG funds is:
“Primarily as a way of reducing volatility and risk in their portfolios — especially tail risk, the probability that a rare but catastrophic event could tank a company’s performance.”
The same survey also found that most investors think ESG should be expanded to include “governance, climate, and social.”
Data shows that primary concerns are around reducing a company’s carbon footprint:
“78% rank climate change or carbon emissions as the most important environmental factors they explicitly consider when making investment decisions.”
“Most [institutional investors] say that they are analyzing the emissions associated with their investments, putting money into renewable energy and transition technologies, and quantifying the possible financial impacts of climate-related risk.”
There are two final, positive reasons to take this approach with trade finance programs:
- As Nordea found (one of the world’s most sustainable banks), the C02 savings from sustainable investing are 27X more impactful than making lifestyle changes.
- Numerous studies have also shown that “sustainable investments generate 60% higher returns than traditional, unsustainable investments.”
See what the LiquidX team has been doing recently:
Are Banks Backing Off From Digital Trade Finance Adoption?
Why are Digital Bills of Exchange the future for SMEs in a fragmented trade finance market?
Impact of Private Credit Stress on Trade Finance
Data Transparency and the Value of Clear Data Visibility FIs & Asset Managers Can Act On
Banks and asset managers: To request a demo of our end-to-end trade finance software solutions, click here.