Emerging-Market Multinationals

Can trade become more sustainable? Here are 5 developments to watch 

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Kimberley Botwright
Head, Sustainable Trade, World Economic Forum
Neelam Melwani
Senior Manager, Circular Economy and Sustainability, Deloitte LLP
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Emerging-Market Multinationals

  • Trade is a significant economic driver and therefore has a huge impact on how we consume and how we treat our planet.
  • Importantly, many stakeholders now realise trade can be proactively leveraged for environmental action towards a climate-neutral and circular economy.
  • Here are five developments to watch this year that will be critical to debates on making trade more sustainable: new trade initiatives, a global treaty on plastic pollution, the first World Circular Economy Forum in Africa, EU policy proposals, and Stockholm+50, a global environment gathering.

Trade accounts for 50% of global GDP, making it a significant economic driver. That means trade – around two-thirds of which is conducted across value chains – plays a big role in shaping how we consume resources and our impact on the planet. Trade is also an important means of technology and new services diffusion that will be vital to tackling climate change and ensuring material circularity.

Debates on the sustainability of trade are not new – longstanding concerns exist around transport emissions, emissions outsourcing, traded-commodity driven deforestation and supply chain linked environmental destruction, pollution and waste dumping abroad, among others. Yet, trade has also been an enormous source of growth and prosperity, and contributed to lifting millions out of poverty over the past decades.

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Continued work to address trade related harms or unintended impacts is much needed. That’s the case both when it comes to enhancing public-private collaboration as well as innovating trade policies. Discussion is particularly important to ensure the latter are targeted, address trade offs and risks, and have a systemic impact that transcends borders, rather than fixing a problem in one location and diverting it elsewhere. Capacity building for developing countries and small business is vital too, as are policy approaches that are non-discriminatory, otherwise we lose the enormous potential of trade for development.

Importantly, however, many stakeholders now realise trade can be proactively leveraged for environmental action. For example, many value chains will need to be rethought for the circular economy, prompting new partnerships. Governments will need to further encourage and incentivise reverse materials trade and the shift to alternatives where relevant.

Looking ahead, 2022 will be an important year for the sustainable trade agenda, with new initiatives and debates emerging. Here’s five to follow:

1. New trade initiatives

A group of over 70 countries came together in December 2021 to launch a collaboration on trade and environmental sustainability. The group will, in the months ahead, start work on trade related climate measures – in other words, trade policies linked to climate action – trade in environmental goods and services and trade and the circular economy.

Another group of over 60 governments launched discussions on trade and plastics pollution. Upcoming work will focus on improving transparency and monitoring of trade trends in this area as well as identifying ways to support trade in plastic alternatives and sustainable waste management technologies, among other things.

These global efforts may well be informed in due course by negotiated outcomes in an Agreement on Climate Change, Trade and Sustainability (ACCTS). New Zealand, Costa Rica, Fiji, Iceland, Norway and Switzerland started working on the deal in 2019. Experts say progress on several of the pillars could come to fruition later this year.

These exchanges matter since businesses often flag fragmented regulation, different standards and contradictory incentives as challenges to delivering more sustainable, circular value chains. Work by governments on regulatory coherence, designing policies based on international standards, reducing barriers to environmentally friendly goods and services, facilitating circular trade, and more could really help align the trade system with sustainability efforts. It is not a new trade system that is needed; rather, it is an improved one.

2. A global deal on plastic pollution

At the annual UN Environment Assembly gathering (28. February - 2. March 2022) in Nairobi, Kenya, countries will work on establishing a negotiating committee for work on a global treaty on plastic pollution, aiming to wrap up talks by 2023. The exact legal form and scope of the new deal are still to be determined. There are already lots of efforts to mitigate the impact of plastics in our oceans and on land, but many of these are fragmented across topics and jurisdictions. The new treaty could send clear signals to markets on this major environmental challenge, though stakeholder consultation will be vital in this process.

3. World Circular Economy Forum

In October 2022, Kigali will host Africa's first World Circular Economy Forum bringing together public and private partners with a focus on accelerating the just transition to a circular economy in Africa – a continent where many supply chains start and end. Action on this front has accelerated in the region, with the recently established African Circular Economy Alliance and a growing number of governments including its circular economy in their climate strategies and development plans. Circular business models in the region are taking off too.

The World Circular Economy Forum can emphasise the need across both emerging and developed economies to move towards circular solutions and look at natural resource management and trade from different perspectives.

4. Policy proposals

The EU is making new rules at the nexus of trade and sustainability, though some of these will stir debate.

In July 2021 the European Commission released a legislative proposal for a Carbon Border Adjustment Mechanism (CBAM), with the aim to prevent carbon leakage, where production moves abroad due to a high carbon price at home. The current draft would apply a cost of carbon associated with manufacturing to imports of iron, steel, cement, fertilisers, aluminium and electricity. The European Parliament has weighed in on changes to the proposal and a vote by its environment committee is expected in April. EU negotiating partners will be watching to see how things shape up. The European Commission is also publishing a proposal for binding corporate due diligence of environment and labour impacts in supply chains.

Further, building on its Circular Economy Action Plan the EU Commission will, following initial consultations, release a draft strategy for sustainable textiles and a sustainable products policy. These initiatives focus on closing the loops across value chains and improving traceability and transparency.

In line with this, 2022 is an important year for the EU taxonomy, aimed at scaling sustainable investments and meet the EU's green deal targets. ‘Delegated acts’ on environmental objectives are scheduled to be published this summer, on among other things circular economy and pollution prevention.

5. Stockholm+50

From 2nd - 3rd June 2022, a global environmental meeting will be held in Stockholm, Sweden commemorating the 1972 UN Conference on the Environment. Countries, businesses, and organizations will come together to discuss how to can tackle the climate, biodiversity, and pollution crises. The role of sustainable supply chains in this is crucial and a key part of the debate is likely to be how to ​best ensure continued development opportunities alongside environmental impact. For a preview, tune in to a debate on supply chain sustainability on 2 March 2022 with senior business representatives and policymakers.

These five developments are important parts of an ongoing conversation on how we build better trade. It will definitely not be easy, but bringing in the views of all stakeholders across regions, industries and civil society is always crucial. As we closely watch how things pan out, one thing is certain: it is good to see so much attention to building sustainable value chains that can deliver a circular and climate neutral world.

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Emerging-Market MultinationalsFuture of the Environment
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