Commoditier 2015

CommoditiesSpecial edition | 2015Beyond national boundariesA Swiss hub for a global futureCommon objectives and a single voice pages4-7Regulations & SanctionsIn pursuit of harmonised rules pages 9-13Csr, climate & Environment pages 15-19Calls for social responsibilityDevelopment & Post-2015 GoalsThe contribution of commodity trading pages21-25Education & InnovationGeneva training & Trafec platform pages27-31



PAGE . Special Edition | April 2015 | CommoditiesSpecial editionA Swiss hub for a global future What the sector means for Geneva Multi-stakeholder efforts for human rightsThe trade associations of Geneva, Lugano and Zug What is the State’s strategy to encourage the Industry focused, multi-stakeholder efforts are key to advancingunited last year. Our sector now has a common commodity industry’s development and to attract corporate respect for human rights. Margaret Wachenfeld,voice across the entire country. David Fransen, new participants? Pierre Maudet, State of Geneva. Institute for Human Rights and Business.President, STSA. page 4 page 5 page 19Editorial Beyond national boundariesThis second issue on the Swiss trading and speak with a single voice last year, is not shying and planned reforms on taxes and other matters.shipping industry addresses the position of the away from these concerns. As a group, it is com- It has pledged to support the education pro-sector on some of the most important themes at mitted to pursuing its dialogue with the Swiss grammes that maintain the attractiveness of thethe heart of current concerns. The Swiss hub is authorities to establish proper governance based Swiss hub by ensuring the sustainability of thetruly global and knows no national boundaries. on the recommendations developed and appro- talent pool. It has also committed to a commonIt affects and is affected by worldwide matters. ved by the Federal Council. It has also launched technical platform that brings synergy betweenInternational regulations and sanctions impact a noteworthy initiative with the Swiss Research diversified members of the community and hasits daily business. Calls for social responsibility Institute on Commodities (SRIC), a multi-stake- the potential to become the reference standardquestion its governance as ethics and human holder institution involving the academic world, for the commodity trading industry at large.rights are important to Switzerland in general, the commodity industry, and Swiss authorities Despite momentous market swings and the cur-and to Geneva in particular. Markets are in- at federal and cantonal levels. On a company rent market slowdown, the sector has expressedcreasingly weather dependent and it has become basis, members of the industry have engaged in its willingness to abide by common rules and toessential to recognise the strategic importance multiple sustainable development and infras- make a contribution to building Switzerland asof climate changes for global commodity mar- tructure projects from transformational projects a centre of excellence, not just in business terms.kets. Last but not least, international trade is one in Africa, Latin America or Asia to responsible There is still much to be done but the Swissof the fundamental drivers of development and investments in Eastern Europe. These projects trading and shipping community is well awarenatural resources are the foundation on which have, in turn, been acclaimed or criticised. Clo- of growing public interest and of civil societymany developing countries build their economic ser cooperation with local and national govern- expectations. growth on the way to poverty alleviation. Com- ments, international agencies, communities andmodity trading houses have a major role to play NGOs would strengthen their integration in Nicolette de Joncairein addressing the infrastructure gap of emerging national or sectoral initiatives.countries and in contributing to sustainable The trading and shipping industry is important Editor in chiefdevelopment. to Switzerland and the sector wants Switzer-The Swiss hub, now unified since the trade asso- land to remain a leading hub of commoditiesciations of Geneva, Lugano and Zug decided to expertise in spite of the strength of the francContents - 13th of April 2015focus: A Swiss hub for a global future 13. Interview. Erwin Bollinger, SECO: 24. A trader as a vehicle for development. The Swiss approach to sanctions04. A Swiss hub for a global future. David Fransen, Fred Frimpong, SMS Ghana & Priscilla Morisset, AmajaroSTSA || Revenues, margins and misconceptions. focus: CSR, CLIMATE & ENVIRONMENT Trading || Epidemics and the risk of commodity supply chain disruptions. Alessandro Sanos, Thomson Reuters.Stéphane Graber, STSA. 15. Interview. John Tidmarsh, R20 Regions of Climate Action: How should traders respond 25. Interview. Kevin Brassington, ADM:05. Interview. Pierre Maudet, State of Geneva: to climate change? Sustainability at every step of the value chainWhat the commodity sector means for Geneva 16. Meteorology applied to commodity trading. Stefan Meulemans, GDF Suez Trading || Carbon capture focus: EDUCATION & INNOVATION06. Swiss research on commodities: another and storage, a key to climate change mitigation.bold step. Interview Jean-Dominique Vassalli, 27. Interview. Emmanuel Rogy, BNP Paribas: Scott Foster, United Nations Economic Commission A natural authority in trade financeUniversity of Geneva and SRIC foundation. for Europe. 28. Is education essential for success? Silviane Chatelain,07. Natural resources provide opportunities 17. The Happy Farmer. Karla Canavan, Bunge. STSA || Geneva training in commodity trading:for sustainable economic development. 18. Sustainability is here to stay. Lara Moutin, the employer’s viewpoint. Michèle Sormani, Vitol.Samuel Bon, Swisscontact || Trading Forum 2015. Sucafina. || When a corporate mind-set adds vision to philanthropy. Vincent Faber, Trafigura Foundation. 29. Geneva training in commodity trading: theColine Quinty, Cotecna Inspection, Elisa Marques da Mota, 19. Ruggie Principles for small and medium- student’s viewpoint. Philippe Vollenweider, OperatorGerald Group, William Ashbee, Gunvor. sized enterprises. Nicolette de Joncaire, L’Agefi Certificate alumnus || Trading fundamentals: a unique || Multi-stakeholder efforts for human rights. tool for employer training. Sudhee R. Sen Gupta,focus: REGULATIONS & SANCTIONS Development Equity Associates || Diploma of Advanced Margaret Wachenfeld, Institute for Human Rights and Business. Studies. Julia Giray, STSA.09. Interview. Dominique Le Doeuil, Cargill:Advantages and pitfalls of regulatory guidelines focus: Development & Post-2015 Goals 30. TRAFEC: Industry innovation in practice. Stéphane Graber, eGTSA board. || Trade Finance banks10. How is the sector regulated? 21. Interview. Andrew Bovarnick, UNDP: have come together to better service the industry.Patrick McDonald, STSA || The negative impact of The role of trading in developmentmisunderstandings. Stefano Granieri, Independent The Founding Banks of TRAFEC. 22. Staggering infrastructure needs in developingconsultant. countries. Nicolette de Joncaire, L’Agefi. 31. Towards a better platform for all actors. Olivier Doeblin, Transamine. || Commodity trading11. Compliance in a trading house. 23. Powering Ghana’s Growth. Akua Ansa-Koram, Vitol and start-up accelerators: strange bedfellows? || Sustainable and environmentally responsible Interview François Gilardoni, FONGIT.Victoria Attwood Scott, Mercuria Energy Group investments in steel production. Tom Patrick,|| A framework fit for purpose. Brian Lewis, Gunvor Duferco International Trading Holding.12. Impact of new transparency regulations.Marc Gilliéron, Chabrier Avocats.|| When and how do voluntary standards work?Joseph Wozniak, International Trade Centre.Commodities is a supplement to L’AGEFI, daily publication of l’Agence économique et financière à Genève | President Alain Duménil | Managing Director-Chief Editor François Schaller | CEO Agefi SA Olivier Bloch | Deputy manager, Developments Lionel Rouge | Editor in chief Nicolette deJoncaire | Associate Editor Patrick McDonald | Journalists Nicolette de Joncaire, Elsa Floret, Patrick McDonald, Georg von Kalckreuth | IT Guy-Marc Aprin | Graphic design Sigrid Van Hove | Administration Patricia Chevalley, Carole Bommottet | Marketing Khadija Hemma (021) 331 41 09 | Subscriptions(021) 331 41 01 – [email protected] | Advertising French speaking Switzerland Norbert Fouchault Tél. (021) 331 41 25 – [email protected] | German speaking Switzerland Béatrice Leuenberger Tél. 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PAGE . Special Edition | April 2015 | Commodities ||| A Swiss hub for a global futureA Swiss hub for a global futureThe trade associations ofGeneva, Lugano and Zug In order to achieve this, we united the trade asso- We commit countries, notably those of the US and the EU.united last year. Our sector ciations of Geneva, Lugano and Zug in October to finding The Swiss government has acknowledged thenow has a common voice last year. Our sector now has a common voice solutions need for such international harmonisation andacross the entire country. across the entire country. As President of STSA, on social together, we will continue to make progress to- and having lived in Switzerland and witnessed responsibility wards a consensual solution, following the mul- David Fransen the industry’s development for more than fifteen and on tilateral and pragmatic process that is one of the years, I am convinced we are in a better position a sustainable great strengths of Switzerland’s political system.TPresident, STSA today than ever to contribute to this objective. approach to the This special edition is dedicated to how we he Swiss Trading and Shipping Our sector appreciates the growing public inte- environnement. contribute to development abroad. Most mem- Association (STSA) represents a rest in commodities markets and we are glad to bers of STSA act globally. Many provide logisti- very diverse industry. Its members see that the Swiss Government has taken mat- cal services and financial resources to emerging include quality inspection and cer- ters in its own hands to shape the future of the regions. However, and contrary to widespread tification providers, ship owners, industry. The authorities, STSA, and other sta- belief, commodity trading houses are not sim- commodity traders, consultants keholders, such as those NGOs which chose to ply exporters of commodities from developingand many other, highly specialised firms. take part in the dialogue, are working together countries to the industrialised world.We are diverse but we share one common objec- to establish appropriate solutions based on the In recent years, the industry has seen an unpre-tive: We want Switzerland to remain a leading 17 recommendations developed and approved cedented flow of investments in infrastructurehub of commodities expertise. The professio- by the Federal Council. based in countries which benefit substantiallynal skillset and knowledge accumulated in this In particular, we want to take the right steps to- from the technical expertise and experience ofcountry over decades is unique and aggregated wards transparency by developing a framework the commodities sector. Some of our membersin the minds of over 10,000 employees. It must that is truly tailored to the industry. Adapting ru- have recruited thousands of local employees andbe preserved, defended against competition from les designed for other sectors, such as the extrac- invested their knowledge as well as billions ofalternative locations and extended, so Switzer- tive industries, is not an appropriate solution and US dollars in longer term growth projects, no-land can continue to thrive in its position as a stops short of addressing issues in many coun- tably in Africa, of which you will find severalmarket leader. tries in which our members are active. We are examples described in more detail in the fol- committed to finding solutions on such impor- lowing pages. tant dossiers as the transparency of payments to Investments on such a large scale rely heavily on governments and corporate social responsibility, the expertise of companies such as the ones re- which includes human rights and a sustaina- presented by STSA. By shaping the future of the ble approach to the environment. Our business Swiss hub today, we can preserve and develop transcends national boundaries and we believe this unique concentration of knowledge, which that these solutions will be most effective if ali- will hopefully bring forward the global projects gned with the legislative framework of other of the future. Revenues, margins and misconceptionsTrading houses may have largerevenues but their margins are Schindler’s CHF 896 million. Similarly Trafigu- billion. In other terms, whereas Trafigura’s reve-only a fraction of those of indus- ra’s revenue for 2013 was approximately CHF nue was over 6 times Holcim’s, its profit was oftrial or distribution companies. 129 billion ($133 billion). Its profit from ope- the same order of magnitude. rating activities was CHF 2.56 billion ($2.65 The word margin means something very diffe- billion). Holcim’s sales for 2013 were CHF 19.7 rent for non-traders and traders and the tightness billion and its operating profit was CHF 2.4 of traders’ margins arises from the type of mar- kets that they confront. Industrial and distribu- REVENUES OF LARGE SWISS COMPANIES: TRADERS VS NON TRADERS tion companies are price-makers. As they are in a position to impose prices to consumers (within IN CHF BILLION 400 certain limits), their margins are based on the cost of their products or services to which they Stéphane Graber 297 300 add a markup. The business model of commodity merchantsASecretary General, STSA 200 is entirely different: traders cannot and do not frequent misconception about markup. They block a margin imposed by mar- commodity trading is that mer- 87 88 108 129 132 6 9 14 20 27 27 56 92 100 kets by way of arbitraging between two different chant houses operate on large 59 62 prices. Traders’ margins are primarily dependent profits. The reality is that mar- on the price differences between products, re- gins of trading houses are ex- 0 gions or periods of time. tremely tight – in most cases For commodity traders, revenues are directly re-between 0.5 per cent and 2 per cent, rising to Bunge lated to commodity prices and as prices exploded4 per cent occasionally on certain products. The Louis in the mid-2000, their revenues increased pro-large traders based in Switzerland have margins portionally. But their profits depend on physicalranging from 0.28 per cent for Vitol, to 3 per Dreyfus flows and on their ability to manage volatilitycent for ADM. Compared with sizeable com- ADM and control its adverse impact. Their area of ex-panies in other industries, in Switzerland or pertise is precisely to turn risk into opportunity.elsewhere, these numbers are minute. Coop or Gunvor As markets became increasingly transparent,Migros, for example, work on a profit margin of Mercuria their margins shrunk. The reality today is thataround 3 per cent, while it is perfectly normal Trafigura trading margins are so thin that larger merchantfor pharmaceutical companies to reach profit houses have had to diversify their sources ofmargins ranging from 15 to 20 per cent. Nestlé Cargill profit by acquiring assets. Small players, who arealone makes more profit than the top 8 largest Vitol not in a position to make such investments, havetrading houses combined. nowhere to turn to.Some trading houses have very large revenues, Clariant It is vital that commodity trading houses baseparticularly in the energy space, and as many are Schindler themselves in competitive business environ-in private hands, they did not, for a long time, is- Syngenta ments, in order to maximise their viability in asue public financial accounts. As a result, people highly volatile industry. Switzerland has, for thewith sparse knowledge of their business have Holcim most part, proven to be an excellent base for theassumed that their profits were somewhat in Migros commodity trading industry. It is the mission ofproportion with their revenues. This era is over. STSA and its members to ensure this competi-An increasing number, such as Louis Dreyfus Coop tiveness is maintained, while at the same timeor Trafigura, now publish fully public accounts Novartis meeting obligations in transparency, due dili-and for those who don’t, financial information is gence, CSR, development, and regulations. Thisavailable in bonds emission prospectuses. Nestlé special edition demonstrates how traders areVitol’s revenue for 2013 was approximately confronting these issues, and how the industry isCHF 297 billion ($307 billion) whereas Schin- Sources: Data : 2013 financial reports, Bloomberg, Reuters. Analysis: Georg von Kalckreuth, STSA ensuring the Swiss trading hub remains compe-dler’s was CHF 8.81 billion that same year. Yet titive through its commitment to educating thewith Vitol’s revenues nearing 34 times those of PROFITS OF LARGE SWISS COMPANIES: TRADERS VS NON TRADERS best talent on offer, and supporting innovationSchindler’s, their operating profits were compa- to make sure Swiss companies are at the cutting-rable with Vitol reaching CHF 818 million and IN CHF MILLION 20000 edge of commodity trading practice.  14047 15000 10556 10000 264 696 736 818 1286 2235 2565 2612 2400 5000 0 574 760 771 896 2018 Mercuria Gunvor Louis Dreyfus Vitol Bunge Cargill Trafigura ADM Clariant Coop Migros Schindler Syngenta Holcim Novartis Nestlé Sources: Data : 2013 financial reports, Bloomberg, Reuters. Analysis: Georg von Kalckreuth, STSA MARGINS OF LARGE SWISS COMPANIES: TRADERS VS NON TRADERS IN PERCENTAGE 18.8 20% 14.2 15.2 15% 12.2 10% 9.4 10.2 0.2 0.3 0.8 1.2 1.7 2.0 2.2 3.0 2.8 2.9 5% 0% Mercuria Vitol Gunvor Louis Dreyfus Cargill Trafigura Bunge ADM Coop Migros Clariant Schindler Holcim Syngenta Nestlé Novartis Sources: Data : 2013 financial reports, Bloomberg, Reuters. Analysis: Georg von Kalckreuth, STSA

PAGE . Special Edition | April 2015 | Commodities ||| A Swiss hub for a global future InterviewPierre Maudet | State of GenevaWhat the commodity sector means for GenevaT he commodity trading and shipping commu- How effective is the relationship nity plays a significant between the Geneva government economic role in Swit- and the Swiss Trading and Shipping zerland and more so in Association (STSA)? Geneva, where mer- The sector really needed a strong umbrella organisation to speakchant companies have long been a with one voice and the dynamicspart of the business landscape. Today, work well. Obviously, the dialo-Geneva and the Lake Geneva area are gue is greatly facilitated by thehome to in excess of 400 companies, existence of STSA. We exchangeemploying some 8000 people, and the information on a constant basisindustry contributes nine per cent of and it helps forming and infor-the canton’s GDP. ming, both internally and exter-Home to half the world’s coffee and nally. It also smoothes the progresssugar trade respectively, and one-third of the multi-stakeholder dialogue.of each of the world’s oil and cerealtrade, it is a global commodity trading How do you feel about the newlyhub alongside Houston, London, and born Swiss Research Institute onSingapore. Commodities (SRIC)?How important is the sector in the It will be a key asset. It positionseyes of Geneva’s cantonal govern- Geneva in the best sense of thement? What is its strategy to encou- term, interlinking and fanningrage industry development, and to out the knowledge developedattract new participants? We asked here and modelling the future.Pierre Maudet, State Councilor in Distanced from the corporatecharge of Security and Economy for world, it will bring an objectivethe Canton of Geneva. and critical perspective from a city familiar with intellectual andHow important is the commodity trading spiritual awareness. It will alsoindustry to Geneva? be in step with the cooperationIt has always been important, and between the academic world, thethis key importance has strengthened corporate world and the politicalin recent years, forming an ecosystem world which is one of the trade-composed of different areas of ex- marks of Geneva. On one hand, itpertise that complement one another. marks the recognition of the com-Beyond pure trading, it encompasses modity sector as a critical playertrade finance, shipping and education. in Geneva; on the other hand itShipping plays a major role, trade fi- demonstrates that our Universitynance offers interesting opportunities is keeping pace with the econo-to our banking sector and education mic development of the city. Last-opens new perspectives. The preser- ly, we expect it to give the rightvation and development of the clus- space to civil society. The instituteter is built along an entire value chain is a long term engagement, veryand our strategy is to facilitate and distant from the quick benefits ofsupport the implementation of exis- a favourable tax regime.ting and new activities around a nor-mative framework. Speaking about tax regimes, will the 13% tax rate for all be accepted inWhat type of normative framework? Pierre MAUDET. State Councilor in charge of the Department the Canton? of Security and Economy of the State of GenevaInternational standards must be res- The tax rate of 13% is a proposalpected but there is no requirement Since 2005 President of the Federal Commission for childhood and youth. from the Geneva authorities tofor a Swiss finish that would hinder 2006 Master in Law of the Université de Fribourg. the Federal authorities and to theour competitiveness. This is some- 2007-2012 Member of the Executive Council of the City of Geneva. people. The new law will be sub-thing that the five cantons, home to 2011-2012 Mayor of the City of Geneva. mitted to popular vote in 2017 orcommodity trading houses (Geneva, 2012 State Councilor in charge of the Department of Security & Member 2018. Meeting the challenges willVaud, Zug, Ticino and Basel), need to of the Executive Council of the State of Geneva. require a vast amount of workclarify with the Federal government. 2013-2015 Vice-President of the Executive Council of the State of Geneva. and preparation. If a reasonableWe must also sensitise public opi- Since 2013 State Councilor in charge of the Department of Security and Economy. taxation regime goes through, thenion to the economic benefits of the most positive outcome will be thatcommodity hub. Switzerland – and it will last. The Swiss democraticGeneva in particular – offers a cluster of competence which is internatio- process may seem slow to some but once a decision is made, it carries on fornally renowned. We receive a continuous stream of requests, from new a very long time. There is no risk of brusque changes in direction as seen incompanies but also from groups repatriating some of their operations from many European countries, according to the colour of their governments.London, as this has been the case in the sugar trade units recently. How are issues around transparency of the sector progressing?Are Singapore and London big contenders as commodity trading hubs? The trading industry has understood very well the need for transparencySingapore is not a competitor to Geneva “per se”. It does not sit in the same and traceability. It has proved to be open to dialogue. By the nature of itstime zone and its role is to serve the ever-increasing Asian trade. Most com- global business, it is already subject to international standards. As I saidpanies have operations both in Geneva and in Singapore. earlier, there is no particular need for a Swiss finish.The competition for Geneva is rather in London but Geneva has provedits strength in many areas. As I mentioned earlier, we are seeing branches Geneva is also a cluster of innovation in the field of commodity trading. TRAFECrepatriated from London, which is a testament to the strength of business is an example.conditions here. TRAFEC offers a unique solution to trade finance banks and commodity traders. It is another opportunity to demonstrate Geneva’s attractiveness, atDo you have an example of a Swiss initiative to support the business? the crossroads of information systems and finance. FONGIT, which sup-Diversifying currency settlement is one good example. We have suppor- ports the implementation of TRAFEC, encourages innovative high-techted a concerted strategy with the Federal authorities to open Switzerland ventures in Geneva and benefits from the support of the governmentalto settlements in renminbi. A swap agreement was concluded last sum- business incubator program of the Canton of Geneva. It is yet anothermer between the Swiss National Bank and the People’s Bank of China. It point of encounter between the Geneva stakeholders, pulling together di-will ensure appropriate levels of liquidity and clearing will be performed versified components of our economic fabric. In this instance, the high-through a Chinese bank which is in the course of settling in Switzerland. tech cluster, the commodity and trade finance cluster and the authoritiesThis is an important step for commodity trading, as flows to and from have come together to create an innovative new interface for traders andChina are continually increasing. their banks.   Interview Nicolette de Joncaire

PAGE . Special Edition | April 2015 | Commodities ||| A Swiss hub for a global futureSwiss research on commodities:another bold stepT he Swiss Research Institute on Commodities (SRIC) is newly The institute it will not have its own research staff and will born. When the Master in Inter- is a partnership primarily play the role of an interface between national Trading, Commodity Fi- between people partners and enhance synergies. “Anchoring the nance and Shipping was created in from different institute to the University will enable it to use a2008, it was a bold step. With the backgrounds. wide set of skills present in different faculties, innew research institute, the university is leaping A ground addition to the Faculty of Economy and Manage-forward again in a field which is quite unique. for cross- ment”. The faculty of sciences for instance is wellHow does Jean-Dominique Vassalli, Rector of fertilisation. equipped in earth and environmental sciences.the University of Geneva and President of the Few institutes are so inclusive. The Swiss Finan-foundation that oversees the institute, feel about cial Institute (SFI) is another case of a privatethis new venture? foundation where the business (banking and“When the Master was created, it was a bit of a finance) community cooperates with leadingnovelty. In particular because the students hold universities and is supported by the federal go-at the same time a job in their field of study. Wor- vernment. As regards the SRIC, “the mission isking while studying is of course not exceptional, common to all partners but the implementationthat is what happens also in medical school, for of the mandated tasks is entrusted to the univer-instance”. The courses make more sense to the sity”. The model will be similar to the SFI withstudents when they can apply teachings directly, the difference that the SFI involves several uni-but the commodity master is a bit of a strange versities whereas the SRIC, at present, relies onlyanimal because the students must ensure that on the University of Geneva. But the participa-they have a job in the industry before they can tion can expand in the future.apply to the programme. What is imperative The membership of the scientific committee hasto Professor Vassalli is that the courses extend not been finalised and the research themes arebeyond practical topics. “The academic teaching Jean-Dominique Vassalli, Rector of the University still to be identified. Many research projects willmust broaden perspectives. For example, ethics of Geneva and President of the SRIC foundation. be initiated by students of the Masters Program-and human rights are important to Geneva. They me. They can also be proposed by partners andmust be included in the curriculum”. between people from different backgrounds, a take advantage of a variety of complementaryThe research institute is a multi-stakeholder ven- ground for cross-fertilisation. We would like to approaches. “Some assignments may originateture. It involves the academic world, the com- reinforce the presence of NGOs as they encou- from corporate mandates. However, the institutemodity industry, Swiss authorities at federal and rage keeping a critical eye”. Although formally is not meant primarily as a service to companiescantonal levels. “The institute is a partnership SRIC is a separate entity from the university, but as a true research centre”.  Interview Nicolette de JoncaireACADEMIC PROGRAMS IN COMMODITY TRADINGA UniqUe opportUnity to link the AcAdemic And professionAl worldMASTER Of ARTS IN INTERNATIONAl DIPlOMA Of ADvANCED STuDIESTRADING, COMMODITY fINANCE IN COMMODITY TRADINGAND ShIPPING A 1 yeAr execUtive progrAm for professionAlsA UniqUe And innovAtive 18 months AcAdemic progrAm who wish to stUdy while working.linking the theory with A long term trAineeship foryoUng stUdents with A BAchelor degree. 12 modules of 24 hours 36 ECTS CrEdiTS24 modules of 24 hours120 ECTS CrEdiTS taught by experts and professors in commodity trading, shipping and trade finance.taught by high level academics with a mix of experts from thecommodity trading, shipping and trade finance industry. www.commoditytrading.chwww.tradingmaster.chBoth University Programs were created in 2008 and have acquired an excellent reputationlocally and internationally.

PAGE . Special Edition | April 2015 | Commodities ||| A Swiss hub for a global futureNatural resources provide opportunitiesfor sustainable economic developmentAction to promote good In particular, there is a need to foster transparent Swisscontact reflects responsible business practices. Thisgovernance is urgently needed. governance structures through which efforts to is convinced means transparent contractual relations, protec-This is an important element meet the challenges of sustainable development that the tion of health and safety at the workplace, theof Switzerland’s development can be supported on the regional and even natio- industry’s SRIC unity of job and family, and opportunities forpolicy. nal level. Here, it is vital that the business com- platform further continuing education – especially for munity shoulder the responsibility: In order for can open up women – as well as fair conditions of produc- Samuel Bon business to be sustainable, it is of primary impor- pathways tion along the entire value chain. tance for it to consider and address social as well toward There needs to be various mutually reinforcingS CEO, Swisscontact as environmental factors in the extraction and sustainable instruments applied to ensure that raw mate- wisscontact regards raw material trading of raw materials. Focusing on sustainable economic rial wealth is used for sustainable development. extraction as an important driver economic development that is inclusive of disad- practices. These range from transparent legal and taxation for increasing state revenues, sus- vantaged populations and addressing environ- systems in producer countries to certification tainable economic growth, and a mental challenges with rigour will open up new systems, on to strengthened local administrative corresponding drop in poverty ra- opportunities for all stakeholders in the future. bodies tasked with implementing and overseeing tes. Although, for these reasons, raw Swisscontact supports the development of in- environmental and social standards, all the waymaterial wealth offers an opportunity to impro- novative business models adapted to local and to involving local communities, businesses, andve living conditions for society, most developing regional contexts in order to harness the great civil society organisations. Swisscontact wishescountries are unable to use this available poten- potential of new and renewable raw material to reduce the discrepancy between raw materialtial to the benefit of the general population and resources. This includes energy-efficient pro- wealth and poverty, as well as to better mobilisedisadvantaged groups specifically. Reasons for duction, systematic waste management, urban domestic resources to fight poverty. Countriesthis include limited abilities of government ins- waste water treatment alongside potable wa- rich in raw materials should not slip into corrup-titutions to regulate the sector, weak law enfor- ter provision, renewable energy, sustainable tion and violent conflict, but continue to developcement, environmental destruction, precarious construction, and clean air in cities. In addition, instead. This is an important element of Swit-work conditions, and massive capital outflows it is important to promote awareness of the risks zerland’s development policy. At the same time,abroad. Thus, policymakers and business in the- from environmentally hazardous and resource- countries should develop into strong suppliersse countries have a special responsibility. intensive production and consumption models. on international raw material markets. Promo-Based on its mandate, Swisscontact is highly in- This will effect a change in thinking in the po- ting “good governance” both in raw materialterested in developing approaches to mitigate the pulation; the need for corresponding laws and producer countries and in international businessnegative effects of extracting and trading raw sustainable products thus increases. Action to can serve as a goal.materials, in collaboration with all stakeholders. promote “good governance” is urgently needed, Swisscontact is convinced that the industry’s because institutions and decision makers must SRIC platform can open up pathways toward be accountable for implementing initiatives sustainable economic practices. Correspondin- locally and nationwide. Furthermore, disclosing gly, the foundation hopes to enhance exchange payments from businesses in the raw materials with all its partners. In upcoming discussions, it sector as well as revenues of raw material pro- hopes to offer its many years of experience im- ducer countries is paramount. plementing international development coopera- Finally, corporate social responsibility (CSR) tion projects. Trading Forum 2015How commodity traders try, with alignment to our US and EU partners The commodity radigms seem to shift towards sustainability, onconfront market, financial vital to avoid contradictory rules. With trading trading industry the ground pledges are altered by market for-and climate uncertainty. firms owning more physical assets, they have faces new ces. For instance, the sugar/ethanol mix from been more exposed to scrutiny and regulation. challenges. Brazilian sugarcane feedstock is influenced byColine Quinty, Cotecna Inspection SA, Elisa Marques The effects of sanctions were also addressed: Beyond external factors, exchange rates and commo- they affect the ability to move commodities, to regulations dities prices that largely affect the energy mix.Mda Mota, Gerald Group, William Ashbee, Gunvor SA.* obtain insurance and provision of finance, since and sanctions, Communication and collaboration between dif- arch saw members of the they provoke risk aversion among banks. Mo- it wants to ferent market actors will be critical to overcome Geneva commodity trading reover, market participants are not certain about address the these hurdles. industry gathered at the what is subjected or not to sanctions, so they will issues of Alexander Keck (WTO) introduced his modera- Fédération des Entrepri- move away from sanctioned countries. sustainable tion by stating that a large proportion of com- ses Romandes for the an- Pietro Poretti presented the importance of trans- development. modities are sourced from some of the poorest nual Commodity Trading parency as a tool for fighting corruption. He ar- countries in the world. The challenge and oppor-Forum. Amongst the delegates were traders gued that the Extractive Industries Transparency tunity looking forward is infrastructure; whetherthemselves, industry experts, NGOs, academics Initiative (EITI) can increase transparency in the financed by the private sector, the public sector,and current and past students. Having been wel- trading industry, since it allows governments to or both, under Public Private Partnerships. Guycomed by Professor Bernard Morard, University report earnings that they received from trading Hogge (Louis Dreyfus) cited the lack of access toof Geneva, David Fransen, President STSA and companies. Trafigura has received praise for ha- capital of the 500 million small farms globally,MD Vitol SA, Pierre Maudet, State Councilor, ving taken a voluntary initiative to join EITI, leading to farmers being “price takers”. The im-and Samuel Gayi, UNCTAD, three separate going against the trend that “Switzerland is not portance of coal for emerging economies was thepanels discussed trading in the context of mar- a regulation maker, but a taker.” reccurring theme of Simon Goslar’s (Mercuriaket risk, financial uncertainty and sustainability Complex challenges are faced nowadays in Energy Group) talk, combined with the obliga-concerns. order to make sustainability work in the energy tion of investors to build infrastructure aroundDominique Le Doeuil (Cargill), David Fyfe and agricultural commodity markets; that was their projects. David Uzsoki (IISD) and Simon(Gunvor), Martin Everts (Axpo Holding), Pietro the overriding theme espoused by Alfred Evans O’Connell (Mercy Corps) highlighted the needPoretti (EFTA) and Erwin Bollinger (SECO), (Islan Investments), Claudiu Covrig (Platts/ for well thought out partnerships between theunder moderator John Gault (Graduate Institu- Kingsman) and Iain Henderson (UNEP FI), mo- public and private spheres, offering solutions suchte) discussed “The Impact of Government Regu- derated by Margot Hill Clarvis (IOES). Consu- as Resource Financed Infrastructure. Alexanderlations and Sanctions on Trading and Traders”. mer pressure has been driving this transition Keck returned to conclude that often the aimsGuest speakers from trading companies em- to an extent, especially for products like coffee. of all the stakeholders align, with a combinedphasised the importance of derivative markets. High profile consumer firms have committed to approach often creating dividends for all.There was a clear consensus that some of the res- sourcing raw products responsibly, forcing pro- Stéphane Graber (Secretary General, STSA)trictions by regulators might provoke negative ducers to adapt. concluded that above all else, the industry inexternalities; smaller players would be squeezed However, places of consumption are discon- Switzerland needs to be optimistic in confron-out, liquidity would decrease and price informa- nected from places of production, so the role of ting its challenges, with all parties strongly focu-tion would no longer be possible. Consistent yet regional landscape scale initiatives is essential sing on solutions. tailored regulation is key for the trading indus- to support these private actions. Public policies are key drivers of change, provided they offer *Master of Arts in International Trading, Commodity Finance and a flexible, market-efficient toolkit. If trading pa- Shipping, 7th Intake Students.



PAGE . Special Edition | April 2015 | Commodities ||| REGULATIONS & SANCTIONS InterviewDominique Le Doeuil | CargillAdvantages and pitfalls of regulatory guidelinesFounded 150 years ago, Car- gill provides food, agricul- swings. If commodity operators can tural, financial and indus- no longer access derivatives to hedge trial products and services their physical positions, no one will worldwide. The company quote prices beyond a few days in the operates between raw ma- future. Liquidity will disappear and volatility may actually increase.terial producers and consumers, a lands-cape that has been described as “from Is it correct to claim – as some do – thatfarm to fork”. In Switzerland, Cargill commodity trading is insufficientlywas established nearly 60 years ago and regulated?has been one of the longstanding com- Commodity markets are extremelymodity trading companies around Lake regulated. We have US regulations,Geneva. As enhancing regulations in the EU regulations and specific countrycommodity trading sector is a hot topic, regulations overlapping. Internatio-Dominique Le Doeuil, Vice-President of nal commodity houses such as Car-Finance, explains what he perceives as gill have hired teams of compliancethe advantages and pitfalls of regulatory specialists to figure out how to ope-guidelines. rate in compliance with the relevant rules across the relevant jurisdictions.How do you perceive the trend in regula- This is a challenge. We encourage thetory enhancements? various regulators to agree on com-The current trend of generic financial mon standard so we could operate onregulations on commodity markets is a consistent playing field.not a positive development for pricetransparency and market liquidity. We Do you have an example?understand and support that regulators Take the example of the latest “Direc-may want to avoid a repeat of the 2008 tive on Markets in Financial Instru-financial crisis, but since commodity ments”, otherwise known as MiFIDmarkets were not a main feature of the II rules. The technical rules currentlycrisis, it raises the question of how re- under discussion suggest that freightgulators should apply financial market should be considered as a separateconcepts to commodities, a sector that is commodity, as opposed to a servicewidely accepted as offering transparent to move commodities. This proposalpricing and not presenting a systemic would severely restrict freight com-risk of failure. Inappropriate restrictions panies in their efforts to manage priceon hedging would affect all market par- risk. Such inability would mean lessticipants including commodity houses market liquidity, less price transpa-but they would also affect all companies rency and less willingness to committhat buy or sell commodities. As you can from for vessel operators. Over time,imagine, this is a rather large portion of this would achieve the opposite ofthe world’s economy… the desired effect. Hence our current involvement in a multi-stakeholderHow would this happen? DOMINIQUE LE DOEUIL. VICE-PRESIDENT OF FINANCE, CARGILL consultation process, whereby regu-I need to make a few background com- 1986 Graduates from Institut Supérieur du Commerce, Paris. lators are trying to better understandments to illustrate this. Cargill’s core 1987 Joins the Financial Markets Division of Arthur Andersen & Co – London the impact of the draft rules on diffe-business is buying and processing agri- and graduates from the Institute of Chartered Accountants in England and rent markets.cultural raw materials. At a basic level, Wales (ICAEW).we move raw materials from areas of 1992 Joins Cargill PLC in the UK. What do you expect of Swiss authoritiesproduction surplus to areas of deficit. 1995 Moves with Cargill to France, South Africa, Russia and Belgium, holding in terms of regulation?To do so, we have to manage a variety various finance or business leadership roles in trading and processing Commodity houses operating interna-of risks and our business is only viable businesses. tionally from Switzerland are alreadyto the extent that we are able to neu- 2008 Moves to Cargill Geneva and becomes Vice President – Finance, in 2012. subject to a multitude of regulations,tralise some of the risks in our supply mostly coming from the US and thechains. Some risks can be passed to or EU. We hope Switzerland can refrainshared with other market parties, some can be insured but the biggest risk from adding to the existing complexity, in a way that could negatively im-we face is probably price volatility. Raw material producers who want to pact the trading industry. The commodity trade has positively contributedsell products -or processors who want to buy- have become accustomed to the Swiss economic success over the last decades. With the immigrationto markets where companies such as Cargill can quote a price at any time quota vote, the high level of the franc and the uncertainty over the taxfor any product they trade. The main reason we can commit to moving regime, there are currently many challenges for companies operating frommillions of tonnes of agricultural commodities, food and feed ingredients Switzerland. Let’s keep Switzerland as competitive as it can be.as well as energy products, is the fact that today’s markets give us optionsto hedge price risk. If commodity houses lose this option, they will stop How can the trading sector contribute to building this framework?quoting prices. Producers and processors will then lose the ability to plan We should proactively participate in discussions with the regulators andtheir production cycle from a financial standpoint. If you want to buy a be consulted, as are all other sectors in Switzerland. In our case, whethercar that can only be delivered 6 months later, how happy would you be if from a Cargill or an STSA standpoint, we probably need to better explainyou were told that the price will only be known when the car is delivered! our business and activities and why certain things are done in a particularThe same applies to all industries that have to originate raw materials and way. An over-restrictive framework would impact the economic fabric ofdepend on price availability. We are able to quote prices today because most the country.of the markets we trade are liquid enough to hedge commitments in realtime. If the option to hedge is removed or becomes inefficient, we will no According to some, the voluntary approach to regulation adopted by Switzerlandlonger be able to do so and prices will only be known at the point and time in the field of human rights is insufficient. What is your view?of delivery. Adhering to high standards of business conduct has been important to Cargill since our founding in 1865. We are governed by a Code of ConductHence the pitfalls in the new constraints on the use of derivatives? based on our Guiding Principles. They are ingrained in our culture andWords such as “markets” or “derivatives” have been given a bad name since serve as the foundation for the behaviours expected from all our employees2008. However, commodity markets had little to do with the crisis. Sup- in all parts of the world. We withdraw from certain markets and refuseply/demand became very tight during this period and resulted in several to participate in others because they are not compatible with our ethicalcategories of prices increasing over time. Then demand slowed down and principles. In our view, there is no problem with a legal framework if itprices dropped. It is interesting to note that, during this period of high price applies to all and is harmonised with international requirements. We are avolatility, it is precisely the existence of derivative markets that allowed the US owned company and are subject to the US code of conduct whereverwhole commodity sector, including producers and users, to manage that we operate. To us, a Swiss ethical code of conduct would be nothing newvolatility. Commodity traders are only able to consistently quote prices and but there is a need for consistency with international requirements. Assell at a committed price thanks to the existence of the derivative markets, always, the devil is in the detail. whereas price volatility exists because of fundamental supply and demand Interview Nicolette de Joncaire

PAGE 10. Special Edition | April 2015 | Commodities ||| REGULATIONS & SANCTIONSHow is The negative impactthe sector of misunderstandingsregulated? The lack of understanding industry. Indeed, the predictability of futures re-A multitude of laws and standards of the commodity industry sults is not suitable – by definition – in commodi-apply to every physical product traded. needs constant vigilance of ty trading. This directly implies an objective im-A complex interplay between regulatory the legislative and fiscal edits… possibility to fix the value of goodwill at the endframework and soft law. To prevent negative impacts. of privileged tax regime as planned by the tax reform. In addition and more generally, the step-Patrick McDonald Stefano Granieri up measure could be contestable at internationalResearch assistant, STSA level and it shows major difficulties to determi- DIndependent consultant ne, at each closing, the value of the tax debt inCommodity traders are, contrary to popular belief, espite the fact that commodity financial statements, according to the internatio- not only subject to many different regulations, trading has evolved significant- nal presentation standards (US GAAP, IFRS). but to regulations emanating from many sources, ly during recent years it remains Therefore, STSA were right to oppose to the and designed for multiple industries. Commodity a mysterious and fascinating in- “step-up”. For the industry only simple, sustaina- trading being the diverse, international industry dustry. Indeed, acquiring com- ble and internationally accepted measures should it is, these regulations often overlap and someti- modities in large quantities and be considered in the tax reform, like the overallmes even cancel one another out. on different continents, transporting them as sa- reduction of the corporate tax for all companies.For every physical product traded, there is a multitude of laws fely as possible and selling them to trustworthyand standards applied. These include technical and quality stan- business partners while adding value for all ac- Difficulties in defining correct transfer pri-dards, laws governing transport and delivery, not to mention tors involved remains a challenge. cing for cross-border commodity transac-customs and quarantine regulations which vary wildly from In order to be successful, each transaction needs tions – Public discussion draft of the OECDcountry to country. Additionally, there are financial regulations the active and responsible participation of va- The OECD is currently conducting public proce-to cover almost every type of financial transaction undertaken rious specialists with adequate and diverse skills. dures for a number of proposed actions to fightin the industry. With transactions spanning over several months against Base Erosion and Profit Shifting (BEPS)*.There are then the national and international laws that apply and execution are often filled with surprises, the The Action Plan identifies 15 actions to addressto the industry, and to each trading house individually. These key success factor is to combine the required BEPS in a comprehensive manner, and sets dea-vary from international laws go- competencies in the most effective way. dlines for their implementation.verning maritime activities, to EU Here are two recent examples revealing a not so Action 10 is related to base erosion and profitregulations on ships, and of course It is not good understanding of our industry: shifting in cross-border commodity transactions.national legislation on storage, ex- helpful to talk An inappropriate measure included in the Problems reported by some countries involvetraction and production. Laws and of industry proposed Corporate Tax Reform III difficulties in determining adjustments madeinternational regulation on other regulation. With the so-called Corporate Tax Reform III to quoted prices, verifying the pricing date, andissues that are not meant purely for Regulation (CTR III) Switzerland attempts to remain a accounting for the involvement of other partiescommodity traders are, nonetheless, in commodity competitive location for multinationals and, at in the supply chain.applied to the industry: anti-cor- trading would the same time, reinforces the respect of internal In order to facilitate the handling of tax admi-ruption and anti-money laundering tax legislation with international standards. This nistration, Action 10 allows them to use quotedlaws and regulations, and laws re- be far more CTR III process originated during the financial or publicly available prices (“quoted price”) tolated to human rights and environ- crisis when the weaknesses of the international determine the arm’s length price for a controlledmental protection are all applied to taxation system were under constant scrutiny. commodity transaction.commodity traders. Finally there is The current Swiss practice of tax privileges rela- Commodity trading is often the subject ofregulation that applies to trading efficient if ted to foreign revenues of holding, domiciliary controversy, yet it is widely misunderstood, andpartners – banks and other com- focused on and mixed companies has been increasingly cri- often compared to financial services.mercial entities in particular – that ticised. The main objective of the reform is to However, when we look at the business in de-through our networks, affects our activities abolish the so-called “cantonal tax status” under tail, differences and complexities emerge, as doindustry too. rather than which domestic and foreign profit were subjec- the various uncertainties with which it is besetIt is also important to recognise the sector. ted to different tax regimes. by its very nature.difference and interplay between As a consequence, foreign income – which is If prices for individual commodity trading tran-regulatory framework and soft law. currently benefiting from low taxation thanks to sactions are usually fixed by an initial referenceThese two forms of regulation – one cantonal tax status – will be subject to a higher to prices that are quoted on well-developed com-of which is legally binding, the other optional – can work well in tax rate after the reform. As is the practice in modity exchanges, these “quoted prices” are notcomplementarity, but in order for this to be the case, the regula- Switzerland, the federal administration consul- equivalent to the ultimate commodity prices ne-tory framework must be strong, simple, and effective. From there, ted all interested stakeholders (political and eco- gotiated between the counterparts of any givenvoluntary regulatory standards can be added to further refine the nomic) and invited them to submit a statement transaction. This is due to a complex multituderegulation of the industry. Switzerland is generally quite good at regarding the new reform that includes several of factors, specific to each individual transaction,this type of regulation, but it is important that the industry work measures as part of the same package. which enter into the determination of the finalproactively with the government to ensure well-designed regula- The objective here is not to present all the details price and can account for substantial price dif-tion that the industry can appropriately implement. of the reform but to highlight one of the aspects ferentials.Thus it is clear that far from being under-regulated, the commo- which has been presented as favourable to the One commodity transaction is practically neverdity trading industry must face a plethora of laws, regulations, trading industry, the so-called “step-up”: comparable to another, and that transfer pricingand guidelines emanating from a variety of national and interna- In the case that the cantonal tax status are abo- must therefore be assessed by an analysis oftional actors. Commodity traders now have compliance officers lished, the proposed provision would offer a actual individual transactions.as standard present in their operations to ensure that all necessary tax-neutral step-up – i.e. a self-created goodwill Consequently, the below assertion should be re-laws and regulations are adhered to. generated during the privileged taxation period jected (BEPS Action 10 para. 10):Regulation that targets the industry often shows a misunderstan- would be allowed for tax purposes at the end of “Taxpayers and tax administrations […] take asding of its activities. Indeed, it is not particularly helpful to talk the special regime and followed by a tax effective a reference the standard specifications, on whichof industry regulation at all – regulation in commodity trading amortisation over the next ten years. the price of the commodity is based, used in com-would be far more efficient if it focused on the activities of dif- The step-up essentially would maintain (“grand- modity markets and by price setting agencies”.ferent traders, not the industry as a whole. Regulation relevant father”) the existing tax rates available under thefor oil traders, for example, is probably not going to be useful for current tax regime. Its effect would run for ten Conclusion from these two examples.a small cocoa trader. It is in the interest of the whole industry to years after the reform becomes effective. As already stated with two illustrative examples,push for regulation that is better targeted, simpler, and fairer for However, for conceptual reasons, the step-up the complexity of commodity trading is oftenall actors in the industry.  measure isn’t really applicable to commodity underestimated and the industry needs to be vigilant when tax authorities want to remodel taxation processes.  *The BEPS initiative refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid (OECD definition).

PAGE 11. Special Edition | April 2015 | Commodities ||| REGULATIONS & SANCTIONSCompliance in a trading houseand trends in compliance strategiesReputation is as important to holders who influence their compliance culture One of the most sure that the business that we do and the compa-a trading house as it is to any and processes and traders are accountable to important things nies that we do it with meet our standards.company and takes a lot of time these stakeholders. For example, most commo- for effective Compliance is a key and strategic function wi-and effort to build up. dity traders are heavily reliant on financing and compliance thin large trading companies with direct access that financing is only available to us if we can in a company to management and unrestricted access to busi- Victoria Attwood Scott demonstrate to the financing banks that we are is that the ness activities. Compliance has to be a part of the Global Head of Compliance conducting business in the right way. compliance team culture of the company and as such the message There are many areas of focus for compliance is and remains needs to come from the top in terms of what isCMercuria Energy Group teams in commodity trading companies, inclu- close to and what is not acceptable. A small team of com- ommodity traders have histo- ding anti-bribery and corruption, anti-money management pliance professionals will never be able to view rically been viewed as unregu- laundering, market abuse and health, safety and and the every activity and transaction that takes place lated entities, which begs the environment. We have extensive compliance business. and therefore it is important that all employees question: what is the role of programmes which look fairly similar in nature become the eyes and ears of compliance, mea- compliance in a trading house? to those you would find in a traditional invest- ning adequate policies, interaction between com- This view has largely been for- ment bank. These include extensive KYC and pliance and all of the company’s support func-med as a result of many commodity traders being due diligence procedures, infrastructure controls, tions, and training for everyone in the company,private companies, limiting public disclosure policies, training and surveillance. We spend not just the front office. The days of complianceto date, and the fact that they are not regulated a lot of time working with various regulatory being seen as a business prevention function haveby financial regulators. From inside a trading authorities across the globe and with relevant in- gone and compliance is now viewed by business-house the world is very different from this per- dustry associations to communicate our business people as a business protection function helpingception, and compliance is a fundamental part models and work on the implementation of new them to conduct business in the right way.of day to day business. regulations. One of the most important things Reputation is as important to a trading house asThe truth is that commodity traders are subject for effective compliance in a company is that the it is to any company and takes a lot of time andto a raft of regulators and regulations across the compliance team is and remains close to manage- effort to build up. As such, we understand thatglobe and across their activities. Trading compa- ment and the business. Compliance is most effec- any mistake could quickly damage that reputa-nies are often large global organisations with a tive if the compliance team is integrated within tion and have severe consequences for the com-multitude of different national and international the business activities and ideally should be phy- pany and the industry.physical, financial and EHS regulations to com- sically located close to business activities so that Trading companies are spending an increasingply with. The industry understands and respects they can see and hear what is happening and are amount of time with regulators all over the globeits obligations and as such has teams of in house accessible to all employees – it is difficult to get and increasing transparency with all interestedcompliance professionals to ensure compliance a good feel for what is going on from an isolated parties. Traders are also spending a lot of time onand help management to foster a compliance office ! Over the last few years trading companies Corporate Social Responsibility, working with allculture. Commodity traders have many stake- have invested in experienced staff, information stakeholders on solutions for how they can help databases, and monitoring and surveillance sys- to make improvements throughout the supply tems which all enhance the compliance culture chain. Transparent, stable and effective markets and controls. Increasingly, trading companies are are in the interests of all market users and there- using the services of third party experts to help fore we will continue to dedicate the time, resour- them with due diligence and other analysis to en- ce and cost towards ensuring this is the case. A framework fit for purposeAmidst a flourishing regulatoryagenda, is the framework for The financial and economic crises of 2007-2009 The current lack of international coordination for some of thecommodity traders appropriate? rightly led policy makers to aim to reduce sys- one-size-fits- incoming regulatory reforms risks undermining temic risk in derivatives markets and the wider all approach parallel policy imperatives concerning affordable Brian Lewis global economy. Each delivering its own res- leads to many energy and market volatility. Group Compliance Director, Gunvor ponse: Dodd-Frank, EMIR, MiFID 2/MiFIR, material and Today, trading companies are an integral part of FinfraG, and so on. Running parallel to this trend unresolved the global supply chain and users of the globalM oving, trading and ma- were other policy objectives to improve market issues. This financial system. Regulatory authorities need to nufacturing commodities transparency, eliminate abusive behaviours and in unlikely recognise that there are fundamental differen- have changed significantly enhance regulatory reporting. These aims are to assist in ces between physical commodity markets and over the last decade, driven laudable and to be fully supported. optimising financial markets, as well as differences between by a multitude of market However, without regulatory harmonisation, energy different commodity markets: Oil, Gas & Power, and geopolitical events. each region or country’s requirements could im- markets. Metals and Agricultural.This business, of moving and trading commo- pact a company’s ability to hedge price risk, amid The current one-size-fits-all approach has led todities, is markedly different to trading and spe- stretching and more complex supply chains, many material and unresolved issues on positionculating in financial derivatives. The range of which could then in turn undermine any go- limits, transparency, OTC derivative reform,commodities, market participants, and physical vernment’s goal of promoting more predictableinfrastructures involved is both broad and hete- and stable energy markets. Further, other adver- The ultimate policy goal of arogeneous – unlike the homogenous and fungi- se, unintended consequences for physical market robust and internationallyble derivative products traded in many financial liquidity, price discovery and transparency could consistent regulatorymarkets across the globe. ultimately lead to higher costs for consumers. framework is one whichAgainst this backdrop there is a popular miscon- Clear action from regulators and politicians is is in everyone’s interest.ception that commodity traders are “unregula- needed to address this and ensure that the scopeted”. The perpetuation of this myth has become creep into the physical commodity markets re- transaction reporting and potential capital requi-even more nebulous today. At the last count, mains fit for purpose without constraining com- rements for commodity traders. This may reduceGunvor – like its competitors – is answerable to panies’ ability to effectively “smooth out” physi- costs for regulatory authorities in the short term,more than 80 regulatory authorities worldwide cal market disequilibrium through arbitrage. but is unlikely to assist in optimising energy mar-covering health and safety, insurance, emission This creeping program of physical and finan- ket function in the medium to long-term.and environmental control, product, cargo and cial market regulation, frequently differentiated It is therefore critical for commodity traders andcounter-party due diligence, international trade between regions may ultimately affect the tra- other physical market participants to engage withand sanctions legislation and banking, exchange ders’ traditional tolerance of risk and speed of policymakers and financial regulators to ensureand derivatives market rules. response to changing market conditions. This that the complexities and nuances of the commo- would be evident during future episodes of eco- dity markets are understood. The ultimate policy nomic or geopolitical uncertainty and re-emer- goal of a robust, internationally consistent regu- gent heightened price volatility, during which latory framework, which reflects market realities times traders would not be able to buffer wild and promotes healthy growth is one which is in price swings and volatility. It is further uncertain everyone’s interest.  whether they can still perform this function as speedily and effectively amid an evolving and, at times, inconsistent regulatory environment. The

PAGE 12. Special Edition | April 2015 | Commodities ||| REGULATIONS & SANCTIONSImpact of new When and howtransparency do voluntaryregulations standards work?The Swiss government has decided to take Joseph Wozniak A third condition is the regulatory frameworka step further by implementing additional Programme Manager, Trade for Sustainable and functioning institutional environment whe-transparency requirements in order re clear rules of engagement, property rights,to reinforce Switzerland’s reputation. ADevelopment, International Trade Centre particularly land tenure rights, and the enforce- key assumption behind the ment of regulations factor heavily in the success Marc Gilliéron growth of voluntary standards or failure of voluntary standards. Weak or inef- is that they result in a positive fective institutional capacity due to low level ofPPartner Chabrier Avocats social, economic and environ- investment, for instance, can be a barrier to pro- ayments to government by private companies mental impact. But do they real- ducers facing stringent standards in their export have always been subject to a certain degree of ly work and, if so, under what markets. concern and scrutiny, essentially by NGOs. Since conditions? Understanding the contexts in which The implementation systems of voluntary stan- the late 1990s and the beginning of the commo- voluntary standards best deliver their promised dards are equally important when attempting to dities super-cycle, leading economists concluded sustainability outcomes is essential for maximi- gauge impact. Is the standard inclusive and trans- that the economic growth of commodity-rich de- sing their effectiveness. Very few studies simul- parent in its standard setting process, how effec-veloping countries was inconsistent with their huge potential. taneously address the issue of the impact of vo- tive are its enforcement mechanisms and doesOn the contrary, those countries were suffering from poverty luntary standards and the context in which they the standard provide guidance for adaptation toand corruption. have the greatest chance of making a difference local conditions? Moreover, does the standard al-In an attempt to tackle this problem, governments and repre- to producer livelihoods. Most of the existing stu- low for continual improvement in terms of ca-sentatives of civil society have contributed to the emergence of dies centre on agricultural sectors. Nevertheless, pacity and performance or is it just a “check themultilateral initiatives, such as the Extractive Industry Transpa- research conducted by the Trade for Sustainable box” exercise to reach certification, with little torency Initiative (EITI), the purpose of which is to implement Development (T4SD) programme of the Interna- no change in subsequently? Related to this pointcertain transparency standards in relation to payments made to tional Trade Centre (ITC) indicates that positive is whether the standard offers clear and visiblegovernment by certain actors of the extraction industry. EITI outcomes at the production level greatly depend incentives. T4SD is working with brand and re-gained a great deal of attention in the international press when on the context in which the standards are imple- tailer platforms such as AIM Progress and SAITrafigura, a world leading energy trading company, declared its mented, as well as the mechanisms put in place Platform to provide customised supplier self-support of the initiative in November 2014 and committed to for implementing the standards. assessment tools to foster longer-term supplier-align its internal policy with the EITI principles and transpa- The T4SD programme covers voluntary stan- buyer relationships that go beyond compliancerency requirements. dards pertaining to a wide range of sectors and focus on continuous improvement.National legislation in western States has also experienced im- including agricultural commodities, textiles, As the above points indicate, the impact ofportant changes recently. The United States has enacted transpa- electronics and mining. Information on initiati- voluntary standards on production processesrency rules in the Dodd-Frank Act, requiring certain disclosure ves such as the Alliance for Responsible Mining, is debatable. Drivers of impact should not beby natural resource extractive companies that are subject to the the International Council on Mining and Me- viewed in isolation since separate cases oftenreporting requirement of the US Securities and Exchange Com- tals (ICMM), the Responsible Jewellery Council cannot provide a learning experience for othermission, whereas the European Union amended its accounting (RJC), and many others can be found on T4SD’s producers in other geographical contexts. ITCand transparency directives and imposed on public companies web platform, Standards Map (www.standards- works with buyers and producers using a holis-and large undertakings active in the extractive industry the dis- map.org). Unique in its kind, it provides compa- tic approach comprising multiple examples toclosure of payments above EUR 100’000 to governments. rable data on over 160 voluntary standards and create the conditions for voluntary standards toSwitzerland does not produce nor export commodities, and thus a self-assessment tool for companies interested have the most positive impact at the producercannot join EITI. However, it is an “EITI Supporting Country” in understanding their current performance level. This especially involves increasing trans-and as such supports the initiative financially. But the Swiss go- vis-à-vis standards requirements. parency and reducing transaction costs throughvernment also decided to take a step further by implementing Voluntary sustainability standards have histori- producer self-assessments, customised on-lineadditional transparency requirements in order to support the dis- cally been focused on a few products and indus- portals and on-the-ground assistance to improvecovery and prevention of corruption, serve the public interest tries, and have produced desired effects within value chains.and reinforce Switzerland’s reputation as a significant, reliable certain value chains. Case studies show that sus- In October 2014, ITC launched the T4SD Prin-business location for the commodity industry. A “Transparency tainability initiatives aimed at commodities such ciples at the first “Trade for Sustainable De-Report” and a draft bill were published in November 2014 and as coffee, bananas, cocoa, tea and sectors such as velopment” Forum in Geneva. ITC invites allcirculated for public consultation. horticulture have had a high market penetration organisations interested in working with T4SDThe good news is that the proposed Swiss transparency rules in certain developing countries, while forestry to endorse these principles:are aligned with European standards (yet to be implemented by and fishing are the two main industries covered  SustainabilityMember States): Swiss companies that are subject to mandatory by voluntary standards at the global level. Support and promote sustainable trade practices,audit and active in the extractive industry will have to publish Additionally, types of linkages within value with regards to social, environmental, economicevery year a report listing all payments above CHF 120’000 chains play an important role when it comes to and management, quality and ethics issues atmade to governments. The list of “in-scope” payments overlaps standards implementation. According to some stake in the production, processing and tradingto a large extent the EITI program and the EU directives. studies, in well-organised “hierarchical” value of goods and services.The more concerning news is that the draft bill opens the door chains based on direct and long-term business  Transparencyto a potential adjustment of the regulation in the future and its relationships, it is easier to implement voluntary Contribute to enhancing efficiency in globalextension to pure trading companies that are not active in the codes thanks to existing incentives and buyer- supply chains by clear display of openness toextractive industry. Such an extension, if implemented unilate- led quality demands. On the other hand, arms- sharing good practices, to foster transparency,rally by Switzerland, would clearly go beyond the international length, short-term relationships can often inhibit trust and inclusiveness at all levels of globalstandards mentioned above and would thus potentially create a the implementation of standards. supply chains.significant competitive disadvantage or distortion for Switzer- Different initial conditions in terms of macroe-  Harmonisationland as an international trading hub. conomic and social environment and individual Build on existing resources and methodologiesAdmittedly, the draft bill limits the ability of the Swiss go- producer preparedness may also create a “selec- with a collaborative approach avoiding duplica-vernment to make such an adjustment to situations where the tion bias” in terms of ease of implementation of tion that may provoke proliferation of standards,“international circumstances would have changed”. But the ab- standards, and their impact. For example, produ- multiplication of audits or assessment methodo-sence of any clear definition of what these “circumstances” could cers who face lower standard compliance costs, logies.be sounds like a blank cheque in favor of the Swiss government. are better-skilled or are at a higher level of develo-  Sustainable development goals (SDGs)The Swiss trading community remains concerned about a possi- pment find it easier to implement new standards, Act in alignment to the United Nations post-ble “Swiss finish”. NGOs such as the Bern Declaration and Swis- but tend to show reduced net positive effects of 2015 Development Agenda, which builds uponsaid have indeed already widely criticized the draft bill, calling it certification as they are already at a substantial the Millennium Development Goals with a view“schizophrenic” and “window dressing”, and it is therefore anti- level of performance and capacity. Impact po- to developing a set of global sustainable develo-cipated that they will continue to press Switzerland for a more tential is therefore greater for beneficiaries with pment goals.radical approach. Will the government resist?  lower preparedness and fewer economic resour- Voluntary standards are a growing part of the ces as they can benefit more from compliance, trade landscape and are here to stay. We must for example through increased access to finance, now move towards ensuring that they become a training, market linkages and information. tool for more sustainable trade and eliminate the contexts where they become obstacles to global commerce. Working with the private sector will be essential towards this goal. 

PAGE 13. Special Edition | April 2015 | Commodities ||| REGULATIONS & SANCTIONS InterviewErwin Bollinger | SecoThe Swiss approach to sanctionsA s a neutral country and member of the United zerland’s role as a neutral and indepen- Nations, Switzerland at- dent country was very much focused on taches great importance trying to find a diplomatic solution to the to the respect of inter- conflict. Russia is the 15th most important commercial partner of Switzerland repre- national law, including senting approx. 1.5% of its total exportshuman rights. With regard to internatio- (3 billion Swiss francs) and approximatelynal sanctions, the Swiss Government can 1 billion Swiss francs of imports. Theedict coercive measures to apply sanctions bilateral trade with Russia is considera-decided by the United Nations Security bly higher than the trade with Iran butCouncil, by the OSCE (Organisation for far from reaching the levels of our mostSecurity and Co-operation in Europe) or important trading partners. With everyby its main commercial partners. Since single sanctions regime, Switzerland has1st January 2003, the Federal Act on the Im- to weigh all aspects, including economicplementation of International Sanctions interests as well as peace promotion in its(Embargo Act) constitutes the legal basis decision whether to adopt, fully or par-for the implementation of sanctions en- tially, EU sanctions.forced by Switzerland. The Embargo Act However, Switzerland never implemen-is a framework legislation that regulates ted US sanctions. In the case of Ukraine,general matters (aim, scope, duty of disclo- for example, the EU has decided to freezesure, supervision of compliance, data pro- funds and other assets of listed persons,tection, administrative & legal assistance, whereas Switzerland does not block theirrights of appeal and criminal provisions). bank accounts but only prohibits themErwin Bollinger, Deputy Head of the to open new ones. Existing business re-Directorate for Bilateral Economic Rela- lationships have to be declared to SECO.tions and Head of Export Controls and Switzerland has applied the same notifi-Sanctions explains the operational proce- cation obligation for goods useable for thedure of SECO (State Secretariat for Eco- Erwin Bollinger. Deputy Head of the Directorate exploration and extraction of oil from the for Bilateral Economic Relations and Head of deep sea, the arctic sea or shale oil, whe-nomic Affairs) in the context of sanctions Export Control and Sanctions Policy at SECO.and possible impacts of international sanc- 1989- Graduates as lawyer (Univ. Berne) and obtains diploma as attorney reas the EU prohibits these activities. Astions on the trading sector. The sanctions 1992 (Canton of Berne) - LL.M. in International business law (Univ. Zurich). a consequence of its non-recognition ofunit within SECO consists of nine peo- 1992 European Integration Office, Swiss Federal Administration; involved the annexation of Crimea, the import ofple responsible for implementing sanc- in negotiations of bilateral agreements with the European Union. goods from Crimea to Switzerland is onlytions and controlling the respect of these 1995- SECO, World Trade Division: Diplomatic Counsellor at Swiss permitted when accompanied by a cer-sanctions. The Swiss Federal Council has 2005 Mission to the European Union in Brussels in charge of economic tificate of origin issued by an Ukrainianenacted more than 20 ordinances since the policy issues then Deputy Head of the Division for Bilateral Econo- authority. Futhermore the export of cer-coming into force of The Embargo Act, mic Relations with European countries. tain goods as well as technical assistance,which were prepared by SECO together 2005 SECO, Head of Export Control Policy Division. loans and credits in relation with infras-with other federal agencies, primarily the 2008 SECO, Deputy Head of the Directorate for Bilateral Economic tructure projects in the area of transpor-Federal Department of Foreign Affairs. Relations and Head of Export Controls and Sanctions Policy. tation, telecommunication and energy or for the utilization of oil, gas or mineralHow does SECO ensure that Switzerland is resources are prohibited.not used to by-pass the US and/or EU sanctions?The Embargo Act provides the legal basis for the Federal Council to imple- In how many cases did Switzerland follow an autonomous policy towards sanctions?ment sanctions taken by the United Nations Security Council or our main Every time Switzerland takes sanctions outside of the mandatory imple-commercial partners, i.e. the EU, but does not allow going beyond them. mentation of UN Security Council decisions, these sanctions have to beIn the specific case of Iran, Switzerland implemented all UN sanctions regarded as autonomous sanctions, even if they are closely aligned to theas well as most EU sanctions. Given Switzerland’s neutrality, its policy EU. In the specific case of Iran, as Switzerland defends the US interests inof Good Offices and its commitment to targeted sanctions, Switzerland, Tehran, it is important to keep an independent position and thus remainstopped short of sanctions against the Central Bank and the oil embargo credible to all partners in order not to jeopardize our diplomatic role. Ourby the EU. Not being a member of the EU, Switzerland decides on a case- role of protecting power has a high priority. For economic reasons, we alsoby-case basis whether to adopt EU sanctions fully, partially or not at all. share an interest in continuing commercial trade with Iran. In 2007/2008,Since the war in Iraq, where comprehensive economic sanctions were the amount of our exports reached about 800 million francs per year, whe-taken with the risk of an indiscriminate impact on a country which can reas in 2013, they dropped 50%, below 400 million. Different sanctionsentail severe negative humanitarian consequences for the civilian popula- have been suspended by the EU and subsequently by Switzerland suchtion, Switzerland, together with the United Nations, other governments as the prohibition of trading precious metals with Iranian public entities.and private sector representatives initiated a dialogue aimed at identifying Furthermore, a declaration is not needed anymore for the trade of petro-methods of applying sanctions in a more targeted and effective manner. chemical products, the transport of crude oil and insurance contracts inTargeted sanctions are intended to be directed at specific individuals, com- connection with the trade in oil, oil products and petrochemical products.panies and organisations, or restrict trade of specific goods. The following A delegation led by Livia Leu, Head of Bilateral Economic Relations andinstruments can be applied: financial sanctions (freezing of funds and member of the management of SECO as well as former Swiss ambas-other financial assets, ban on transactions, investment restrictions), trade sador to Iran, and composed of government and possibly private sectorrestrictions on particular goods (e.g. arms, diamonds, oil, lumber) or ser- representatives, is planning a fact-finding mission to Iran this month invices, travel restrictions, diplomatic constraints, cultural & sports or air order to take stock of economic relations and explore the potential of itstraffic restrictions. Again in the case of Iran the slight differences to the future development.EU sanctions proved to be very useful, as it enabled Switzerland to acti-vely support the implementation of the Joint Plan of Action between the Is there any incompatibility between neutrality and participation in economicP5+1 (the five permanent members of the UN Security Council: the US, sanctions?France, the United Kingdom, China and Russia and Germany) with Iran One should distinguish between neutrality policy and neutrality law.in November 2013. Switzerland, together with the Central Bank of Iran, While neutrality law obliges Switzerland to stay out of armed conflictshelped repatriate important parts of blocked Iranian assets and facilitate between other states, neutrality policy is a tool of the Federal Council tothe financing of medical products and other humanitarian goods. In line give credibility to Switzerland’s neutral position.with the EU, Switzerland has also raised the thresholds for financial trans-fers from 50’000 Swiss francs to 500’000 (for authorisations) and from Can embargoes be used for political pressure? As seen in the case of the US10’000 to 100’000 (for notifications). and BNP Paribas? Does SECO see the same risk of politicisation in the case of the conflict between Russia and Ukraine?What is the specific Swiss situation in respect of sanctions against Russia? Sanctions are always a political tool. Even though not always a perfect so-And Ukraine? lution, they are preferable to a military intervention. They can also be use-The Swiss Federal Council in March 2014 decided not to implement inter- ful in support of diplomatic actions. In the case of Ukraine, it is obviousnational sanctions against Russia, but to adopt measures to avoid circum- that international sanctions are accompanying and supporting diplomaticvention of international sanctions given the worrying situation in Ukrai- measures. In the case of BNP Paribas, the Swiss Financial Market Super-ne. Some of these measures are not limited to Russia only and also apply visory Authority FINMA took action against the bank, because it did notto transactions on Ukrainian territory. During its presidency of the OSCE sufficiently control and limit risks associated with US sanctions. (Organisation for Security and Co-operation in Europe) last year, Swit- Interview Elsa Floret

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PAGE 15. Special Edition | April 2015 | Commodities ||| CSR, CLIMATE & ENVIRONMENT InterviewJ Tohn idmarsh | R20 Regions of Climate ActionHow should traders respond to climate change?R 20 Regions of Climate Ac- tion are an NGO started by practice. Firms must not only adhere to the- Arnold Schwarzenegger at se norms but would be advised to seize the the end of 2011. Its mission opportunity to work with relevant stake- is to support the development holders, to lead in developing new norms that are fit-for-purpose, as well as sourcesof low-carbon and climate of opportunity.resilient economic development projects inrenewable energy, energy efficiency, waste Beyond social environmental and economicvalorisation and transport sectors. Because responsibility, what are the issues?projects are seldom attractive to financial in- The impact of climate change in particularvestors, far fewer are being built than demand can have substantial impact on the profi-would otherwise suggest. R20 addresses the tability and very survival of firms as theyissues that impact the financial attractive- are structured today. Diligence must there-ness of projects by bringing policy makers, fore go well beyond such issues of respon-the private sector and investors together in sibility, to consider for example how hardthe development of portfolios of “bankable” assets may be impacted by climate change,projects. We asked John Tidmarsh, Chief In- such as ports being damaged by extremevestment Officer at R20 Regions of Climate weather and rising sea levels, or how chan-Action, how commodity traders should res- © Carla Cavanna O’Donnell ging patterns of climate might affect thepond to climate change. geography of agricultural production, and thus the value of land and transport infras-What are the prerequisites of successful climate tructure, weighing heavily on the balanceresilient development projects? sheets and investment portfolios of firms.The only way to reach climate and develo- And consequences do not end there. Severepment objectives is to encourage the large disruption to supply of commodities mayscale deployment of low carbon infrastruc- John Tidmarsh, Chief Investment Officer furthermore create extreme volatility inture; this will be possible if projects deliver at R20 Regions of Climate Action prices, presenting opportunities as well asfinancially attractive results to profit oriented 1988 Studies Modern Languages and Global Security at University threats to trading business.investors. We have observed that while go- of Cambridge.vernment commitment is strong, technology 1992 Joins De La Rue PLC in general management fast-track, What is the greatest opportunity being drivenis available at a reasonable cost, and investors works in five countries. by climate change?are potentially willing to deploy significant 2004 Obtains MBA at University of Cambridge and joins Swicorp Energy is a particularly interesting sector,amounts of capital to build and operate pro- investment bank in Egypt and Saudi Arabia. not least because it is essential to economicjects, few projects are financially attractive 2007 Launches cleantech venture capital fund in partnership activity and to development. Generation andor adequately address market, regulatory or with the European Space Agency. use of energy nevertheless produces climatepolitical risk. R20 have proven that by buil- 2012 Becomes cleantech and sustainability Director at EY change gases that are altering our climate.ding on political commitments of sub-natio- (Ernst & Young), starts sustainable funds practice. The United Nations has successfully asso-nal and national governments, associating 2013 Joins R20 Regions of Climate Action as Chief Investment Officer. ciated the international development agen-government, business, technology and inves- da and the climate change agenda – creatingtors around shared objectives, financially at- the concept of the “green economy”. Ensu-tractive projects can be developed, replicated and scaled up. Our mission is ring that development uses “green technologies” that are deployed withtherefore to build on government commitments, and to develop industrial an understanding of their social economic and environmental impacts canand financial solutions that will develop attractive investment opportuni- help nations and populations to drive economic development while redu-ties with positive economic social and environmental impacts. cing negative impact on climate and the environment and often producing positive impacts in health, education and security. This combined returnHow should commodity traders address climate change? is referred to as “the positive agenda” and is driving unprecedented mo-No one commodity trader is the same and each must therefore deploy mul- mentum in encouraging collaboration between public and private sectors.tiple and different strategies to respond to climate change. Each commodity Not least it is laying the foundations of what will potentially be a massiveand its associated value chain will be impacted in a different manner. The investment opportunity.first challenge is to understand the impact of climate change on the valueand supply chains of the industries and a good place to start is considering How do R20 intend to support this effort?the impact of climate change on supply and demand. In the short term According to the International Energy Agency as many as seven out of tenclimate impacts may affect supply, driving pricing volatility. Over the long people living in Sub-Saharan Africa have no access to electricity. R20 are interm the emergence of alternatives to certain commodities, not least fossil the process of deploying a renewable energy project development platformfuels, may influence demand that will affect pricing and the long term va- in West and Central Africa that will bring 1GW of solar energy infras-lue of hard assets such as mining concessions. Conversely variations in sup- tructure projects to international investors. This represents an approximateply and demand will drive opportunities in new sectors such as renewable investment opportunity of US$1.7 billion, in which large private inves-energy infrastructure, or indeed key minerals that are necessary for the tors have already expressed their keen interest. The platform will take suc-construction of such assets. The latter is an interesting example: for some cess fees from investors in projects, and will reinvest these in developingsolar PV technologies, the production of the required input materials to more projects. A donation of US$3.5 million will bring the first projectssupport projected solar energy growth would need to expand at a rate ne- to financial close, generating fees and making the platform financially self-ver before seen in the metals industry, according to a new analysis by MIT sufficient. R20 intend to apply this model in other geographies and withresearchers. In the energy sector long-term change will be felt in terms of other technologies, such as LED municipal lighting, waste collection, sor-new consumer behaviour resulting in switching to new technologies away ting, valorisation and treatment and energy efficiency in buildings. R20from fossil fuels and to an energy mix with a far greater share of renewa- and other organisations are interesting partners, not only allowing firms tobles. Governments are encouraging such a shift, not least as cost competi- demonstrate engagement with key development and climate change issues,tive alternatives now exist. Patterns of consumption will evolve and the but just as importantly as a means to diversify their investment activities,strategies of firms involved in the sector must change. The opportunity for and even to test new markets.commodity traders need not be spelt out. Climate change is creating bothrisks and opportunities that must be understood so that strategies may be How do R20 engage with private industry to support its objectives?deployed both to protect and capture value. R20’s not for profit status allows it to work with government to help create attractive environments for private sector interests, and to identify the mostOnce this assessment has been completed, what next? appropriate technology and expertise at competitive prices by opening mar-Issues are multiple and different for all firms, and climate change cannot kets to competition. It can help ensuring that projects deliver the best resultsbe considered in isolation. All firms must decide what their positioning is at prices consistent with attractive financial return, promoting the replica-with regard to the impact of their operations on the economic, social and tion and scaling up of their deployment and the emergence of efficient andenvironmental issues of our time – and of future generations. Firms have transparent markets. To name a few, R20 is already working with globalimmense direct and indirect influence over these impacts; it is important companies such as Philips Lighting for LED street lighting, Khatib & Alamitherefore to anticipate and to avoid negative consequences of not exerci- in construction, Zero Waste in waste treatment, but also with smaller com-sing this influence responsibly. But firms can also exercise this influence to panies such as the Swiss firm Energy 8 working on waste management inaffect positive impact, perhaps in compliance with the values of the firm China, and Akuo Energy, a French renewable energy developer working onand its employees but also as potential source of competitive advantage. a 50MW solar energy plant in the Kita Province of Mali. Increasingly, industry groups and NGOs are developing norms to guide  Interview Nicolette de Joncaire

PAGE 16. Special Edition | April 2015 | Commodities ||| CSR, CLIMATE & ENVIRONMENTMeteorology applied to commodity tradingElectricity markets are highly The impact of weather on commodity markets Climate change Japan, while wind capacity has also continued todependent on weather. Accurate can be categorised in the following ways. Firstly, is expected to expand globally. Simultaneously, climate changeforecasts and correct conversion gas and electricity markets are strongly influen- not only result is expected to not only result in higher tem-from meteorological to energy ced by continuously updated forecasts about in higher peratures but more importantly, significantlyvariables are absolutely essential. temperature, wind, sunshine and precipitation temperatures increased temperature extremes. Stronger mid- from intraday perspective to weeks-ahead. For but also in latitude storms and tropical cyclones are expec- Stefan Meulemans an example, oil, coal and soft commodity mar- significantly ted to become more intense. Extremely warm kets tend to be more driven by large meteorolo- increased summers and summer droughts will becomeOMeteorologist GDF Suez Trading gical events. temperature more prevalent while colder winters – though ur world and the global ener- For electricity markets, it is not only essential to extremes. less frequent – will likely maintain their inten- gy landscape are changing at make accurate weather forecasts but to always sity. In years to come a combination of globally an increasingly rapid pace. be on top of the correct conversion from me- growing the renewables supply, combined with Markets are increasingly wea- teorological to energy variables. Consequently, climate change is expected to further increase ther dependent and now, more the meteorologist must know what percentage commodity market volatility. than ever, it is important to re- of electricity production in a given market area The growing impact of meteorology makes itcognise the strategic importance of meteorology comes from renewable production including necessary for traders to have access to weatherfor global commodity markets. the exact location of solar and wind turbine pattern databases specifically designed for di-In a commodity trading environment, the me- sources.teorologist’s current role is to assess the weather Therefore, traders should be meticulously in- The combination of globallyrisks instigating daily market moves. Additional- formed about the climatology of renewables growing renewable supplyly, operational meteorological risk of assets and production throughout the year as several other and climate change willshipments must be determined. meteorological factors are also important. Cur- further increase commodityOn an hour-to-hour basis, new data from the tailment of wind production during stormy market volatility.main global weather models are monitored. Sub- weather conditions comes to mind as well as si-sequently, the meteorologist conceptually inter- gnificantly reduced solar production in the event verse global market regions. By visualising suchprets the latest developments which may affect of sudden snow. patterns cartographically, a heuristic tool will beglobal commodity markets. In daily interaction Defining a confidence interval for expected wea- made available to traders so they are informed aton the trading floor, the main challenge for the ther developments is essential for analysing mar- a glance about how the latest weather forecas-meteorologist is consistently communicating the ket conditions. Chaotic weather forecasts will ting developments impact their decisions.possibilities of various weather scenarios, their result in volatile market conditions while well- In the landscape of commodity trading, the me-likelihood as well as potential market consequen- defined weather patterns, such as long-lasting teorologist will strengthen his role as educator,ces. Additionally, the meteorologist selects vendor cold spells, will make it easier to predict energy allowing traders to be less dependent on indivi-data for modelling purposes and makes sure that market trends. Focusing upon the uncertainty of dual interpretations of weather developments. Itat all times its validity and reliability are ensured. weather forecasting and then on the likely mar- is absolutely imperative that the complexity of ket direction guarantees a correct weather risk chaotic weather information is transformed into assessment for market development. a concise, comprehensive and useful meteorolo- The International Energy Agency’s 2014 me- gical instrument for commodity trading.  dium-term forecast for renewable electricity ge- neration predicts annual 5.4% growth rates for a total 7310 TWh by 2020. New solar photovol- taic capacity surged in 2013, led by China andCarbon capture and storage, a keyto climate change mitigationOver 60% of electricity The member States of the United Nations Eco- The IPCCC ments. These outcomes should be preserved in ageneration of the 56 member nomic Commission for Europe (UNECE) are Assessment post-Kyoto instrument.states of UNECE comes from committed to meeting the challenge the world highlights that  The current policy setting for CCS is insuffi-fossil fuels. Carbon capture faces on climate change. Because over 60% of without carbon cient to support commercial development. Na-and storage is essential to reach electricity generation in the UNECE region co- capture and tional and international policies on CCS shouldclimate goals. mes from fossil fuels, CCS is an option that can- storage the have parity with other no-carbon/low-carbon not be ignored. The UNECE’s 56 member states cost of climate technologies. Scott Foster approved recommendations for CCS that were mitigation will  A post-Kyoto instrument should accept a broad Director, Sustainable Energy Division, United submitted to the United Nations Framework increase by 138%. array of fiscal instruments to encourage CCS, Convention on Climate Change (UNFCCC) in but the selection of instruments should be left toI Nations Economic Commission for Europe December last year and they are encouraged to the discretion of national governments. f the world is to succeed in constraining include the recommendations in their national  A post-Kyoto international agreement must emissions of carbon dioxide (CO2) to plans that are to be submitted to UNFCCC over recognize that CCS in several industrial sectors levels consistent with a less than 2°C the coming months. will be essential to reach climate goals. Cement, rise in global temperatures, then carbon The core focus of the recommendations is how steel, chemicals, refining and transportation are capture and storage (CCS) will need to CCS can contribute to climate change mitiga- among many sectors that must be addressed in a contribute 1/6th of needed CO2 emis- tion as part of the policy portfolio in a post-2015 manner similar to the energy sector and in a waysion reductions in 2050 and 14% of the cumu- instrument. The recommendations were develo- that assuages concerns about effects on interna-lative emissions reductions between 2015 and ped by a UNECE Group of Experts through an tional competitiveness.2050 compared to a business-as-usual approach. inclusive and robust consultation process over a  CCS deployment will accelerate if govern-CCS is the only technology option other than period of twelve months. The process demons- ments sponsor commercial-scale demonstrationenergy efficiency and shifting the primary ener- trates how UNECE offers a netural platform projects.gy mix to lower carbon fuels that can deliver net that allows solutions to be developed that would  It is crucial that CO2 injected into reservoirsemissions reductions at the required scale. The otherwise not happen. The recommendations for enhanced hydrocarbon recovery be treatedIPCCC’s Fifth Assessment Synthesis Report hi- fall into four areas: Public Policy Parity; Go- as storage if the CO2 is stored permanently.ghlights that without CCS the cost of climate vernment Support for Global Demonstration Measurement, reporting, and verification willmitigation will increase by 138%. Projects; Investments in Developing Countries; be needed to establish that the CO2 is perma- and the Role of the UN as a Governor and Ena- nently stored. bler of Progress. To quote the UNECE Executive Secretary, Key recommendations include: Christian Friis Bach: “CCS has a vital role to  CCS was adopted as an environmentally play as part of an economically sustainable route sound technology in the Kyoto Protocol and to deep emissions cuts. UNECE stands ready to was an eligible project level activity in the as- develop and promote international standards re- sociated carbon markets and funding arrange- quired for the efficient achievement of CCS.” 

PAGE 17. Special Edition | April 2015 | Commodities ||| CSR, CLIMATE & ENVIRONMENTThe Happy FarmerFarmers feed and will feed the king his revenge and we will all die of hunger. If I ask small- lihoods and will summarise their answer. Theyworld and smallholder farmers The fact is that we have much room for impro- holder farmers had been part of an intervention effort to impro-are the most environmentally vement to our methods. There is significant post- “What would ve their working and living conditions whichfriendly. Having no farmers will harvest loss and a great deal of food waste on the you like your allowed them to work more productively: lessbe a disaster. We cannot afford plate, there are abundant calories that are not nu- children to do working hours and better yields, better incometo ignore this issue. tritious and are even harmful to health. Yet there when they grow and practices that would help “mother earth” is innovation in the precision application of fer- up?”they reply to stay healthy. What these farmers described Karla Canavan tilisers and seed hybrids that could bring some “I would like in their own words is essentially the triple bot- breakthroughs. From my perspective though, them to study tom line of economic, social and environmentalWDirector Sustainable Finance, Bunge the main weapon to fight food security in an en- and find a job benefits. e live in a world where vironmentally and socially friendly manner lies in a city”. Communication has taken the lead in such im- population is growing with smallholder farmers. provements, as 85 percent of the farmers of exponentially while the When I travel to developing countries and have Africa and India who have never had a landline, resources to grow food the privilege to meet these remarkable indivi- now have access to a cell phone. This allows are extremely constrai- duals that have to continuously make smart so- people in remote areas to get advice on medi- ned. Soils are generally lutions to survive, I usually ask them one ques- cal issues, to pay their bills and especially to bedegraded and water is scarce. Available arable tion: “What would you like your children to do connected with the rest of the world, includingland is not abundant and some forests are threate- when they grow up?” and the answer 4 out of 5 markets. The inclusiveness with the larger so-ned with disappearance due to food production. times has been “I would like them to study and cial and business environment through access toIn this context live over one billion farmers, find a job in a city”. This response seems to be communication helps reduce the drive to seekmany of them in extreme poverty on less than aligned with projections that show that by the out life in the city for better opportunities.one US dollar a day. Considering this reality year 2050, 70% of the world’s population will The yields produced by some of these farmerscombined with the volatility that climate change live in cities. are a tenth of the world average, leaving signi-will bring to the equation by adding flooding or If we believe that farmers feed and will feed the ficant room for improvement. Through inter-droughts, one would think that Malthus is ta- world, and smallholder farmers are the most en- vention with smallholder farmers, we have an vironmentally friendly then having no farmers unprecedented opportunity to end extreme po- will be a disaster. Therefore, we cannot afford to verty and even achieve food security while also ignore this issue and have to work to improve improving global health through proper nutri- the livelihoods of farmers to stop the rural exo- tion and better sanitation. dus to cities. While efficiency in commodities and precision But what about those farmers who did, in fact, agriculture will still need to be improved there is desire that their children continue in the family no doubt in my mind that smallholder farmers, tradition? 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PAGE 18. Special Edition | April 2015 | Commodities ||| CSR, CLIMATE & ENVIRONMENTSustainability is here to staySucafina was instrumental considers that long-term economic prosperity Sustainability  The Farmers Support Program – a holisticin initiating the Kahawatu goes hand in hand with the inclusion of social requires and action-oriented program to help smallholderFoundation, a multi-stakeholder and environmental concerns in operations and in empathy. It farmers improve productivity and quality, ena-sustainable development initia- quality interactions with stakeholders. also requires ble social development and provide solutions totive. It has also committed to Sucafina was instrumental in initiating in 2012 the right farmers. Farmers are trained on the FAO’s GoodIFC Performance standards. the Kahawatu Foundation, a multi-stakeholder mindset and Agricultural Practices, climate change mitiga- sustainable development initiative to respond to adequate skills. tion measures, financial literacy, and ways to im- Lara Moutin the urgency of the threats (e.g. low productivity, prove the chain of custody to enable traceability. quality etc.) jeopardising the incomes and live- They are also trained to build capabilities forOSenior Sustainability Advisor, Sucafina lihoods of smallholder coffee farmers, and thus food security, and social cohesion through bet- ver the past decade, there has the viability of the coffee sector in East Africa. ter enrolment and streamlining of women and been increasing pressure on Kahawatu, which in Swahili means “People’s youth. trading companies to be trans- coffee”, is a non-profit organisation, chaired by  Sucafina has taken a bold step to be IFC parent. Initially the pressure Sucafina and governed by a Board of Directors Performance standards compliant by 2017 for transparency came from representing many companies. Kahawatu Bu- – The IFC performance standards are an arsenal investors and was amplified rundi asbl, a local non-profit organisation, has of capabilities to simultaneously guard compa-by the 2008 financial crisis. The visible conse- successfully implemented Kahawatu’s activities nies against unforeseen risks, maximise local de-quences of climate change and global warming since its inception and succeeded in building ro- velopment benefits, and practise good corporatehave been wake-up calls to reconsider our own bust credentials that in 2014 led many external citizenship. It requires rigorous assessment andresponsibility as global citizens and search for donors to help Kahawatu further scale-up its im- management of environmental and social risksinnovative mitigation measures against these pact through public-private partnerships. and impacts, optimisation of resource efficiency,new types of risks. Companies are being called Kahawatu’s approach is holistic and aims to pollution prevention, improvement of commu-to apply sustainability principles in the way they improve the incomes, livelihoods, and social nity health and safety, biodiversity conservation,conduct their operations and impact societies development of 14,000 farmers by 2017. Far- and many other CSR, human rights, and relatedand the natural environment. mers are trained to better manage plants, soils, initiatives.As a family-owned business, Sucafina has an offset climate change risks, and improve qua-  Develop people and networks – Sustaina-obvious interest in sustainability strategies and lity and double yields by 2017 while conser- bility requires empathy, the right mindset, andin protecting inter-generational assets. Sucafina ving water, soil, and ecosystems. Improving adequate skills. Sucafina’s CEO, Nicolas Tamari, farmers’ food security and social development is actively driving the sustainability agenda from through involvement of women and youth in the top and runs it through operations, the aim all levels of the coffee value chain is also part being to make it become “business as usual”. The of the approach. operations managers are part of the Sucastaina- Sucafina has developed its own sustainability bility network and mobilized for its success. Spe- program branded “Sucastainability”. It is based cific efforts are in place to increase the company on three main pillars: skills and systemic capacity in sustainability. When a corporate mind-set addsvision to philanthropyThe Trafigura Foundation’s em- reflect these principles, as we genuinely engage Venture ideas with a social benefit into marketable andbedment in a corporate culture at the side of our partners. By providing strategic philanthropy scalable solutions. This is what makes it such ais a genuine asset. Enabling it to advice, by strengthening their capacity, by offe- is about giving powerful tool for efficiently tackling social pro-develop self-sustainable ventures. ring the means for scaling-up, our help goes well – but much more blems. Of course, one should remain realistic: it beyond donating money. Here, our embedment than just money. is not a panacea to all the world’s pressing pro- Vincent Faber within a corporate culture is a genuine asset; We genuinely blems and cannot be seen as a universal instru- our operational mind-set, inspired by our parent engage at the ment. But more than two decades of highly suc-TExecutive Director, Trafigura Foundation company’s values, has enabled us to develop a side of our cessful experiences in this field, many of which he Trafigura Foundation’s phi- powerful modus operandi in full alignment with partners. championed through networks such as Ashoka lanthropic journey started eight venture philanthropy requirements. have shown how “change-making’ such a tool years ago with a focus on “tradi- As an illustration, after several years of coopera- can be, achieving impact where pure donation- tional” charity-based grant-giving. tion with the IECD (European Institute for Coo- based charity often finds its limits. But as we moved forward, we rea- peration & Development) on a programme of An example is our current partnership with Eau lised that pure charity, although basic agricultural education through a network & Vie (“Water and Life”) in Bangladesh and insometimes appropriate, was not necessarily the of “Family Farm Schools” in Cameroon, Côte the Philippines. In order to bring reliable, safebest approach to find sustainable and impactful d’Ivoire and the Democratic Republic of Congo, and clean water to slum-dwellers in Dhaka andsolutions to social problems. We also wanted par- we decided to bring it further for greater impact. Manila, Eau & Vie has built small-scale watertnerships with NGOs where our corporate bac- If there is of course no question that basic far- networks, within the slums, to distribute waterkground could be an additional asset, further leve- ming skills are indispensable for running a farm, – with individual meters – at household level.raging our financial input. This is why, exploring we were convinced that capacity-building in Eau & Vie has established local water companies,new avenues offering the best fit with our corpo- marketable fruit and vegetables transformationrate culture, social entrepreneurship and venture would be a powerful trigger for the economic Reaching break-even is thephilanthropy clearly appeared to us as powerful empowerment of farmers. Brainstorming with most rewarding legacy anyinstruments to bring meaningful change to com- IECD brought us to co-develop the Transform grant-maker can dream of.munities whilst finding lasting solutions that can programme in Cameroon. With Transform, smallsurvive our financial input, which unavoidably agricultural producers – especially the young – under commercial status, to manage the wholecan only by limited over time. are being taught entrepreneurial skills that enable metering, invoicing and money-collection pro- them to launch and develop their own small agri- cess. After five years, the system is about to reach business. Coaching and mentoring programmes break-even in the Philippines, with close to 6,000 are provided to the young entrepreneurs guiding people enjoying clean water, at home, at afforda- them in the initial steps of their commercial jour- ble prices. Reaching break-even means that the ney. The programme is still in early stages but the venture should soon be able to run on its own first signals from the field are very positive. and generate its own resources, once we move on to new fields. Offering this legacy is probablyVenture Philanthropy: much more than Social Entrepreneurship: sowing the seeds the most rewarding success any grant-maker canfinancial assistance of self-sustainability dream of.Venture philanthropy is about giving more than For a philanthropic grant-maker, one of the big- These are just two examples amongst the 48just money and is defined by seven core princi- gest challenges is firstly to overcome the grantee’s others through which we help our partnersples: high engagement, organisational capacity financial dependency, and secondly to scale up achieve life-changing impact for underprivilegedbuilding, multi-year support, non-financial sup- those ventures which demonstrate obvious im- communities.port, sharing of networks, tailored financing and pact and achievements. Social entrepreneurshipimpact measurement. Most of our partnerships aims at fostering a mind-set to shape innovative

PAGE 19. Special Edition | April 2015 | Commodities ||| CSR, CLIMATE & ENVIRONMENTRuggie Principles for smalland medium-sized enterprisesThe guidelines for implementa- Ruggie to provide guidance on the approach to In the world recognised that, often, small companies are bettertion of the Ruggie principles business and human rights for such companies of commodity at taking these matters seriously than large ones.are articulated around six as human rights are not only relevant to govern- trading, human Human rights considerations are very wide andbasic steps that any company ments and large businesses. rights are may affect recruiting, health and safety of em-can and should take. Even Although most companies want to make sure at risk when ployees, non-discrimination, fair remuneration,the smallest ones. that they respect others, it may be difficult to do buying products privacy and trade union adhesion. In the world it in practice. Guidelines for SMEs have been from low of commodity trading, human rights are at risk John Ruggie published by the European Commission*. These cost countries when buying products from low cost countries Ex-UN Special Representative for Business guidelines are articulated around six basic steps or sectors or sectors that are suspected to use child labour. that any company should take to understand ris- suspected to use They may also be related to selling productsS and Human Rights ks of negative impacts and to avoid and address child labour. or services likely to be used in conflict-affected ocieties and markets continue to such impacts. areas, or buying products made in conflict-affec- change and all enterprises have to  Commit to respect human rights at the highest ted areas. The most serious human rights impacts cope with new expectations and level of management and embed the commit- are more likely to occur where the law is weak new rules of play. Respect for human ment in the business by policies and processes or not properly enforced. This often – but not rights is part of that development. but also by way of incentives. The human rights framework adop-  Identify human rights risks, whether they may Firms have a responsibilityted by the Swiss government is the United be the result of the company’s activities or that of wherever they operate.Nations Guiding Principles on Business and Hu- its partners (suppliers, clients, associates). Whether governmentsman Rights set by John Ruggie, ex-UN Special  Take action to avoid and address the risks fulfill their duty to protectRepresentative for Business and Human Rights. identified. This may mean using leverage on a human rights or don’t.The Ruggie Principles, endorsed by the UN Hu- third party or considering ending business rela-man Rights Council in 2011 in Geneva, encom- tionships altogether. always – corresponds to countries that are lesspass three pillars outlining how states and busi-  Enable remedy for those affected, if the com- economically advanced than those in the westernnesses should implement the framework: pany is directly involved in a negative impact. world such as developing and emerging econo- The state duty to protect human rights. This may involve apologizing, financial or non- mies. Enterprises have a responsibility wherever The corporate responsibility to respect human financial compensation or any other remedy that they operate, whether or not local governmentsrights. the victim and the business agree as an appro- fulfill their duty to protect human rights. Access to remedy for victims of business-rela- priate response. From a practical standpoint, respecting humanted abuses.  Track progress, by way of regular follow up rights helps avoid additional costs (litigation, da-As a large number of trading companies (and and the use of indicators wherever possible. mage compensation). Compliance is also the bestindeed over half of the members of the Swiss  Communicate about risks and actions infor- way to protect a company’s reputation, often oneTrading and Shipping Association) are small and mally or formally in annual reports, CSR or of its most important assets. medium-sized enterprises (SME), we asked John sustainability reports. In many cases, these six steps are already incor- Text Nicolette de Joncaire porated in existing policies and processes, but ensuring human rights respect requires ongoing *“My business and human rights”, a guide to human rights for actions. No company is too small to put some small and medium-sized enterprises. form of process into place. These processes can be informal. What is important is that the spirit is truly respected. As a matter of fact, it has beenMulti-stakeholder efforts for human rightsIndustry focused, multi- derstanding how the Guiding Principles could The European bility of the suggested actions with all parties.stakeholder efforts are key to be incorporated into day-to-day business opera- Commission What have been the results of this initiative soadvancing corporate respect tions. The Commission worked during 2012 and deliberately far? And what might be the lessons for otherfor human rights. 2013 with the Institute for Human Rights and selected three industries, which may currently be considering Business (IHRB at www.ihrb.org) and the New very different what corporate respect for human rights means Margaret Wachenfeld York based Shift, to prepare the three industry sectors to in practical terms in their operations? Director of Research and Legal Affairs Guides, which were released in June 2013. Each highlight First, in the almost two years since their release, sets out a step-by-step explanation of what the adverse human we’ve been pleased that companies and otherJ Institute for Human Rights and Business Guiding Principles expect of companies, offers rights impacts. stakeholders are reporting they find the Gui- une 2015 will mark the fourth anniver- “where to start” suggestions and a range of in- des’ step-by-step explanations useful in thinking sary of the UN Guiding Principles on dustry specific approaches and examples for how through relevant human rights risks and actions Business and Human Rights. This fra- to put them into practice, and provides additional in their respective sectors. Second, as we see in mework, unanimously endorsed by the resources that can support further work. Essenti- our work with the oil and gas sector, major com- UN Human Rights Council in 2011, ally, in developing the Guides we sought to help panies from Myanmar to Kenya to Colombia find sets out a clear approach to the human companies “translate” respect for human rights detailed industry specific guidance, developedrights responsibilities of all business actors in as defined by the Guiding Principles into their through consultative processes, serves as a com-today’s world. In the years since their adoption, own systems and cultures. mon platform for advancing multi-stakeholderattention has turned towards how best to encou- The European Commission deliberately selected dialogue and action, for example, in developingrage implementation of the Guiding Principles. three very different sectors in order to highlight human rights impact assessments. Third, the gui-A key part of such efforts has been a range of how adverse human rights impacts may play des provide a clear marker that companies, tradeinitiatives to address in more detail how the “cor- out in a wide range of contexts and how diverse unions and civil society can refer to in their advo-porate responsibility to respect human rights” set industries can identify and address these proac- cacy with governments around their own dutiesout in the Guiding Principles should apply in tively. The guides were also developed through to ensure that human rights are protected.specific industries or operating contexts. a multi-stakeholder approach, involving a wide Although the Guiding Principles don’t provideOne important example of an industry-focused range of individuals and organisations, and easy answers to the many complex social andapproach is the European Commission’s ini- building on the efforts that led to the Guiding environmental challenges that companies facetiative to assist three sectors – Employment & Principles. In developing the Guides, IHRB and today, they do represent a shared starting pointRecruitment, Information and Communication Shift undertook extensive literature and field re- upon which further work can build over theTechnologies (ICT), and Oil & Gas – in un- search and conducted two large multi-stakehol- years ahead. It is critical that all companies now der consultations with representatives from the embark on demonstrating their commitment to three industries as well as governments, trade respecting human rights. Working through sec- unions, civil society, academia and other experts. tor-focused initiatives is one valuable approach Involving such a wide range of actors was im- in getting up to speed on the fast evolving busi- portant to establishing the credibility and feasi- ness and human rights agenda. 



PAGE 21. Special Edition | April 2015 | Commodities ||| Development & Post-2015 Goals InterviewAndrew Bovarnick | UNDPThe role of trading in developmentNatural resources are a criti- cal component of many de- partnership). Furthermore, 34 companies, in- veloping countries’ export cluding agro-commodity traders, signed up to and government revenues, the 2014 New York Declaration on Forests. which in turn boost econo- The importance of such commitments lies mic growth, enable social in traders’ global reach, purchasing multiple commodities from multiple countries.development and reduce poverty. Commo-dity trading houses are a key link in global Is this in line with UN sustainability criteria?supply chains and as such play a critical role Traders often have teams of agronomists onin contributing to the United Nations’ Sustai- site, focusing on increasing productivity, po-nable Development Goals (SDGs), a proposed tentially through agro-chemicals. What weset of targets relating to international develo- want to see more of is that they invest in agro-pment post-2015. Andrew Bovarnick, Global nomists who can train farmers in sustainableHead of the Green Commodities Programme agricultural practices (soil management, adap-(GCP) of the United Nations Development tation to climate change, worker rights, agro-Programme (UNDP) provides useful insight forestry for cocoa.) and in complying withinto the role of soft traders in agro-commo- legal requirements which ADM for exampledities. has included in its Paraguay curriculum. In addition, UNDP proposes that traders hireHow can commodity traders contribute to the SDGs? expertise for community development so thatAgricultural commodities are the bedrock of young people stay. This begs the question ofmany rural developing economies, contribu- the boundaries of the roles for traders whoting to economic growth, livelihoods and po- could quite rightly claim that community andverty reduction, but also often to deforestation rural development is the responsibility of theand land degradation which impacts biodiver- state. However, traders need to recognize thatsity loss and climate change. Yet agricultural community development is part of the sustai-production – largely carried out by smallhol- nability chain; UNDP can work with the tra-ders – is itself threatened by climate change Andrew Bovarnick. Global Head of the ders to catalyse public sector finance to scalein addition to water scarcity, competition for Green Commodities Programme of the Uni- up the infrastructure needed for communityarable land and ecosystem degradation. Poor ted Nations Development Programme (UNDP) development.farming practices and lack of investment also 1989 Bachelor in Geography Oxford University, Researcher,mean that sustainable and equitable deve- urban water supply Guayaquil, Ecuador & Masters What about local traders?lopment for farmers remains elusive. There International Development, Tufts University. Domestic exporters are rarely involved inare an estimated 26 million coffee farmers 1995 Senior Consultant, Policy, Economics and International global declarations and we need national me-in 52 countries, earning less than US$2 per Development, ERM. chanisms to engage them. As part of UNDP’sday. However, while agro-commodity supply 2000 Biodiversity Economist, United Nations Development work in commodities we have pioneered thechains may be complex, dynamic and plagued Programme (UNDP). establishment of a new generation of multi-with social and environmental risk, they also 2004 Lead Natural Resource Economist, UNDP. stakeholder dialogue called National Commo-present significant opportunities for economic 2009 Global Head, Green Commodities Programme, UNDP. dity Platforms. These create an organizationalgrowth. Of the many stakeholders in the sup- framework for supply chain stakeholders ofply chain, agro-commodity traders who sit in a commodity sector in a country to come to-the middle are key and can have substantial impact in shifting from nega- gether and dialogue and collaborate. They particularly assist with enga-tive to positive practices that promote sustainability. ging domestic companies that would not normally be involved in global initiatives.How important is traders’ current contribution and where should it be improved?At present there is a contribution, without question. But it has significant Some traders invest in public and social infrastructure. Is this positive?room to grow and achieve a wider and longer-term impact. The largest Yes, community development is related to security of supply and should beagro-commodity traders with whom UNDP has had dealings are Archer part of traders’ business. If there is no health or education or services – andDaniels Midland (ADM), Louis Dreyfus and Bunge. The role and contri- farming is not profitable – youth leave (in the Dominican Republic, thebution vary by company, by country and by commodity so it is difficult to average age of the farmers is over 55). Traders need to get involved but itgeneralise on their impact. Traders’ traditional focus was on price, so there is difficult to determine the boundaries of their responsibility. Communitywas no sourcing loyalty. What we are seeing today (and need to see more development is costly and considering that traders work on low margins,of) is a fundamental shift in purchasing practices towards relationships to whom will they pass on the cost? It is critical that these costs are notwith farmers and farming communities. This can be complemented by pushed back to farmers.farmer training and long-term contracts. If dealings between farmers andtraders develop, traders will better understand the risks of farmers and How should CSR be run?cooperate to reduce them, strengthening the security of supply. This shift CSR should include proper due diligence. There are many examples wheremakes good business sense as there is a growing threat to supply, for exam- well-intentioned traders have built schools or clinics that sit empty due tople in cocoa. So more direct sourcing and assistance to farmers becomes a lack of long term funds for teachers or medicine. Traders need to think ofrisk management strategy, not just CSR. If we take cocoa as an example, their role as part of national/sector level initiatives working in collaborationWest Africa accounts for 70% of global cocoa cultivation and farming is with the governments. The National Commodity Platforms help bring thisalmost exclusively by smallholders, in total around 3 million. The majority strategic planning in which traders and other supply chain actors can investof cocoa producers live in poverty and young people seek a better life away and leverage financing across the supply chain. Having said that, the privatefrom remote rural villages. This is why UNDP is working to promote sector as a whole needs to move beyond CSR to an inclusive business modelsustainable cocoa in Ghana, one of the world’s largest cocoa-producing that addresses the social and environmental impacts of their operations.countries, supplying about 20% of global markets. Are traders investing in public/private partnership (PPP) or working in parallel?Do you have examples of cooperation between UN programs and trading houses? Traders are increasing farmer support but often in isolation. Innovations inUNDP is working with Mondelez*, and its Cocoa Life and Coffee Made farmer training are not being captured and scaled up by governments. MoreHappy programmes, to mainstream sound cocoa production practices in PPPs are needed such as the National Commodity Platforms. In Paraguay,Ghana and other producing countries. A central approach of these pro- ADM joined UNDP and the government in establishing the National Soygrammes is to require suppliers and also traders, such as Cargill and ADM and Beef Platform to scale up best practices to farmers and reduce defores-(in Ghana), to increase their support to farmers so that Mondelez is assured tation. In Indonesia, we are encouraging similar practice and working withof sustainable cocoa, and for traders such as Cargill, ADM, Ecom, OLAN, the biggest companies such as Sinar Mas. In Ethiopia, we are brokering aand Louis Dreyfus (in Cote d’Ivoire) to train farmers and communities. space for traders such as Louis Dreyfus to work closely with the commodityTraders have in-country presence and local expertise. Many have opera- exchange in the coffee supply chains. With the industry zero deforestationted for decades and have an inherent business interest in securing supply pledges we are hoping for more PPPs. Traders need to work with farmers,and building more constructive relationships. Since 2013 through a Global local and national governments, NGOs, not alone relying on easy fixes. To-Environment Facility (GEF)-funded UNDP project, we have been deve- gether we can make a serious contribution to the SDGs and help millions ofloping a strong partnership with ADM, one of the biggest soy buyers in farmers globally reduce poverty and improve their lives. Paraguay, to promote innovative best practice training to farmers over the Interview Nicolette de Joncairenext five years. Traders are often a source of innovation for effective far-mer training and we look to facilitate their collaboration with Ministries * Mondelez is the largest chocolate company in the world and the second largest coffee company.of Agriculture to scale up their innovation through PPPs (public private It is the largest cocoa buyer as well as the largest buyer of Fairtrade certified cocoa.

PAGE 22. Special Edition | April 2015 | Commodities ||| Development & Post-2015 GoalsStaggering infrastructure needsin developing countriesCommodity traders can region could increase by 2.2 percentage points. Over time, and social and environmental standards (see alsoincreasingly play a significant In most African countries, particularly the commodity ECOM’s Ghana project on page 24).role in bridging the gap lower-income countries, infrastructure is a major traders have  Cargill has strengthened its program in Côteof much needed infrastructure constraint on doing business, and is found to de- invested d’Ivoire to launch a US$2.4 million partnershipinvestment in emerging press firm productivity by around 40 percent. substantial with the Conseil du Café-Cacao and 14 cocoacountries. A point highlighted in many studies is that in- amounts in farmer cooperatives to improve the availability frastructure transformation is often being dri- assets located of healthcare and increase the number of chil- Nicolette de Joncaire ven by increased output in the natural resources in developing dren with access to good quality educational fa- sector. This is particularly true of the African countries. This cilities across 14 local communities. In 2011, itTJournalist L’Agefi continent but also applies to Latin America and positions them completed a project in Wensu County (China) he undersupply of infrastructure parts of Asia. as key players in to address the region’s water shortages by using in developing economies has been Over the last few years, commodity traders have infrastructure underground well water pumped through high- estimated by the World Bank at invested substantial amounts directly or indi- development. standard, low-pressure water pipes to irrigate around US$1 trillion per year rectly in assets located in developing countries. cotton fields. The project also tackles salinisation through 2020, with an additional This positions them as key players in the field issues in the area. US$200 to US$300 billion per of infrastructure development. Whether we look  The European Development Bank is suppor-year to ensure that infrastructure investments are at Vitol’s transformational gas project for Ghana ting the development of a grain trans-shipmentlow emitting and climate resilient. South Asian (page 23), Trafigura’s undertakings in Latin Ame- terminal in the Port of Odessa with an antici-countries will have to invest as much as $2.5 rica, Gunvor’s significant stake in South African pated annual throughput capacity of up to 4.5trillion over the next ten years on transport, elec- coal, Mercuria’s activities in Indonesian thermal million tonnes of grain. The project will be im-tricity, water supply and sanitation, solid waste coal mining or Louis Dreyfus, ECOM, ADM and plemented jointly by Brooklyn-Kiev and Louismanagement, telecommunications, and irriga- Cargill’s innumerable agricultural and industrial Dreyfus Commodities. In addition to addressingtion to bridge their infrastructure gap. The In- investments in Latin America, Asia and Africa, the shortage of modern, deep-water port grainter-American Development Bank (IADB) belie- commodity traders are at the forefront of infras- trans-shipment capacity in Ukraine, the terminalves that infrastructure investment should reach tructure building in developing regions. will benefit the region by creating jobs and in-US$250 billion annually in Latin America. Afri- Core physical trading and logistics business are creasing economic activity in the Port of Odessaca’s estimated infrastructure gap ranges between supported by industrial and infrastructural in- area.$75 billion and $93 billion per year. vestment. Something that commodity traders  Trafigura, through its subsidiary Impala, is in-Countries spend less on infrastructure than nee- are well aware of, as highlighted in Trafigura’s volved in the construction of the superport ofded. According to the OECD, infrastructure recently commissioned report: Foundations for Porto Sudeste in Brazil aimed at opening world-investment in Latin America is less than 3% of Growth. Infrastructure Investment in Emerging wide markets to iron ore from the Minas GeraisGDP, while it should be at least 5.2% to close the Markets. region. The project will handle 50 million tonnesgap, and above 6% to reach the levels prevailing Examples of diversified infrastructure of ore per year and includes moorings for Woz-in Asia. In developing countries at large, the re- investments of trading houses max size vessels, conveyors, a 1.8 km tunnel toquirements are increasing infrastructure invest- Infrastructure projects spread over a wide range: bring the ore to the vessels and a privately opera-ment by a factor of 2 to 4, to 6-12% of GDP roads, ports, railways, waterway management, ted railway line. Impala is also involved in the de-per year. The total required spending in Africa water and sanitation, power delivery or medi- velopment of the Magdalena River in Colombia.translates into some 12% of Africa’s GDP. Lack cal and training facilities. Merchant houses have This multi-modal project involves the creationof financing is the principal constraint. Many go- been involved in most types in one form or ano- of new trading hubs, improved road transportvernments do not have the budgetary strength to ther and here are a few examples: links, port developments and the encouragementmake significant progress in their infrastructure  In 2012, the first training centre for Vietna- of barge transport including heavy investmentdeficit without external assistance at all stages of mese coffee producers was inaugurated in Bao in fluvial equipment and the construction of adevelopment. Loc district (Vietnam) jointly established by the new fluvial terminal at Barrancabermeja as wellThe traditional sources of external financing lies International Finance Corporation, a member of as the development of a trucking network.with official development finance from develo- the World Bank Group, and Atlantic Commodi-  Both Vitol and Trafigura have invested in largeped countries and multilateral institutions, pri- ties Vietnam, a subsidiary of ECOM Agroindus- African chains of petrol stations.vate participation in infrastructure investments, trial Corporation under their 2010 agreement Infrastructure is in great demand and the poten-and more recently official Chinese financing. to assist Vietnam’s coffee sector. It aims to help tial for commodity traders to contribute is large.They are proving to be insufficient largely becau- farm households meet international certification However, impact assessment on communitiesse of the decline in official foreign aid. In Africa standards and improve the sustainability and and nature is of paramount importance andalone, the World Bank estimates the current fun- productivity of crops, while increasing earnings should be agreed with local and national govern-ding gap at US$35 billion per year. ments as well as local communities. Infrastructure is essential to well-being. 2.5billion people around the world do not have ac- © iStockphotocess to adequate sanitation. A vast number peoplein South Asia lack access to roads, toilets, reliableelectricity, clean water and telecoms. Today, 41%of South Asia’s population has no access to sa-nitation and 75% to piped water. Some of thesefigures are comparable only to Sub-Saharan Afri-ca where over 300 million people lack access toclean water and nearly 600 million to proper sa-nitation facilities. But Africa’s largest infrastruc-ture deficit is to be found in power infrastruc-ture, which delivers only a fraction of the servicefound elsewhere in the developing world. The48 countries of Sub-Saharan Africa (combinedpopulation 800 million) generate roughly thesame amount of power as Spain (population 45million). Rapid urbanisation and rising domesticdemand are compounding the problem.These gaps also take a toll on growth becauseinfrastructure is key to productivity. The WorldBank’s simulations suggest that if all Africancountries were to catch up with Mauritius in in-frastructure, per capita economic growth in the

PAGE 23. Special Edition | April 2015 | Commodities ||| Development & Post-2015 GoalsPowering Ghana’s GrowthThe World Bank described the but to source it for domestic power productiondevelopment of the pure gas instead, as a more cost effective solution for thefields contained in the project country than any oil or gas imports. The OCTPas a “top priority” for Ghana. block contains enough gas to power Ghana’s thermal power operations until at least 2036 and Akua Ansa-Koram ©ENI we expect production to start as soon as 2017. The transformational nature of the Sankofa pro-AGhana Country Finance Manager,Vitol Gas is brought to surface on a Floating Production, Storage and Offloading (FPSO) ject was underscored by President John Drama- s one of Africa’s fastest growing vessel. It is then processed and transported via pipeline to onshore facilities located ni Mahama: “We are harnessing Ghana’s natural and most successful economies, near the village of Sanzule in Western Ghana, where it is compressed and injected resources to power Ghana’s future. The Sankofa Ghana urgently needs new re- into the Western Corridor Gas Pipeline for transportation to industrial customers. development will provide the reliable energy sources for electricity genera- first discovered significant oil and gas fields in source needed to accelerate the economic growth tion. By partnering with the an exploration block called Offshore Cape Three of our country. For the first time, GNPC, wor- Government, Vitol and ENI are Points (OCTP). The main discovery, Sankofa, king with ENI and Vitol and the World Bankhelping to find a domestic solution. gives its name to the project that is being under- is delivering a domestic solution to our powerUnlike some of its West African neighbours, taken to exploit these fields. The OCTP block sector. This is indeed a remarkable achievementGhana does not have a long history of hydro- contains 1.5 trillion cubic feet of natural gas. – the largest single project Foreign Direct In-carbon production. The nation relies heavily on Gas is one of the most efficient fossil fuels for vestment inflow to Ghana since Independence.”imported fuels to produce the electricity needed electricity generation, with the additional bene- In its report, the World Bank described the de-for one of the continent’s fastest growing eco- fit of being cleaner than most oil-based alternati- velopment of the pure gas fields contained in thenomies. ves. As the licensees of the block, Ghana Natio- project as a “top priority” for Ghana.In a 2013 report, the World Bank clearly iden- nal Petroleum Corporation (GNPC), Vitol, and The public private partnership between Ghana,tified the risk of insufficient power becoming Italian major ENI, decided not to export the gas Vitol and ENI extends beyond the block’s deve-a drag on the economy: “A major, avoidable lopment. To maximise the project’s benefit, thepower crisis in 2006-7 is estimated to have cost Ministry of Energy has committed to enhancingthe country nearly 1% in lost growth of gross the gas transmission system with compressiondomestic product during those years.” With elec- stations and connections to industrial users, whotricity demand forecasts expecting growth rates will invest in more than 700 MW of new powerof 6-7%, drastic measures need to be taken to generation to come online in 2017.avoid generation capacity shortages. Vitol has been supplying energy to Ghana forAbout 60 kilometres off the coast of Ghana, in over 25 years. Developing a domestic solutiondepths of 600 to 1000 meters of water, Vitol marks a milestone in the company’s growing ex- pertise in energy infrastructure. After launching downstream operations in Africa, Australia and Europe, we are excited to be part of a venture which has the potential of making a real dif- ference to economic growth for the people of Ghana. Sustainable and environmentally responsibleinvestments in steel productionAcquisition of depreciated assets were poorly maintained and in need of invest- Since 2008, Our EAF operation in Macedonia producingis an opportunity which comes ment to be compliant with international ope- investments steel plate is effectively a recycling plant usingwith considerable liabilities to rating and environmental standards. While ac- have been made steel scrap as its feed stock. The amount of steelmodernise and develop. quisition of depreciated assets is an opportunity, to construct recycled globally is equivalent to about 1.2 mil- it comes with liabilities requiring considerable a lined Calcine lion cars daily. Steel can be recycled regardless Tom Patrick management, time, and capital commitment disposal facility of its origin, and the process requires less energy Finance Director to modernise and develop. As a globally active fully compliant with lower CO2 emissions than an integrated commodity company we assume a responsibility with environ- blast furnace steelmaking process. Recently, €12DDuferco International Trading Holding to manage our businesses and assets in accordan- mental rules million in environmental investments were uferco International Trading ce with international best standards while ma- and regulations. completed with no direct operational economic Holding is currently one of the king the investments operationally sustainable benefit. Investments covering waste water ma- world’s largest steel and steel re- and environmentally friendly. nagement, underground water quality monito- lated raw materials trading and When we purchased VVP there was no system ring, and ambient air monitoring and particle distribution companies. DITH for waste water collection and treatment or for emission control bring the operations in line is also responsible for operatio- storm water run-off from the plant. Over deca- with EU environmental legislation, althoughnal management of 2 steel production facilities, des the plant deposited treated ore containing Macedonia is not an EU member.and is the sole marketing channel for a 3rd pro- chemicals used in the vanadium extraction pro- DSP was constructed and commissioned in 2000duction facility that has common shareholding. cess (“Calcine”) into piles without protective by Duferco with a sophisticated environmentalTwo of the steel production facilities are loca- earth liners which prevent soil contamination system in place and is certified ISO14001, ensu-ted in South Africa: a steel cold rolling and gal- and water table penetration. Since 2008, in- ring a strict system of monitoring and control.vanising plant (“DSP”) commissioned in 2000 vestments have been made to construct a lined DSP is owned 50% by Duferco and 50% by IDC,as a “green field” project in 50% partnership Calcine disposal facility fully compliant with South Africa’s national development institution,with the Industrial Development Corporation environmental rules and regulations. Additio- whose primary objectives are to contribute to(“IDC”) of South Africa, and a Ferro Vana- nal investments were made to move the plant balanced, sustainable economic growth in Afri-dium and Vanadium Chemicals plant (“VVP”) to a zero effluent discharge site, meaning that all ca and to the economic empowerment of Southacquired in 2008 that was originally construc- water is captured internally and recycled. The Africans, thereby promoting the economic pros-ted in 1957. The third is an Electric Arc Furnace above investments have no direct impact on the perity of all citizens. IDC achieves this by pro-(“EAF”) steel plate production facility in Mace- efficiency or profitability of the plant, but were moting entrepreneurship through the buildingdonia acquired in 1998 that was constructed in necessary to assure the business’ sustainability. A of competitive industries and enterprises basedthe late 1960s as part of a larger integrated steel solution is being investigated to find an economi- on sound business principles.production complex. cally viable way to recycle the environmentally The above forms a small part of Duferco’s globalThe facilities that existed at the time of purchase “unfriendly” Calcine waste product. To this end, business footprint, but demonstrates the commit- agreements are in place with research institutes ment we make to best practices in our business to develop technology suitable to further process activities. As a global company we are adamant the Calcine into pig iron and possibly titanium about applying international standards to local products, thus fully closing the environmental activities with the aim of building a holistically impact circle at the plant. sustainable business. 

PAGE 24. Special Edition | April 2015 | Commodities ||| Development & Post-2015 GoalsA trader as a vehicle for development:the ECOM Ghana case studyWhy would a 160 yearold commodity trading nue to work with the supply chains we have ECOM plans world. In addition to farmer training, ECOMcompany become involved developed. Supply chain managers will go where to expand has established 22 demonstration plots as well asin development? To trade others will not go to procure the products. sustainability the supply of 3,000 sets of personal protectivefor the next 160 years. Our cocoa operations in Ghana provide a good programmes equipment to help farmers improve on health case study. to cover an and safety on farms when applying pesticides.Fred Frimpong, General Manager SMS Ghana Ghana is the second leading producer of cocoa additional ECOM leverages on the existing FDCs to buildPriscilla Morisset, Project Manager West Africa in the world with a production of 800,000mt. 40,000 cocoa the required community infrastructures in the The country has a population of 26 million, 50% farmers fields of education, health, water and sanitation.IAmajaro Trading of which live in rural communities. Agriculture and their All infrastructure projects are planned and ini- n the late 1990s after the collapse of the represents 30% of the country’s GDP. It is esti- households tiated by the farming communities themselves. International Coffee Agreement, we saw mated that 700,000 households, representing 6.3 in Ghana. Communities provide local materials and labour, coffee production decline in many coun- million Ghanaians, depend on cocoa production while ECOM provides technical and financial tries where we had industrial facilities for their livelihood. support to enable the communities to succeed in and concluded that insufficient farmer ECOM is the leading private licensed cocoa com- their projects. This approach promotes commu- income had become a key issue that nee- pany in Ghana. The company impacts the liveli- nity ownership and ensures long term sustaina-ded to be addressed. However, we were typically hoods of over 2,500 cocoa growing communities bility. Through these programs 148,000 peoplebuying through intermediaries so how could we and more than 120,000 smallholder cocoa far- in rural areas now have access to potable waterengage with thousands of smallholder farmers? mers. We work with over 4,000 local staff inclu- while 14,000 school children have access to im-With our infrastructure at origin and the growing ding agronomists and field technicians. Having proved school facilities.number of agronomists in our team, we started an extensive reach to farmers in remote commu- In the coming years ECOM plans to expand sus-to challenge the way GAP were delivered in the nities, we are able to bring services closer to the tainability programmes to cover an additionalfield; working with farmers on development farm gate and support farmers to make the right 40,000 cocoa farmers and their households inprograms in Latin America; we now do this in all decisions about their cocoa farms, which are also Ghana. This will be done through the establish-40 emerging markets where we operate as SMS their main source of income. ment of additional Farmer Development Centers“Sustainable Management Services”. ECOM’s sustainability model delivers farm and and the recruitment of additional technicians.Over time, we have formed partnerships with community interventions through Farmers De- To address challenges is key in sustainability. Wedevelopment banks like IFC, FMO, IDH and velopment Centres (FDCs) established across the believe that building a more sustainable businessseveral NGOs. These increasingly realise that cocoa producing areas. 83 FDCs deliver services is always accompanied by the vision of the future.traders are one of the best implementers for de- in the areas of farm management, farm data ana- We therefore plan to work beyond cocoa farmersvelopment, for three main reasons. We have our lysis, input supply, planting materials, environ- to reach rural populations and provide the bestown assets and supply chain at stake. Contrary to mental management, community infrastructure services in financial inclusion, advisory servicesconsultants, we remain on the ground and conti- and traceability systems. and agro-inputs distribution. The establishment Over the last four years ECOM, in partnership of a Management Information System will allow with chocolate makers, donor agencies and the us to assess the impacts of our projects, design government of Ghana has trained and supported comprehensive and tailor-made programs for 83,000 farmers to increase their productivity and our customers and, most importantly, keep im- optimise their production cost. proving our long term partnership with farmers. At the close of December 2014, 80,000 hecta- We are committed to be a leader in sustainability res of cocoa farms have been mapped and sur- and provide the best quality of services to our veyed. The survey data is linked to a traceability suppliers and customers. To build the future, we platform which tracks the farm produce from want to keep bringing smallholder agriculture farm gate to various processing points across the into the 21st century. Epidemics and the risk of commoditysupply chain disruptionsInvesting in the fight to contain both for the economic growth of the impacted If a significant grams that assist in avoiding epidemics. Addingepidemics is another way to ma- countries, and for the international commodity outbreak a commodity risk management angle to CSR,nage commodity risk. Another business. emerges commodity companies could potentially increaseangle of CSR. In August Moody’s noted that “If a significant in Lagos the their long-term profits by hedging disruptions outbreak emerges in the Nigerian capital of La- consequences to their supply chains and invest in what, accor- Alessandro Sanos gos, Africa’s most populous city, the consequences for the West ding to the United Nations Development Group, Market Development Manager, Enterprise for the west African oil and gas industry would African oil and lacked most in the fight to contain the current be considerable”, and Sierra Leone’s Agriculture gas industry epidemic: drugs, ambulances, facilities, trainedMand Risk, Europe,Thomson Reuters Minister, Joseph Sam Sesay, warned that “The would be health personnel, and infrastructure. ore than a year has passed economy has been deflated by 30% because of considerable. Associating the concepts of CSR with risk mana- since the current Ebola virus Ebola” in an interview with the BBC. gement is not alien, as the debate whether CSR outbreak was detected in the Despite its unprecedented human toll, Ebola’s can coexist with corporate profits has been ex- forest region of Guinea. economic impact has fortunately been less se- plored by academics for decades. The most serious epidemic vere than the US$25 billion initially feared. In Milton Friedman, particularly sceptical about since the disease was first January the World Bank updated its assessment CSR, noted that sometimes companies acting inidentified in 1976 in what was then Zaire, it has of the economic losses for all sub-Saharan Africa their own self-interest can generate goodwill as aspread to several West African countries inclu- between US$500 million to US$6.2 billion. by-product, and economists Husted and Salazarding Nigeria, the biggest African economy and Commodities have a physical dimension: supply argued that the greater overall social output willthe recipient of large international investments chains are based on the assumption that what be achieved when firms strategically align social-in the oil sector. will be grown or dug from the ground will be of ly responsible activities with their self-interest.New cases are finally showing signs of decline, a specified quality and quantity, and that it will For commodity producing countries, this couldbut with mortality rates up to 90 per cent and be delivered from one point to another within a be the way to prevent similar tragedies repea-being one of the world’s most virulent diseases, specified time-frame. If for any reason the agreed ting, and maybe put an end to the other devasta-this epidemic has since killed more than 10,300 quality, quantity, and delivery are different from ting diseases that like malaria and cholera kill farpeople in West Africa and is a serious threat what was initially agreed, then the whole supply more people than Ebola, but rarely make it into chain of that commodity will be affected. financial reports.  To prevent its operations being disrupted by health emergencies, the commodity industry mi- The views and opinions expressed in this article are those of the ght want to channel greater parts of its Corpo- author and do not necessarily reflect the official policy or position rate Social Responsibility (CSR) activities in pro- of Thomson Reuters.

PAGE 25. Special Edition | April 2015 | Commodities ||| Development & Post-2015 Goals InterviewKevin Brassington | ADMSustainability at every step of the value chainA DM’s global value chain includes more In the controversial palm oil industry, than 460 crop pro- how do you make sure your suppliers curement locations, comply with international stan- 300 ingredient ma- dards? Palm oil is a key ingredient innufacturing facili- consumer products ranging fromties, 40 innovation centres and has cookies and crackers to cosmetics,the world’s premier crop transporta- renewable fuels and pharmaceu-tion network. The company connects ticals. ADM will not knowinglythe harvest to the home, making pro- source or purchase palm oil fromducts for food, animal feed, chemical illegally cleared land or palm oiland energy purposes. that does not comply with localEvery day, ADM processes more than laws and regulations. Suppliers147’000 metric tons of oilseeds in Eu- must agree to meet the Round-rope, North America, South America table on Sustainable Palm Oiland India. As a leading originator and Principles and Criteria (RSPO).processor of oilseeds such as soybeans, ADM believes that all partici-canola, and sunflower seed, ADM pants in the palm oil supply chainworks cooperatively with fellow in- have an obligation to promotedustry stakeholders, governments and good stewardship of the world’sfarmers to help improve the quality cropland and to respect biodiver-and sustainability of the supply chain sity, the environment and humanas a whole. Kevin Brassington, Ma- rights. ADM owns a 16 percentnaging Director for European oilseed equity stake in Wilmar, Asia’s lea-crushing and origination, shares his ding agribusiness group – rankedview on sustainability throughout the amongst the largest listed compa-whole oilseeds value chain. nies by market capitalization on the Singapore Exchange.What are the contributions of ADM in Wilmar’s business activities inclu-promoting a sustainable supply chain? de oil palm cultivation, oilseedsAt the beginning of our supply chain, crushing, edible oils refining,we work with farmers to promote sugar milling and refining, spe-sustainable agricultural practices cialty fats, oleochemicals, biodie-to improve their yields on existing sel and fertiliser manufacturing,cropland and minimise the need to and grains processing. In 2014,expand into ecologically sensitive re- Wilmar released its “No Defores-gions. For example, through our Bra- tation, No Peat, No Exploitation”zilian sustainability program “Doing Policy which aims to advance anIt Right”, Brazilian soybean farmers environmentally and socially res-are trained on agronomically sound ponsible palm oil industry by es-cultivation practices and work in fair tablishing mechanisms to ensurelabour conditions that meet or exceed that Wilmar’s palm oil supplyenvironmental laws and regulations. chain is free from deforestationWe have another example in Europe and development on peat land,where ADM donated to the Polish and respects the rights of workersSociety for Bird Protection (PSBP), and local communities.which supports biodiversity by en- Kevin Brassington. Managing Director for European oilseedcouraging the protection of nesting crushing and origination, ADM How do you support the develop-and food habitats for grassland birds 1995 Graduated from University of Saskatchewan with Major in Finance. ment of laws and regulations forin Poland’s agricultural areas. 1995 Started with ADM in Lloydminster, Alberta. sustainable business?The goal is to increase biodiversity 2002 On secondment from ADM to AC Toepfer as Trader in Hamburg, Germany. ADM encourages sustainableand preserve areas of high ecological 2009 Vice President of North American Softseed Crush in Decatur, Il. practices in the industry by beingvalue in Poland, which is an impor- 2012 Managing Director of European Crush and Origination in Rolle, Switzerland. a member of international asso-tant origination market for ADM’s ciations such as Fediol (The EUoilseeds operations. In the middle of Vegetable Oil & Protein mealthe chain, we also encourage energy efficiency during the transportation Industry) and STSA, as well as by participating in sustainability platformsand processing of our oilseeds. In transportation, our newest tanker, the like the ISCC (International Sustainability & Carbon Certification) fromHarvest Frost, developed by Mitsubishi, uses a system to reduce drag in which we supply sustainably grown oilseeds to the European market. Thethe water, decreasing the ship’s carbon emissions by 27 percent. In our ISCC was developed to guarantee that biofuels and biomass for biofuels areprocessing plants, we are continuously implementing new systems to re- produced in compliance with recent EU legislation that requires biofuelsduce energy loss during the crushing process. In Europe, we have already and biomass to be certified according to the EU-RED requirements. ISCCreduced energy use per processed ton by 11.5 percent compared to 2010 PLUS is a certification system for food and feed products.levels, putting us well on our way to meet our goal of 15 percent energy We were the first company to provide Europe with ISCC-certified sustai-reduction by 2020. nable soy that meets the European Union’s Renewable Energy Directive requirements. Through ISCC and ISCC PLUS, we are able to meet the in-And downstream in your chain? creased demand for certified-sustainable oilseeds like canola, soybeans andWe recently signed a Joint Business Development Plan (JBDP) to conti- sunflower seeds, while encouraging sustainable farming practices amongnue to grow our relationship as an oils and fats supplier for Unilever in growers. To qualify for certification, companies must meet strict criteriaEurope, North America and Africa. The JBDP will help advance exis- for sustainable biomass and biofuels production, as well as reduced emis-ting cooperation between the two companies, such as the ADM/Unilever sions of greenhouse gases over the entire production chain. Through ourSoybean Sustainability Program in the United States, through which sourcing and processing operations around the world, and our extensiveADM sources and processes sustainable soybeans and supplies Unilever logistics network that links farmers’ crops with global markets, ADM willwith oil for some of their products; and ADM and Unilever’s partnership continue to meet the evolving needs of European customers for productswith LEAF (Linking Environment and Farming) in Europe, which made from sustainably-grown crops.promotes sustainable agricultural practices at the farm level to producesustainable canola oil for Unilever’s Flora spreads. How does regulation impact the core business of the four segments – origina-The JBDP will also strengthen ADM’s existing European sustainability tion, transportation, process and flavour – of your value chain?initiatives, particularly in Central and Eastern Europe, enhancing the com- The inherent variability of commodity cycles combined with ongoingpany’s supply chain to provide Unilever with more sustainably-produced regulatory processes makes our industry very dynamic. We therefore mustoils and fats products. Through these various sustainability initiatives, adopt a long-term strategic vision for each business segment, whetherADM can leverage its integrated, end-to-end supply chain to encourage that be corn, oilseeds or grains. Regulation is permanently impacting oursustainable practices from the origination countries where it sources its work, so we need to remain flexible to continuously adapt our business toraw materials to the products that consumers enjoy daily. the market.  Interview Elsa Floret

Are you connected ?TRAFEC offers a unique solution to exchange safelyabout trade finance operations (LC, SBLC, LOI…)between trading companies and banks www.egtsa.come-GTSA S.A. Geneva Switzerland, Telephone: +41 22 552 34 77, E-mail: [email protected]

PAGE 27. Special Edition | April 2015 | Commodities ||| EDUCATION & INNOVATION InterviewEmmanuel Rogy | BNP ParibasA natural authority in trade finance“Compagnonnage is the perfect der to emerge. The key factors of the French word to success of trading have always been describe the bud- creativity and flexibility. Innovation dy system tradi- is the condition that will allow fin- ding a solution before the day whentionally used wi- everybody is using the same normsthin the sector to transfer know-how”, and rules. The challenge is to createsays Emmanuel Rogy, Head of Energy this norm today for the future inand Commodity Finance Europe at order to reduce fixed costs.BNP Paribas in Geneva, who reco-gnises that becoming an expert in the Is the TRAFEC platform created by STSAtrading business takes time. The tailor- and a pool of banks including BNP Pari-made solutions that were the force of bas a key and concrete example of thisbanking institutions like BNP Paribas innovation solution?are under pressure from international This is indeed a good example of aregulations. The strong influence of the common communication tool usedAnglo-Saxon way is pushing trading by both banks and trading companiesmarket forces to industrialisation. In this to standardise some steps (invoiceturbulent economic context, the role of payment, letters of credit, commer-education and innovation appears to cial transactions…) in trading. Ourbe crucial. Emmanuel Rogy explains intention is to enhance this systemhow BNP Paribas, historical leader of and extend it to improve and auto-the trade finance industry, is finding its mate the compliance process, likenew place in line with the new com- the vetting of a vessel and the confir-pliance environment. BNP Paribas is mation of the country of origin ofno longer an overwhelming player but a commodity. Again, the challengeendeavours to create an ecosystem. “We for the industry is to create a solu-are using our respected position to take tion that leads to a drastic reductionthe lead in Geneva on issues surroun- of costs.ding compliance and transparency. Thefuture of Geneva as a worldwide trade Historically the relationships betweenfinance platform is also questioned by trading and banking sectors werepressure not only from the regulators, bilateral. Are they ready today to workbut also from civil society. Innovation in common, as a syndicate, and to shareis to work on tomorrow’s needs”, says information in a common IT system?Emmanuel Rogy who sees transparency Furthermore, how do you communicateas a competitive advantage. Emmanuel Rogy. BNP Paribas with other trade finance banks? 1991 Graduates from Ecole des Hautes Etudes Commerciales (HEC), France. Trade finance must evolve from aWhy are education and innovation so im- 1993 Joins Paribas in Milan, Italy. bilateral profession to a market pro-portant to trade finance? 2004 Head of Project Finance Energy EMEA. fession. Historically the bilateral na-Trade finance is at the crossroads due to 2007 Global Head of Project Finance Infrastructure. ture of the sector was the result oftwo main reasons which are not linked 2008 Global Head of Project Finance. the need to issue large letters of cre-to the banking system itself but to our 2009 Under his leadership, Project Finance is named Best Global Infrastructure dit. There is a need now to involve aclients. The end of the Chinese super- & Project Finance House in 2009. syndicate of banks, which will createcycle has created a suction effect on the 2013 Appointed Head of Energy & Commodities Finance Europe. more professional relations betweenwhole raw materials market. Starting General Manager of BNP Paribas (Suisse) SA. the client and the bank with lesswith Deng Xiaoping, this increase lasted emotion. Now we are confronted bymore than 15 years until the end of the a change of culture. We must set up2000s. The first big change on our wor- an institutional relationship with ourking environment came with the end of this era of high growth. This has clients. BNP Paribas has clearly identified this evolution in our industryno precedent in the recent history of the trading business. Since 2008, we with the best quality of services at lower prices and on a long term basis.have been facing a normal situation for a market with ups and downs in Common work – among trading houses and among banks – is the remai-limited range. The second change came from the production of shale oil ning challenge. I would qualify the relationships between banks as shyness.and gas in the United States which has reversed worldwide energy and However, we are all concerned by this necessary change of culture.petrochemical flows. These two macroeconomic and industrial trends areputting some pressure on the profitability of our clients. At the same time, With this increasing need to work together, how would you qualify the impor-we can observe an increasing trend within public opinion in favour of tance of having an organisation like STSA for the industry?regulation. But regulation costs money. And this is why innovation and STSA is a good forum for our industry which is helping us working to-education are of utmost importance. Industrialisation is the only way to try gether in the same direction. However, the resistance to change is still high.to reduce the cost of this ever increasing regulatory control. As always in a fast moving world, there are many ingrained habits. The hu- man factor is very often the most difficult to manage. This is also the reasonHow is BNP Paribas fostering innovation in the field? why supporting education is of utmost importance. The involvement ofSince the economic crisis, we have had no other choice than to implement STSA in the Master program at the University of Geneva is essential. BNPthe best compliance processes at every level of our work. This is the reason Paribas among others is also proud to be part of this program.why we abandon financing business if some steps remain unclear to us.Our strategy is to support business which we fully understand. We were How do you see the future of Geneva as a worldwide trade finance platform?among the first banks to bring our clients to explain every step of their What are its competitive advantages compared to other trade finance hubs,process. If no convergence points are met, then we decline financing. We namely London and Singapore?want to position our bank long-term. We want to play a leading role for On paper, the city of Geneva has the highest number of trading houses.the future, as a bank respected for its expertise and its capacity to have a This means that this community could more easily share its views on va-vision to help the Geneva trade finance centre become more transparent. rious matters. Indeed, this proximity brings some advantages in terms of work efficiencies. This is the real value of a centre like Geneva. The tradingSince the 9 billion dollar fine from the USA it appears that the predominant industry could understand the norms and rules for tomorrow and developrole you played as a trade finance leader has been shrinking. The Geneva trade them now. We must admit that historically the trading industry was notfinance centre is now largely dominated by various strong players such as Crédit united into a coherent body, contrary to the watchmaking industry forAgricole, ING…How will you play this leading role for transparency? example. The trading market was a market of information not of sharing.In terms of procedures, we developed some strong processes to support This is evolving. Nevertheless Geneva has some negative points such asappropriate and rigorous supervision. Our strategy is based on the mana- the high level of fixed cost. The recent decision of the SNB is an additio-gement of change: we would like to be the first in this fast moving envi- nal factor which puts a pressure on an already fragile cost structure. Inronment with higher demand on transparency. Innovation is the trump order to compete with Singapore or London, Geneva must be successful incard for our industry. We must digitise, we must set up a more automated involving all local players to enhance the automation of the industry at atrading system in order to be able to deliver quality results at lower cost. more manageable cost. An efficient IT organisation is already the ticket in. That will help the lea- Interview Elsa Floret

PAGE 28. Special Edition | April 2015 | Commodities ||| EDUCATION & INNOVATIONIs education essential for success?STSA’s course offering tries tofit all profiles and ranges from vanced concepts in your field reassures a poten- Companies are kers often located in another country more easily.a Master programme for young tial employer, who knows he will save precious always looking Most business documents are in English andgraduates with a Bachelor’s training time and can be sure he is hiring a mo- for new talents. perfectly understanding the clauses of a contractdegree, to a 2 day course of tivated person ready to invest time, energy and Those who will save you a lot of troubles. All trainingintroduction to the industry. money in his career. Companies are always loo- combine on-the- offered by the Association is given in English king for new talents, and those who combine job experience by highly experienced professionals and special Silviane Chatelain on-the-job experience with theoretical training with theoretical attention is given to the specific vocabulary used are at the top of the list. training are in the industry.TEducation and Training Manager, STSA Previously, most employees of a trading and/or at the top Our approach through our educational program- his is not the right question to shipping company would have been learning of the list. mes is to give participants the keys to success, ask, as not everyone is suited for by doing, but it is clear that today’s workforce, not only with high quality teaching material a long period of study and be- due to the ever growing complexity of the acti- and experienced lecturers, but also by sharing cause commodity trading is by vity, is mostly made up of university graduates. behavioural tricks and insisting on the impor- definition a sector of “learning in Employers are not ready to wait too long for ef- the field”. Education will surely ficiency and would rather turn to someone who Success comes with thespeed up the path to success. This is why STSA’s has already acquired a reasonably good educa- ability to fix mistakes andcourse offering tries to fit all profiles and ranges tion and shows sufficient motivation. There is move on.This is particularlyfrom a Master programme for young graduates no doubt the job market is becoming increasin- true in commodity trading.with a Bachelor’s degree, to a 2 day course of gly difficult for the less-educated.introduction to the industry. Education and experience are certainly factors tance of being a key asset for your team. TheBeing successful requires training, learning and of success but in a permanently evolving importance of constantly building relationshipsof course practice, all components of educa- environment, networking is paramount. Rela- by being friendly and helpful to people is alsotion. The courses we propose are all linked to a tionships are a key element in forging a rewar- stressed.professional activity to offer this dual training, ding career, and today’s classmate may tomor- Success in a person also comes with his abilityheld so dear in Switzerland and critical to our row become a future partner who can help to fix problems and mistakes and move on. Toeconomic success. Learning the basics and ad- in solving a tricky situation. Participants in take severe blows and stay put in the ring. He STSA’s educational programmes are sensitised may lose the battle but never the war. This is to the absolute necessity of creating a professio- particularly true in an industry such as com- nal network and social networking groups and modity trading, and we believe our educational events are organised to connect and keep them programmes equip participants with the skills connected over the years. required to face up to the challenges of working In this very international industry, an excellent in such a demanding industry.  command of English will greatly help your ca- reer. Language skills help you to communicate your ideas more clearly and to deal with co-wor-Geneva training in commodity trading:the employer’s viewpointVitol has hired on average intake. For us, the program delivers the basic The training while they are still learning. Every company hastwo students from each new knowledge required to become a trader, but programmes its specifics in terms of talent needs which meanssession of the Master in Trading offers much more than that. Students may maintain the the academic background requirements mightand Shipping programme. follow other paths such as Risk, Compliance attractiveness differ from one company to the other, as does theThey have experienced great and Operations, or become a valuable member of the Swiss character, the style and the student’s aspirations.success in their career. of the legal team. hub by ensuring To identify the right talents, we have as HR pro- We have also made use of STSA’s Operator sustainability of fessionals suggested to University of Geneva and Michèle Sormani Certificate and Commodity Trading Fundamen- the talent pool. STSA to set up two half days where we meet Head of Human Resources tals course for the continued training of our most of the students accepted to the course. We staff. These courses are developed in collabora- call this the “Speed Recruiting days”.TContinental Europe,Vitol tion with professionals of the industry and are During those two half days, we will interview he trading environment is therefore very practice-oriented. The Funda- between 50 and 60 students for 9 minutes each. constantly evolving, and therefore mentals course gives a very good insight to the Although exhausting both for students and for requires new knowledge and new trading world for people in positions such as ac- interviewers, it is interesting to experience each talent to enable companies to be counting, paralegal, paper operation or IT, either time that a CV is not enough as the only pre- successful. At Vitol we believe in already in the energy sector or coming from a selection tool. Some students are extremely edu- developing our people, one of the different industry. cated but might have no drive, and talents suchkey reasons why we have been an active mem- Such programmes are one of the ways to main- as negotiation skills, eagerness to learn, and rightber in setting up specific education and training tain the attractiveness of the Swiss hub by ensu-relating to trading and commodities together ring the sustainability of the talent pool and are It is not enough for us towith STSA (at the time GTSA) and the Uni- also a way for our industry to contribute globally wait for good talent to comeversity of Geneva. It is vital for us to have the to the international image of Switzerland as ma- through our doors.We mustright talent pool, but also to contribute to gene- jor player of the global academic world together be active in encouraging it.ral development of our industry in Switzerland, with highly respected institutions such as EPFL,to ensure the best possible perception and image ETH Zurich, IMD and a number of Universities balance between push and modesty are amongof our industry as well as develop the next gene- across the country. other some of the skills you will only discoverration of professionals. It is not enough for us to wait for good talent in a face-to-face session, however short it maySince the start of the University of Geneva’s to come through our doors – we must be active be. More and more companies are attending18-month Master in Trading and Shipping pro- in encouraging it, and can be assured of doing these days.gramme, Vitol has hired on average two students so through programmes that we help develop. In the commodity trading industry in Switzer-from each new session and we are very proud of Their importance is also in more than just their land we are partners as much as we are competi-providing them with a stable career path, where educational aspect – these programmes help par- tors. This partnership has created the commodi-they have experienced great success. Once again, ticipants develop other important, practical skills ty trading hub for which we are renowned, andwe have fantastic students following the current necessary for success as a trader. Networking is enabled us to create programmes that reinforce especially important – traders need to be able to the strength of this hub, like the educational of- effectively communicate with stakeholders and ferings in Geneva. It is absolutely necessary that partners, and build networks. we pass on the importance of this sense of par- This is all possible through their small class sizes tnership to all newcomers to the industry.  where students are able to interact closely with one another and through part-time work (80%) where participants are exposed to the industry

PAGE 29. Special Edition | April 2015 | Commodities ||| EDUCATION & INNOVATIONGeneva training in commodity trading:the student’s viewpointSTSA Operator Certificate.The program is demanding. I was particularly interested by the STSA Ope- One résumé, sleeping with a Blackberry in your hand canWith a full time job aside, it rator Certificate. The format was practical; eight one resignation be rewarding. I was then given the chance tocan become very challenging. hands on modules covering all commodities letter and two move onwards to the commercial side where IBut it made me ready for a and taught by active professionals on Friday months of currently sit on the “very large crude carrier”career change. evenings and Saturday mornings. But without gardening (VLCC) desk. predicting it, I was heading towards a double leave later, Working for a company that invests in their em- Philippe Vollenweider life, and it appeared to be tougher than expected. I started as a ployees can be a great adventure. A colleague of With a 60% success rate, the program is deman- tanker operator mine, for instance, had the opportunity to passS Operator Certificate alumnus ding. Presence in class is mandatory and with for a 150-year- his “seaman’s book” and to spend several weeks omeone told me once that the com- a full time job aside, this became very challen- old ship broke- on a Suezmax vessel. Through BRS, most of us modity industry is all about knowled- ging. I was studying in the evenings, writing as- rage house. have the opportunity to spend time at sea. This ge, people and trust. Somehow lac- sessments at night and revising sporadically for opportunity gives us a hands-on-deck experience king all of them after my studies, exams. Sundays were usually used to catch up on understanding the operations on a ship, and I started my career differently. The with classmates, which gave me a great oppor- a better grasp of why certain clauses are imple- idea of working within the com- tunity to build up a network of people active, mented in the charter party and negotiated somodities trade however never left my mind and or soon-to-be active within the industry. In the heavily back at the office. But primarily, time onthree years later I looked out for alternatives. end, and most importantly, the program made a vessel teaches us never to forget about the hu-I needed to pick up the pace and new studies me ready for a career change. man element involved in this complex but re-were necessary. I looked for a short but intense One résumé, one resignation letter and two markable industry.course that I could attend besides working hours, months of gardening leave later, I started as a In conclusion, from my point of view, it wasand that would not only teach me the basics but tanker operator for Barry Rogliano Salles (BRS), very important to get a structure through a stan-also give me a good understanding of the indus- a 150-year-old ship brokerage house. Assisting dardised and recognised programme. Undenia-try mechanics, and how they link together. two brokers on the newly-set up small tankers bly, I would have had difficulties compiling all desk, I learned first-hand what my role required. the information and documents that were pro- Dealing with several vessels at the same time, vided in class by myself. Access to valuable de- I followed voyages from loading port to dischar- bates and to that very special atmosphere created ge port, solving problems while checking that by people sharing the same interests and enthu- instructions were respected and in accordance siasm, makes it a rich achievement. Clearly, the with the governing charter party. STSA Operator Certificate cannot be compared Within the logistical chain, time has no boun- to years of experience in a company, but at least, daries and operations never stop. On the small it gives a punch in your knowledge and a boost tankers desk nights are short but it seems that in your career. Trading Fundamentals: DiplomaA unique tool for of Advancedemployer training StudiesThe course is rich in content transaction advisory services in the energy sec- Julia Girayand well conducted with tor in developing and emerging markets. Weopportunity for free and frank are based in Washington, D.C., and made the TDAS student, Team Support Officer, STSAdiscussions. It was also valuable trip to Geneva especially to participate in the he world of commodity trading is a combination of different ex-in terms of the networking. course. The DEA areas of specialisation include pertise, offering attractive and challenging career opportunities. offshore oil & gas, private public partnerships A comprehensive understanding of the industry is vital to meet Sudhee R. Sen Gupta and infrastructure in developing countries. We the complex challenges this global industry is facing today. The General Director are now emphasising LNG as a fuel source for Diploma of Advanced Studies in Commodity Trading, unique in Development Equity Associates customers in client countries, as a cost effective the industry, has been created for professionals by the University and eco-friendly alternative, and helping to pro- of Geneva in partnership with STSA. It responds to growing demand for specia-T he Commodity Trading Funda- vide a “one stop shop” where the strengthening lised and continual training of industry professionals. The 1-year course consists mentals course offered by STSA of capacity to handle the complexities of LNG of 11 modules covering elements of the trading contract, all aspects of risk ma- was extremely useful to us as it import are most needed. Thus, our interest in nagement in trading and the financing of trading activities. After completing the helped to strengthen the capabili- the course stems from the need to better equip Diploma, students have a comprehensive picture of the commodity trading in- ties of our firm in the operational our clients in the operational aspects of such an dustry and are thus valuable human capital in the sector. Moreover, the Diploma aspects of commodity trade. It LNG import process. opens the door to a great new network in the industry.helped us to better understand operational intri- The course covers various aspects of trading The great advantage of the programme is its close cooperation with recognisedcacies that could otherwise present themselves operations such as contracts, shipping & demur- experts in the fields of international trade, trading contracts, inspection, insurance,only as problems as we begin to implement an rage, terminology & documentation, financing shipping, risk management and trade finance. In the weekend courses, the expertsarea of business that the firm is expanding on. and insurance. Most of all, it flags operational combine theoretical basics with practical knowledge and their own experience. ItA short description of our firm and what we do nuances which even some seasoned practitio- is not only the high level of quality in teaching, however, that explains the suc-might help to better explain the significant value ners might overlook. It was rich in content and cess of the programme but also the exchange between the students from differentthe course brings for us. very well conducted with opportunity for free professional backgrounds. Lively interaction between teachers and students oftenOur firm, Development Equity Associates Inc. and frank discussions. results in interesting discussions and conclusions for both.(DEA), is engaged in energy consulting and We will be sending more of our employees The highlight of the programme is without doubt the 6-week “trading game” in to this course as it was valuable to us not only the second semester. In this realistic simulation, students set up their company’s in terms of substance but also in terms of the structure and take over the roles of traders, risk managers and analysts. Confron- networking possibilities that it offered. The alu- ted with the challenges of commodity trading, the teams develop a trading strate- mni LinkedIn group made available by STSA, gy, calculate a risk profile and regularly deliver profit and loss reports. The strong is thus very much appreciated. We are grateful emphasis on group work enables students to bring their specific knowledge and to STSA for offering such a course and would to learn from each other’s competencies. The diploma provides participants with strongly endorse the course and its expansion as not only expert training, but a ready-made network for the future, and is thus a appropriate.  powerful tool for both the industry and its emerging talent. 

PAGE 30. Special Edition | April 2015 | Commodities ||| EDUCATION & INNOVATIONTRAFEC: Industry innovation in practiceA unique standardised banks and traders, with oversight and assistance The aim of steer the evolution of the communication stan-communication network from STSA and FONGIT, a start-up incubator TRAFEC is a dards that are becoming expected of the indus-serves the trade finance specialised in technological innovation, TRA- streamlined, try. STSA guarantees that TRAFEC will alwaysneeds of banks and traders. FEC is intuitive, easy to use, efficient, and secure one-standard, serve the interest of the banks and traders that – users benefit from a secured identification sys- one-media are its users, and thus it will become the trusted Stéphane Graber tem and end-to-end data encryption. Corporates application one-stop shop for all the trade finance needs of and banks benefit from a unique standardised for trade commodity trading companies.I Chairman of the eGTSA board communication network which serve their finance. Since its commercialisation in 2012, TRAFEC t is becoming increasingly clear, as many needs, and belongs to them directly through the has grown to welcome more and more major in- contributions in this magazine have stewardship of STSA. Its main competitive ad- dustry players. Today, eight commodity trade fi- demonstrated, that innovation is key to vantage compared to other solutions is thus ob- nance banks offer services through the platform, the Swiss hub remaining a world leader vious: TRAFEC is non-commercial and control- serving more than 50 customers. Over CHF 5 in commodity trading. This means not led by its users, which gives them the ability to million has been invested to allow the platform only embracing new technology and to grow and transform. TRAFEC also benefitsbusiness practices, but actively leading from FROM A TIME CONSUMING PEER-TO-PEER APPROACH... from a governance structure that allows tradethe front in designing and implementing these finance banks and trading companies a directnew tools and ways of doing business. An ex- Telex Fax E-mail Mono Bank Portal Trade Market Product say in its operations, while being independentlycellent illustration of the way the sector is doing overseen by STSA and FONGIT, which allows itexactly that is TRAFEC: the Trade Finance ... TO AN EFFICIENT STANDARDISED NETWORKExchange Console. TRAFEC is defining the futureThe aim of TRAFEC is to anticipate compliance Telex Fax E-mail Mono Bank Portal Trade Market Product Multi-Bank Portal standards of the industryrequirements of future trade finance by moving now rather than waiting forfrom a multi-media, multi-standard environment, Multi-Bank Trade Finance Plateform others to define them.whereby trading companies must communicate Corporates & Bankswith each of their trade finance institutions indi- to be continuously improving. It is also activelyvidually by fax, email, and even “snail-mail”; to a Source: TRAFEC supported by the Canton of Geneva, who reco-streamlined, one-standard, one-media application gnise it as a strategic project in the developmentthat harnesses 21st-century technology. Through of a FINTECH (Financial Technology) cluster.TRAFEC, traders can organise all of their trade Since the birth of STSA in 2014, it is hoped thatfinance needs: letters of credit for import, export, TRAFEC too may become a nationally reco-and standby, letters of intent, bank guarantees, gnised trade finance platform.and collection and deposit of documents are all The success of TRAFEC thus far demonstrateshandled by the online platform directly linked both the industry’s commitment to ensuringto all their major trade finance banks. TRAFEC’s the strength of the Swiss hub by defining thebenefits for trading companies are clear: it saves future standards applied to our industry rathertraders time, and removes the margin for human than waiting that others define them, and theerror in a once labyrinthine system that involved strategic importance of the commodity tradingan unwieldy mix of paper documents and elec- industry to Geneva’s economy, recognised by thetronic transactions. local authorities. It is imperative that this projectBeing designed in concert by trade finance continue to enjoy the active support of the in- dustry, to reinforce our commitment to innova- tion and being at the forefront of new business practices. Trade Finance banks have come togetherto better service the industryNThe Founding Banks of TRAFEC not just bankers who have been involved with TRAFEC’s gain: All trading companies have numerous aturally, the banks offering the development of the software. We have bene- uniqueness financial providers, so it is a real attraction to be trade finance services in Ge- fitted from the partnership of commodity tra- is that it does able to boast presence in a platform that covers neva are competitors, but ding companies, meaning that the programme not stop at multiple institutions and makes the customer’s from time to time it is more has a simple, intuitive design for clients – indeed, the types of life easier. beneficial for competitors the platform looks and functions very similarly transaction Geneva is known around the world for the qua- to work together for each to to an email inbox, meaning even technophobes lity of its financial services, not just in commo-gain individually and as a group. So it is in the can use it without much concern! TRAFEC sLitséiglalende dity trading but right across the banking andcase of TRAFEC – the multi-bank platform de- constantly developing platform and we are finance sector. It is thus in a unique position tosigned to better service the commodity trading involved in its continuing development, throu- that are be able to propose new services that will be ta-industry by making transactions more efficient, gh participation on professional and investment already widely ken up by its clients based on its reputation forsafe, and user-friendly. committees. TRAFEC’s governance is enriched completed secure, high-quality banking. It is in the interestThrough TRAFEC, we as trade finance banks by the presence of STSA and FONGIT, who of all players in the financial industry in Genevahave offered our expertise to ensure that the leCnodmmitenotpaierera1tiooun2alligsnuespmpoaxritmaumnd a strong cove- to innovate and be ahead of the global trend,platform is effective as a secured communica- rage of the industry. online. especially in an ever more competitive world,tion tool. By integrating it with our back-office where Swiss banking excellence is coming un-systems, we ensure that our clients are assured of TRAFEC is also constantly on the lookout for der pressure from new financial hubs. Projectsthe integrity of the platform, which can be used new partners. As banks we are excited to be able like TRAFEC are an important element of en-in conjunction with their other online payment to offer services to our clients which streamline suring Geneva’s place as a world business hub ismechanisms. However, TRAFEC’s uniqueness their processes, but we can only go so far with secure into the future.is that it does not stop at the types of transac- the banks and financial institutions currently in- “The founding banks of TRAFEC, all large playerstion that are already widely completed online: volved. It is especially important that we entice in commodity trade finance in Geneva, identifiedtraditionally paper-based transactions and com- further financial institutions involved in com- TRAFEC as a project of common interest above andmunications such as Letters of Credit can now modity trade finance to the platform to continue beyond their competitive relationship. They havebe treated through the platform. We have also to expand its services to its clients. The advan- been instrumental in developing the platform toensured that through Application Programming tages for banks are simple: They benefit from meet the exhaustive technical and security standardsInterfaces our clients can integrate the platform being an early adopter of the technology, and of the industry, as well as using their high standingdirectly into their back-office software. are able to offer a service to their clients that in the industry to attract new partners. This articleAnother unique aspect of TRAFEC is that it is simplifies their communication platforms. Far is intended to illustrate their viewpoint as a whole, from losing a comparative advantage by joining and is not the opinion of any individual bank”.  competitors in the platform, it is a comparative

PAGE 31. Special Edition | April 2015 | Commodities ||| EDUCATION & INNOVATIONTowards a better platform for all actorsTransamine signed onto cause we believe it has the capacity to significant- With TRAFEC is key that we continue to develop it and parti-TRAFEC and have continued ly simplify the way we do business. Transamine we can carry cularly in a way that we can extend the templateto support it actively. gets all of its financing from trade finance, so a out our trade to other uses. All the right elements are there – itBecause it has the capacity traders-bankers interface could, eventually, be finance needs is intuitive and easy to use, and maintains a highto significantly simplify our “one-stop shop” for finance, saving us consi- from beginning level of security through encoding all commu-the way they do business. derable time and resources. We use 11 banks to end.And it nication and transactions routed through it. But to source our financing, so dealing with them is unique in the it is in danger of getting stuck in a rut if it does Olivier Doeblin individually can be time-consuming, complica- sense that it not expand, or enhance its offerings to reflect the ted, and confusing. Although only three of our manages Letters diversity of the industry it serves. As with luringTCFO Transamine banks currently use TRAFEC, we are constantly of Credit. more banks to joining the platform, it is neces- ransamine is a small company trying to expand this number. This isn’t always sary to overcome the perception that TRAFEC working in metals sourcing, mar- easy – banks are wary of using technology set up was set up to benefit just part of the industry, or keting, finance, and investment. by a competitor! But we believe it is important only large trading houses. TRAFEC needs to do We have been involved with TRA- to have as many as possible using it – banks on better at reflecting the diversity of the industry if FEC since the beginning, despite their own can only extend their technology so it wishes to better serve it. the fact that we were not initially far, before it becomes unhelpful without a com-convinced: the platform seemed to be geared to- mon interface that means we don’t have to jump Creating TRAFEC waswards large companies dealing in oil and grains through countless applications. We keep suppor- important.The platform– not at all our profile. Still,we persevered, and ting TRAFEC because we are sure, eventually, is an allegory for thetoday are closely involved in its day-to-day func- we will be able to convince all our banks to use it commodity trading Swisstioning and continuing development. We help in their trade financing processes. hub in general.facilitate the discussions going on between the TRAFEC is not the only multi-bank platformbanks and traders: all the details on format and available to traders, but it does have a number In a way, TRAFEC is an allegory for the com-functioning go through electronic conversations, of advantages over the others on offer. For star- modity trading industry’s Swiss hub in general.and, at the end of the process, we get an electro- ters, many other platforms are consultation-only, Although Geneva is an undisputed world hub ofnic notification to sign off on it. A lot of power whereas with TRAFEC we can carry out our commodity trading, those of us based here havefor a small trader ! trade finance needs from beginning to end. In to make sure we are always setting industryOne of the key reasons we signed onto TRAFEC, addition, TRAFEC is unique in the sense that it trends, rather than following them and riskingand have continued to support it actively, is be- manages Letters of Credit (LCs) – this is particu- falling behind. Creating TRAFEC in the first larly important for speed and efficiency in our place was an important step. Now, we need to be dealings with banks. In an environment where committed to its constant evolution and impro- completing a trade quickly is often critical, this vement to ensure we remain at the cutting edge is a huge plus. of commodity trading business practices.  TRAFEC is obviously still a work in progress, albeit one that already works effectively enough for us to make use of it in our daily business. ItCommodity trading and start-upaccelerators: strange bedfellows?The platform uses the existing less money to entice “people who can open “It’s all about vely absorb it into their daily business practices,synergies of commodity trading, doors” to new opportunities, rather than deploy smart money”. says Gilardoni. This means new products haveinnovation, policy and insti- large amounts of capital in the wrong places. Better to use to be lean and attractive, so they can be easilytutions. It has the potential to What does this have to do with the commodi- less money to integrated into day-to-day business.become the reference standard ty trading industry? Gilardoni is a member of entice “people Industries like the commodity trading industryfor the industry. the board of TRAFEC, and FONGIT has hel- who can open that are multinational by nature are also going ped turn around the fortunes of the platform to doors”to new to have to start adapting to changes to emerging François Gilardoni make it the sought-after industry tool it is today. opportunities, markets. Technology is changing the way we do He believes that “This platform uses the existing rather than business the world over, but perhaps nowhereOSenior Business Advisor, FONGIT synergies of commodity trading, innovation, po- deploy large more than the developing world: areas that once ne of the stock phrases of licy and institutions, and therefore has the po- amounts of had no access to finance or banking now find school career advisors the tential to become the reference standard for the capital in the themselves sending money via text message, and world over is that the jobs of commodity trading industry”. As well as provi- wrong places. setting up businesses that would not have been tomorrow do not exist today. ding TRAFEC with the necessary office space, possible without internet access, or easy access to That tired-out cliché is already FONGIT has offered logistical and strategic solar power. There is an unprecedented scope for being vindicated, with count- help to the project, as well as continued support entrepreneurship in places such as Sub-Saharanless new types of businesses, organisations, and in expanding TRAFEC to new parts of the in- Africa just waiting to be tapped, thinks Gilar-occupations springing up seemingly weekly. dustry and new industry partners. In Gilardoni’sOne such institution is the “start-up accelerator” view, “Technology has no value without a bu- New products have to beor “business incubator”, and not the type seen in siness need”, and for TRAFEC that need, a safe lean and attractive. So theybiology labs. Dr François Gilardoni of FONGIT, and secure platform for trading, had to be well- can be easily integratedGeneva’s own start-up (FINTECH) accelerator, developed before even thinking of how it could into day-to-day business.tells me his foundation is all about making it be achieved technologically.easier for businesses to get started by facilitating Not that the work stopped once TRAFEC had doni, and industries that harness it will benefitthe technological, social, and legal conditions ne- been developed and put on line. “Selling” the themselves as well as improving lives in some ofcessary. Companies and ventures in their early product to companies is not always easy, and the world’s poorest regions.stages also often find it helpful to have assistance even the most stridently innovative companies Before we finish, I ask Gilardoni what it takesin administrative, logistical and strategic matters are often wary of previously unheard of tech- for a start-up to succeed in today’s world. “Pas-– an incubator can help with risk minimisation, nology. Technology is “changing the way people sion”, is his first answer, and “being surroundedcontracts, licensing, and building partnerships, do business” Gilardoni reminds me, and convin- by passionate people” his second. Finally, heto name just a few. “It’s all about smart money”, cing a company to change when their current spoke of the importance of positive criticism,says Gilardoni – the idea that it is better to use business model works just fine is no mean feat. accepting your failures, and learning from your To get the message across that a company should mistakes. Perhaps the fundamentals of business embrace technology it has to be convinced that are not changing so quickly after all.  they need the product, often before they actually do. With the ever-accelerating advancement of Interview Patrick McDonald technology companies are getting better at this, but any organisation wishing to effectively har- ness technology in today’s world needs to acti-