Commodities

SPECIAL EDITION |MARCH 2021

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SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |03 Editorial A new cycle Frédéric Lelièvre 2 020 has been a year of unusual shocks One. The world is entering a post - health for the commodity traders, forcing crisis growth as the pandemic is more CEO and Editor-in-Chief, them to embark on a frightening or less under control. Vaccines will also Agefi roller-coaster. At first, the Covid-19 boost the global economy and help it re- pandemic hit them hard. Health restrictions cover. That will benefit the commodity Jan Schwalbe around the globe triggered a sharp recession industry because it is at the core of the in most countries, advanced or developed production activity. Editor-in-Chief, ones. Highly correlated to global activity, Finanz und Wirtschaft commodities like oil and metals saw their Two. Many countries take the pandemic prices fall accordingly. At the same time, the as an opportunity to make their eco- pandemic created production shortfalls on nomy greener. Commodity traders will some soft commodity markets, edible oils for play a key role when it comes to building instance, pushing some food prices up. infrastructure and electric vehicles, or achieve the targets set by the Paris agree- External shocks were not ment on climate change. Let’s not forget the only ones to affect the there is also the need to feed the world in a more sustainable way. commodity traders. This is a secular trend pushing However, unlike previous global recessions commodity prices up beyond which had long lasting effects, most com- modity markets swiftly recovered from the recent rebound. the price shock. The combination of supply cuts by OPEC+ and a faster-than-expected Combined, those two reasons may well lead rebound of the Chinese economy have sent to a new “super cycle”, which is a secular most commodity prices up again, many of trend pushing commodity prices up beyond them reaching their pre-pandemic level. the recent rebound. This would happen be- cause the increase in demand is only slowly External shocks were not the only ones to met by a lagging supply. Four such super affect the commodity traders. Last year was cycles have happened since 1900. The first also the year of fraud cases. They mainly took two occurred after World War One and place in Southeast Asia and the Middle East, Two, with the reconstructions. The third but Switzerland was not isolated. Swiss banks one took place during the oil price shock specialised in trade finance suffered at least of the seventies. The last one came with the half a billion Swiss francs of losses. As a result, rapid industrialisation of China in the ear- some players left the business. Nevertheless, ly 2000s. In that potential new super cycle, 2020 should also be remembered for some oil prices may well reach USD 100 a barrel, positive developments. In particular, Swiss experts say, before plateauing as the world people voted against the Responsible Business will switch to alternative, less CO2-intensive Initiative and instead favoured a so-called energy sources. All this means that there “counter-proposal” designed by the govern- are plenty of opportunities ahead for the ment who took account of the international Swiss commodity hub. competitiveness of the Swiss commodity hub. These future legal provisions will help the One last transformation would still be needed commodity industry move forward and beco- though. Gender inequality remains an issue, me more sustainable. The vote was a sign of but there might be light at the end of the tun- trust, not only in the industry, but also beyond nel. Some companies start to appoint women and emphasised the important role that multi- to top positions. They could in turn become nationals play in the local economy. role models and inspire other women to consider a career in the commodity world.  What’s to expect in 2021? The industry is back to fundamentals as this special issue GERMAN VERSION reports. And it is not just about providing the global economy with the key ingredients  it needs. The industry is also starting a new cycle for at least two reasons. FRENCH VERSION 

04 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Contents - March 2021 22/ INTERVIEW Carbon capture is critical to achieve the net zero goal, but it is very expensive. Back to Fundamentals Anna Krutikov, Glencore. 23/ Achieving net zero: the role of carbon markets. 05/ Back to fundamentals. Gérard Delsad, Vitol. Ramon Esteve, STSA. 24/ Climate: in Africa, problems can turn into opportunities. Isabelle Chevalley. 07/ ONE ON ONE WITH Florence Schurch. 25/ How coffee growing is coping with climate change. STSA. Nicolas Tamari, Sucafina. 08/ A success to be maintained in Switzerland. 26/ Driving sustainability in cotton farming. Fabio Regazzi, Regazzi Holding. Alan Mclay, Better Cotton Initiative (BCI). 09/ 2021: Back to fundamentals. 27/ What do chicken nuggets and cotton have in common? Emmanuel Lemoigne, BIC-BRED (Suisse). Jürg Reinhart, Paul Reinhart. 10/ What role market insurance plays. 28/ The role of Swiss-based commodity traders Philippine de Villèle, BPL Global, Geneva branch. in shipping decarbonisation. 10/ After the storm, a promising renaissance. Sebastien Landerretche, Louis Dreyfus Company. Pierre Galtié, Banque de Commerce et de Placements, Switzerland. 30/ Regulations in shipping’s energy transition. 11/ Crises: a catalyst for change in trade finance. Chris Hughes, Lloyd's Register. Jean-François Lambert, Lambert Commodities. 30/ Shipping: new technologies in practice. 12/ Reinforcing common practice in commodity finance in Switzerland. Nils Joyeux, Zéphyr et Borée. Alastair Houlding, ING, Patrick Cotasson, UniCredit et Michael Jackisch, BIC-BRED. Legal & Regulatory Digitalisation 32/ The future of trade finance in Switzerland and Singapore. 14/ A riskier landscape demands a trusted system. Marc Gilliéron, Chabrier Avocats and Baldev Bhinder, BlackStone & Gold. Souleïma Baddi, Komgo. 33/ The impact of the counterproposal 15/ The new blueprint for commodity finance. to the Responsible Business Initiative. Guido Bühler, SEBA Bank. Mark Veser and Claude-Aline Dubi, Ernst & Young. 16/ Tokenization shaping the future of commodity markets. 34/ Commodity trade finance – Money laundering, Marco Grossi, Tokentrust. fraud and financial crime risks in 2021 and beyond. Olivier Bazin, Holman Fenwick Willan LLP. Sustainability and Gender Equality 35/ Looking into the future of regulation through a green tinted magnifying glass. 17/ The commodity trading industry and the UN Lisa Weihser, STSA. Guiding Principles on Business and Human Rights. Raphael Jenny, STSA. HR & Education 18/ Towards more equality: the Swiss “Comply or Explain” approach. Daniel Rüfenacht, SGS. 36/ Working from home – from pleasure to frustration? 18/ WISTA Switzerland and promoting equality. Adrian Tüscher and Christophe Bellino, KPMG. Maryana Stober, Women’s International Shipping and Trading Association. 37/ Trader's unique role in business and Human Rights. 19/ ONE ON ONE WITH Muriel Schwab. Dorothée Baumann-Pauly and Serra Cremer Iyi, University of Geneva. Gunvor. 37/ Master in commodity trading online during Covid-19. 19/ ONE ON ONE WITH Céline Coimbra. Eliane Palivoda Herren and Jean-Paul Vulliéty, University of Geneva. LafargeHolcim Trading. 38/ Education during COVID times: 20/ ONE ON ONE WITH Deia Markova. Waltzing among constraints, creativity and agility. Société Générale. Silviane Chatelain, STSA. 21/ ONE ON ONE WITH Mariam Almaszade. SOCAR Trading. Commodities is a supplement to l’AGEFI, daily publication of la Nouvelle Agence économique et financière SA | Chairman of the board Raymond Loretan | CEO and Editor-in-chief Frédéric Lelièvre | Commercial director Olivier Bloch Editorial contribution STSA team, Elsa Floret, Agefi | Graphic design Damien Planchon | Subscriptions (021) 331 41 01 – [email protected] | Advertising STSA Tél. (022) 715 29 90 – [email protected] | Printers Imprimerie Hertig + Co. AG | Copyright © Any reproduction of articles and illustrations is prohibited without written permission | Head Office Route de la Chocolatière 21, Case postale 61, CH-1026 Echandens-Denges, T. (021) 331 41 41, www.agefi.com | Front page image credit: Ryan Stone – Unsplash. Commodities is also a supplement to Tamedia Finanz und Wirtschaft AG, Werdstrasse 21, Postfach 8021 Zürich, Verleger: Pietro Supino, Chefredaktor: Jan Schwalbe, [email protected] | www.fuw.ch | Tel. 044 248 58 00, Verlagsleitung: Marcel Tappeiner, Anzeigen: Goldbach Publishing: Philipp Mankowski (Chief Sales Officer), Adriano Valeri, Urs Wolperth, [email protected], Tel. 044 248 40 11

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |05 Back to fundamentals Ramon Esteve L ast year, our theme was disruption. purpose definition and mission statements of I don't think anyone anticipated what most trading companies, not to mention the President of STSA the world has gone through in the last credit analysis of most banks. Trading compa- 15 months. So far, it seems that we have nies are doing their share to protect the planet Advertisement adapted, particularly in the commodity indus- but the campaign for the Responsible Business try where our trade channels have continued Initiative reminded us that our actions are not to operate with few problems in terms of sup- yet recognized, our industry has to multiply ply or logistics. It is surprising that despite the efforts in communication. various lockdowns, there is a resilience of de- mand in some sectors of our economies. Among the adaptations brought about by CO- VID-19 is working from home. This was made There were maybe two major disruptions to possible by today's technology, which, even ten our industry and these were only remotely years ago, might have been proven difficult. COVID-related. I would mention the new trade The situation has also greatly pushed forward barriers certain countries have put in place to the dream of the “paperless office”. The pande- protect their weakened economies with most mic will have a long-lasting impact on the way often a detrimental effect on their consumers. Then there are the major losses incurred by the We are privileged financial sector in Asia. Large trading houses to be a micro-cosmos seem to be weathering this storm but it has not with well-established always been smooth sailing for the smaller mar- ket participants. It is ironic that even though trading houses. regulators fear institutions that “are too big to fail”, their actions often lead to further conso- we work. There are many technology-related lidation creating precisely that risk. I doubt initiatives in which our industry participates losses of such magnitude could happen in the that are aimed at streamlining trade flows, such Swiss trading hub. We are privileged to be in as Blockchain and cryptocurrencies. We hope a micro-cosmos with well-established trading to shed some light on these developments in this houses and shipping companies, experienced edition. I also take this opportunity to congra- auditors, seasoned bankers and underwri- tulate our teaching staff and our students for ters, knowledgeable sector consultants and of completing our courses on-line. I have always course, controlling companies; information cir- wanted an on-line offering so companies abroad culates freely and problems are usually rapidly can benefit from the Swiss excellence in educa- anticipated and mitigated. tion; COVID has forced it upon us. I hope that we can continue with an on-line selection after Climate change and environmental concerns things get back to normal.  are clearly on our agendas. The world needs to decarbonize and today's consumer seems to be GERMAN VERSION putting increasing pressure on financial insti- tutions and what they finance. These are very  valid concerns that will accelerate change. Several brands have made bold environmen- FRENCH VERSION tal commitments and traders, as part of their  supply chains, will make them a reality. Sus- tainability has gradually made its way into the Enabling a better, safer 10/02/2021 16:37 and more interconnected world SGS IS THE WORLD’S LEADING INSPECTION, VERIFICATION, TESTING AND CERTIFICATION COMPANY. WWW.SGS.COM SGS Advert 180x69.indd 1

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SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |07 One on One with Florence Schurch Florence Schurch, Secretary General of the Swiss Trading and Shipping Association. Starting her career working against orga- ness. It is mostly our fault for not communica- responsibility through various projects. Some nised crime, Florence Schurch was the ting enough. My goal – as Ramon Esteve, STSA are now financed by the World Bank or de- first Swiss female special agent posted President said – is “to make Switzerland as veloping banks that see traders as having an overseas with the federal police. Six mon- proud of its traders as it is of its cheesemakers.” important role to play in local community de- ths after 9/11, she was posted in the Swiss embas- velopment. There are many existing labels and sy in the US and later in Germany to work with The role of transport is also key to our economy. standards which remain ignored by the public. the BKA. As a diplomat, Florence supported the Do you have some examples in shipping in this ambassador on homeland security policies and whole value chain? Does the expression “Back to Fundamentals” diplomatic duties. In 2009, the Conseil d'Etat mean that you want to place the trader in the middle, nominated her as the federal attaché to defend Without maritime transportation moving 95% via information-sharing among others? Geneva’s interests at the national level. One year of goods, distribution wouldn’t be as efficient. after her nomination as the head of STSA, Flo- This is thanks to the sailors and crew members This is exactly our aim. As you can see below, rence has set up her team, successfully digested continuing to deliver goods and commodities traders play a fundamental role in everyone’s the campaign against the Responsible Business around the world, sometimes without retur- life. Mistakes were made, but trading compa- Initiative and sees the focus of the year 2021 on ning home for months. nies’ governance models changed to increase the fundamentals - for STSA’s 200 members but transparency and accountability.  also for the industry as a whole. It is time now to learn from the mistakes made, Elsa Floret, Journalist at L’Agefi EAcftoenrotmheicGFroerautmR,etsheet raentnuorunntcoefdunbdyatmheenWtoarllsd, get rid of the past and work proposed by the STSA. Can you explain this choice? on the future of the trading GERMAN VERSION In 2020, significant frauds have shocked the hub in Switzerland.  trading industry and left banks and SMEs in difficulties. The impact on the industry’s image C20a2n0itheaxspbleaeinnwa hsuyctcheestsrfaudliynegasrefocrtothreisbdigemtraodniinsgedh?ouses. FRENCH VERSION is huge. Our role is to support the traders to res-  tore their image. We believe this can be achieved Traders are working in complex countries, by going “Back to the Fundamentals”: it is time to where the law and governance are not always learn from the past and work on the future. comparable to Switzerland. Switzerland doesn’t cultivate cocoa, coffee, rice or cotton. Ok, let’s talk about the future, Thanks to traders, commodities from re- what are your priorities for 2021? source-rich countries, often marked by insta- bility, are moved to resource-scarce countries. Communication, communication, communica- Trading companies are actively promoting tion… and transparency – our keywords to go forward. The industry’s reputation has suffe- red for too long due to a lack of public aware- Illustration par Florence Schlegel insta@floschandfam

08 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION A success to be maintained in Switzerland Fabio Regazzi by relatively low regulatory costs in com- to Switzerland often have regulatory costs parison with other countries, especially for between 10 and 15% of GDP. Switzerland is the- President of the Swiss Union of Arts and commodity trading. In fact, every regulation refore doing well for the time being. Crafts, National Councillor, Chairman of leads to costs for SMEs. Generally, the more the Board of Directors, Regazzi Holding regulations there are in number and detail, The USAM notes, however, that since its first the fewer opportunities companies have study developed with KPMG in 2010, regu- I f there is a great paradox in Switzerland, to develop their potential. Of course, some latory costs have increased by more than it is the trade in raw materials. Indeed, regulations are necessary, such as for road CHF 10 billion in just 9 years. Fortunately, Switzerland is a small country very poor traffic. It is therefore important to be able the situation is not yet at our disadvantage in commodities. Switzerland doesn't even compared to other European countries. This have a maritime outlet that would allow it to en- Switzerland's economic is why the USAM is fighting to introduce a ter the international maritime trade. However, policy (…) is characterized constitutional regulatory brake, similar to Switzerland is one of the most important com- by low regulatory costs. the well-known debt brake. With this instru- modities trading centres in the world. It's an eco- ment, a vote would have to be taken each time nomic fact that high-growth countries are often to differentiate between regulations that to introduce a new regulation. This is the the poorest in raw materials, but it's another to are necessary and those that stifle entrepre- only way to keep the costs of regulation low be able to climb to the top of the world's com- neurship. The basic rule is to apply an objec- and to maintain a high level of competitive- modity trading rankings. Especially since it is tive cost-benefit ratio. ness for the success of SMEs in Switzerland. mainly SMEs in the Lake Geneva and Ticino re- gions that have succeeded in establishing a solid Ultimately, unnecessary regulatory costs The USAM represents and defends the interests reputation and developing cutting-edge know- weaken the competitiveness of SMEs in the of more than 500'000 SMEs in our country. The how in the transactions that are indispensable market. Where does Switzerland stand in re- members of the USAM are the cantonal unions for trading. How is it possible to achieve this lation to these regulatory costs? According of arts and crafts, the Swiss professional and without the necessary resources and maritime to a study by the USAM published in 2019, the industry associations as well as other organi- access? Critics will write that Switzerland's regulatory costs would amount to more than sations and institutions for the promotion of aggressive tax system is the reason, or that the CHF 60 billion or about 10% of Switzerland's SMEs, which include 230 associations.  financing provided by the big banks has made it GDP. The study estimated this cost on the basis possible to set up this dynamic trading hub. of 4,000 legislative texts, from all the different GERMAN VERSION areas of regulation and the federal, cantonal The reality is more straightforward. Swit- and municipal levels. Countries comparable  zerland's economic policy is characterised FRENCH VERSION  ACADEMIC PROGRAMS IN COMMODITY TRADING THE UNIVERSITY OF GENEVA IS OFFERING A UNIQUE OPPORTUNITY TO LINK THE ACADEMIC AND PROFESSIONAL WORLD DIPLOMA MASTER OF ADVANCED STUDIES IN COMMODITY TRADING MASTER OF SCIENCE IN COMMODITY TRADING A 1-YEAR EXECUTIVE PROGRAM FOR PROFESSIONALS FONREMWAT LOOKING TO DEVELOP NEW SKILLS AS OF SEPTEMBER 2021, THE MASTER WILL RUN OVER 12 MODULES OF 24 HOURS TWO SEMESTERS AND THE TRAINEESHIP WILL LAST 36 ECTS CREDITS 12 MONTHS INSTEAD OF 18 MONTHS Available in two formats: 12 MONTHS TRAINEESHIP – Bi-weekly with full in-class sessions in Geneva 2 SEMESTERS OF COURSES – Block with 4 sessions of 2 modules over 6 consecutive 90 ECTS CREDITS days in Geneva + 4 online modules gsem.unige.ch/master-commodity-trading gsem.unige.ch/das-commodity-trading Next start date: September 2021 Apply by 31st May 2021 More than 10 years since inception, close to 700 students have graduated from these two programs. 90% of them are actively working in the industry creating an extensive network of professionals and experts. GENEVA SCHOOL OF ECONOMICS AND MANAGEMENT

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |09 2021: Back to fundamentals Emmanuel Lemoigne has often mechanically improved financial The correct answer must therefore be profitability but obviously increased the level based on what the financing teams specia- General Manager of risk. Only, we always find less expensive lising in Commodity Trade Finance know BIC-BRED (Suisse) than less expensive and by forgetting to pay at by heart by going back to initial practices the right price, its own risk premium, we end and applying them scrupulously. The With change increasing both in speed and up leading to the scalding of bankers who can- working groups set up by STSA, made up complexity, the commodity trading leaders not afford to leave on the table and all at once, of specialists from Swiss banks, are, in of the 2020s will be the organisations able to the equivalent of several years of profit. This this regard, illustrative of the know-how take informed decision faster than their peers. inconsistency has resulted in a significant hu- to which reference should be made (see man cost and has fuelled a legitimate concern pages 12 and 13). W hile 2020 will be remembe- among traders about the abandonment of red, obviously marked by these activities by banking establishments. RCoemasmoondsittyotbreadoipntgimeciostsiycsatebmouint tShweitzerland. the health crisis, it will also leave the world of commodity A return to the fundamentals of the business The ecosystem that exists in Switzerland trading with a bitter taste. Indeed, the cases issatchteiorneafol rfieneasnsceinngti.al: structured and tran- around the commodities sector is a real of fraud revealed have very concrete conse- opportunity for all players. Recognised quences that could have a lasting impact on the The basis of transactional financing is re- worldwide for its competence, Switzerland future of this essential link in world trade. So, course to the financed assets and the self-li- must capitalise on this environment condu- it seems that a return to reason is called for. quidating nature of the credit. The bank cive to business in conditions of security finances the acquisition of an asset, which and transparency where everyone can find According to various sources, the trader the company pledges to it and is reimbursed their account: defaults cost in the order of USD 9 billion to USD 10 billion globally. Mainly linked to This abandonment • Traders, based in Switzerland but also players in Southeast Asia and the Middle of good practices only those who operate from abroad and find East, the claims ended up affecting banks amplified the movement expertise in structured finance in Swit- based in Switzerland, specialising in trade zerland. No financial centre has developed finance. Thus, according to several esti- of suspicion on the this skill so assertively. mates, the gross losses resulting from these transparency of the sector failures could reach nearly a billion dollars and ended up constituting • Trade finance banks and their teams who for Swiss banks. These losses accelerated have accumulated years of experience the disengagement of some players and a societal concern and have, despite the setbacks, adapted to precipitated others in a drastic review of opportunely relayed the new situation of globalisation. their portfolio, extended if necessary, by by various NGOs and decisions to reduce the allocation of capital politicians from all sides. • Regulators through their continuous mo- dedicated to this business. nitoring of establishments. by the proceeds from the resale of this same If the fall is sudden, it is only the consequence raw material after several stages that have • Lawyers and advisers whose support to of practices that have slowly drifted over the marked the operating cycle (prepayment to stakeholders is essential. course of many good years. If we summarise the producer, storage, transport, resale) and them, they are generally characterised by a which requires this structuring of financing. • FinTech’s whose innovations will accele- reduction in the requirements in the tran- We come back, more broadly, to the basics of rate the digitalisation of the sector by sactional financing of operations approach, the banking profession which is, above all, bringing reliability and fluidity. leaving room for rather classic scams. In ad- knowing what you finance, to whom you lend dition, this abandonment of good practices and how you will be reimbursed. • Finally, NGOs and politicians whose only amplified the movement of suspicion on approach cannot be limited to a general the transparency of the sector and ended up By developing RCF-type financing methods, criticism of the activity but to a pragmatic constituting a societal concern opportunely normally reserved for large corporates and constructive approach to the changes relayed by various NGOs and politicians with significantly less leveraged financial to be made to respond to societal concerns, from all sides. The latter, not always well-in- structures, banks have participated in the the legitimacy of which is indisputable. tentioned and, to say the least, often guided by disguise of the profession. Indeed, the ba- ideological postures, saw it as a dream oppor- lance sheets of large traders are marked by Faced with competing financial centres tunity to want to put a stop to the development a greater level of encumbered current assets which have just paid a high price for the of the sector. But this is only the catalyst for than a more traditional company. De facto, denaturing of the business, but which will the crisis, and in the end, by dint of wanting to creditors who have subscribed to this type remain vivid competitors in the future, disintermediate everything, all the players in of RCF financing find themselves in a form Switzerland has all the assets in hand and the sector have helped to gain flexibility and of subordination which leaves them with benefits from a historic window of oppor- speed while pressurising financial costs. The very limited recourse in the event of default. tunity to strengthen its predominance on reasons for these choices can be explained This type of financing should not find a taker these trades. by the weakness and decline in the economic under these conditions since its repayment profitability of these businesses. In other should normally be ensured by the profitabi- Let everyone take the full measure of this words, when your business model no longer lity of the company and not by new debt. This to bring the world of commodities into generates a sufficient level of margin, there shift towards the facility explains the level a new era which, far from being a step is a strong temptation to compensate for this of losses, reinforced by the pricing of these backwards, will herald new practices as- relative weakness by increasing the volumes credits at abnormally low margins. sociated with an increasing use of new in- handled. This headlong rush is necessarily formation technologies.  accompanied by a more intense recourse to debt, accepted by the largesse of the banks. GERMAN VERSION The resulting increase in financial leverage  FRENCH VERSION 

10 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION What role market insurance plays Philippine de Villèle Lloyd’s of London. The support and protec- The CPRI market has a long history with trade tion the CPRI market provides trade, export and commodities activity with a deep level of Director, BPL Global, Geneva branch and commodity finance activity is often wel- understanding of its clients’ business. Whilst come by buyers or sellers when the value the market’s coverage offering has broadened W henonecompanybuysortrades of contracts is large or when the number of significantly in the past five to ten years, trade goods or commodities, there are contracts is significant. It is a useful miti- and commodity related business remains a resulting risks that arise and gation tool for corporate risk managers but core part of its activity. In 2020, enquiries need to be considered: also for banks who finance the underlying related to risks in extractive industries (Oil, trade who see such insurance protection as mining and metals) represented a healthy • The performance risk of the seller which a security, thereby enhancing the credit pro- percentage of all transactions submitted to is borne by the buyer: e.g. if the seller does file of their borrower. CPRI insurers. 2020 has seen a fair number of not deliver on time or the agreed quality / challenges for the market from the impact of quantity described within the sales These risks can be the COVID-19 pandemic to the well-publicised contract is not as it should be; mitigated by insuring with frauds involving businesses in both Singapore • The credit risk on the buyer which is borne and Dubai. The latter resulted in significant by the seller: e.g. if the buyer defaults on its the Credit and Political claims volume for the insurers involved which contractual payment obligation(s); Risk Insurance market. could in turn lead to insurers’ offering in the • The political risk which can arise in the space becoming more selective in terms of the country where the goods / commodities Today, with an estimated total of around USD risks they are willing to insure, however ove- can be in transit or stored. 350 billion in live exposure, CPRI insurers rall, the CPRI market should still be viewed play a central role in facilitating trade and as an informed, strong and reliable option for These risks can be mitigated by insuring economic development across all five conti- risk managers and banks to consider when them with the specialist Credit and Poli- nents and in practically every country in seeking to manage and mitigate their country tical Risk Insurance (“CPRI”) market. The the world. Currently, banks represent 55% of and credit risk around the world.  CPRI market is mainly based in London the CPRI market client mix, while corporates and consists of circa 60 individual insurers (e.g. exporters and commodity traders) re- GERMAN VERSION consisting of both insurance companies and present 30% and other financial institutions making up the remaining 15%.  FRENCH VERSION  After the storm, a promising renaissance Pierre Galtié based sector de-risking, lenders have fur- have, for instance, increased their use of digital ther reinforced their risk assessments and platforms to help managing operational risks. Head of Commodity Trade Finance securities over borrowers, and are putting Another cornerstone of this ‘new era’ is simply Banque de Commerce increasing emphasis on the transition towar- to prioritise experience. If bankers need to be et de Placements, Switzerland ds greater sustainability. generalists in terms of their wider technical knowhow, they also need to be specialists in After the turmoil that shook the commodity This means, first and foremost, a more rigo- their knowledge of the industry. Continuous trade finance universe in 2020, a period rous approach to the transactional self-liqui- training and connectivity to the market are es- of introspection has gradually given way dating financing principles that have always sential. A trade finance banker is financing the to the fundamentals which are laying constituted the foundations of modern trade real economy with complex risk elements and the foundations for a new era with finance, including: strict Know Your Customer needs to be “there on the ground”. greater robustness. and Know Your Deal due diligence, enhanced collateral monitoring practices, the detection The description of this new framework which I n addition to the disrupted trade dyna- has emerged from the ashes of the recent crisis mics due to COVID, the crisis revealed A trade finance banker is would not be complete without highlighting instances of fraud and embedded bad financing the real economy. the evolution that most trade finance banks practices deviating from the basics and commodities players are conducting of trade financing. If the crisis revealed of potentially duplicate trades, stronger gua- towards more sustainability. This transition weaknesses, in its wake has also come the de- rantees, and privileging borrowers with fully started well ahead of the crisis, but has been sire to refocus on what lies at the very heart transparent accounts, regulation and corpo- further amplified since. Integrating more en- of the commodity trade finance industry. rate governance. At the same time, the two vironmental, social, and governance criteria main commodity trade finance hubs, Geneva in the credit analysis process is becoming an Hence, while some lenders are still healing and Singapore, have worked on codes of best important part of financing decisions. their wounds, banks are taking a proactive conduct aimed at enhancing transparency as approach overall to adapt the pre-existing well as promoting sustainable credit flows. Looking ahead, the crisis was a necessary model. What is at stake is accommodating These standards are not new, but restating wake-up call for an industry which will the USD 12 trillion market in commodities them was needed to align market players with continue to adapt and stand by its customers. exchanged and consumed annually around the principles that must guide the industry While the dead wood has been trimmed, the the world. Between the necessity to cut risk and world trade as a whole. This has come with roots of the tree remain strong.  exposure and the need to continue to finance a higher level of standardisation in a sector commodity trading, trade finance banks characterised by the atomisation of its supply GERMAN VERSION have taken a whole series of steps, in a “back chain. It explains the recent acceleration in to basics” stance. Rather than a mere broad- blockchain investments made by banks, which  FRENCH VERSION 

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |11 Crises: a catalyst for change in trade finance Jean-François Lambert dity prices leading to additional financing ficulties, insofar banks, as part of their own requirements. Finally, the economic outlook strategic imperative shift, are refocussing Founding Partner, is rather positive as if the world had learned their scarcer resources on fewer markets. Lambert Commodities to live in a lingering COVID-19 uncertainty. They will therefore be less prone to support R elationships between traders and Are we back to normal, then? Not quite. There overstretched supply chains unless this is bankers were severely challenged is no longer such thing as normal. History deemed strategic (such as in Japan or China). during 2020. Amid the economic shows that major crises are always a catalyst Commodity traders will find it increasingly crisis triggered by the COVID-19 for major changes, for better or worse. This difficult to attract banks in pre-financing pandemic, supply chains have been disrup- one will certainly not differ. Amongst the new their suppliers if located in geographies per- ted, whether on the demand or the supply priorities of a post-COVID-19 world, as urban ceived as high risk. They will have to either side, or by affecting the logistics supporting populations have rediscovered a much less commit more of their own resources to pro- the trades. Compounded with the violent polluted environment whilst economies were vide this essential support or partner with volatility of prices sparked by the pande- under lockdown, the energy transition will alternative financiers such as credit funds mic-induced disruptions, the world drifted in most certainly prevail and be significantly ac- attracted by higher yields. a perfect storm. Most traders survived, for- celerated. This will affect all businesses, and tunately but some did not, and a few high-pro- notably trading, of commodities but also other Are we back to normal? file bankruptcies caused painful losses for the goods. Traders and supply chain managers Not quite. There is no longer banking industry. It was no surprise there- will not only have to show a more thorough fore that many banks reassessed their lending management of their own resources and car- such thing as normal. strategies. Many choose to shrink their risk bon footprints, but they will soon be under the appetite, but some took sterner actions and cosh to demonstrate the same conduct across So are we really back to fundamentals? Should shut down commodity lending businesses, the whole supply chains they manage. Banks, not the question rather be “what are the new some regionally, a handful even totally. under an ever-stronger reputational pressure fundamentals in the making?” We are living from society at large, will be asked to put their through extraordinary times and should heed Where does this leave the industry at the customers’ Environment, Sustainability and the changes that are taking place. With an ove- dawn of 2021? It is not in a bad place at the Governance (ESG) policies on top of their agen- rarching challenge. Market places have beco- outset of the year. Demand has improved da and of their own credit decision process. The me increasingly transparent. Secrets do not in various markets and whilst supply chain (very few) traders – both small and big, still in last long in a social media environment and denial are strongly advised to start drawing recent events show that collective uproar can History shows their ESG plans and revisit their strategies to put strategies or even companies down, with that major crises are always address the structural changes underway. little ability to rebuild a shattered reputation. a catalyst for major changes, A whole sector can be very quickly harmed by As the world polarizes and redefines globa- individual behaviour. The only valid response for better or worse. lisation, supply chains will get shorter and is to strive towards the best standards and to increasingly prioritise local content as do communicate with the key stakeholders and disruptions are still occurring, trading is consumers. Food and strategic supply mana- primarily banks in the most open and transpa- proving quite profitable, whether in agri, gement will certainly fare also high on top rent manner. Never have we lived through such metals or energy, in some cases, extremely of the governments’ agenda. Relying on – po- a powerful looking glass. In an industry so long profitable thanks to auspicious market tentially easily disrupted – long and complex shrouded in secrecy, this is probably the most structures. Traders, notwithstanding iso- supply chains is now increasingly seen as a difficult challenge, but there is no alternative.  lated situations, did not face a major liquidity weakness that needs to be corrected. This will squeeze after the banks’ strategic reviews, create both opportunities and difficulties. GERMAN VERSION and this despite generally elevated commo- Opportunities for traders able to take advan- tage of such new strategic imperative, either  as suppliers or hoarders, able to answer growing supply security concerns, shorte- FRENCH VERSION ning or diversifying their supply chains. Dif-  Advertisement ® Flexible Knowledgeable Customer-oriented Quick database access Official Merchandise Import and Export Data for All HS Codes Customized Products for Data-Driven Answers www.TradeDataMonitor.com | [email protected]

12 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Reinforcing common practice in commodity finance in Switzerland Alastair Houlding Patrick Cotasson Michael Jackisch Global Project Lead, Head Commodity Trade Finance, Head of Soft Desk, BIC-BRED Trade and Commodity Finance, ING Switzerland, UniCredit Newton’s Third Law of Motion dic- ding sector, particularly in the field of hydro- Angst tates that every action shall have carbons, which experienced historic price an equal and opposite reaction. volatility and demand fluctuation as the Coming at a time of several other pressures As mentioned in other articles world stayed home due to the COVID-19 pan- (the continued push on universal bank mar- here, while the number of traders involved demic. If the epicentre of these events was gins through low interest rates – amplified in recent events was not that numerous, the in other regions, the impact did not avoid by monetary responses to COVID-19, rising scale of the potential losses was very signifi- Switzerland – international banks incurred compliancy costs, reputational risks coming cant and impacted nearly all the active trade losses in their Singapore branches, impac- from trader activity in developing markets finance banks. ting appetite for commodity finance glo- and the beginnings of a tectonic shift away bally, while many Swiss offices maintained from hydrocarbons), banks have thought A large number of trade finance banks and responsibility for the coverage of UAE-in- long and hard about their participation in their clients have their trade finance teams, corporated clients, some of them being invol- and exposure to commodity finance. or at least a presence, in Geneva. Under the ved in fraud as well. auspices of the Swiss Trading & Shipping Failings Association (STSA), leading industry banks Commonalities have been meeting to discuss financing prac- As in most disasters, the failings leading to tices in an initiative that attempts to enhance Whatever the specific background to these any major financial loss are typically many the control mechanisms against fraud and cases they each had a commonality in as and sequential. Appropriate client selection adopt a “back to basics” approach that unifies much as banks financing these entities be- is a fundamental criteria and the need to pick standards of transactional administration. lieved themselves to be well-protected from clients with good integrity and standards of If not a “USD 10 billion reaction”, it reflects financing loss through their transactional governance is a key lesson. Sensitivity to po- a pressing need to restore confidence and (or borrowing base) financing of liquid com- tential red flags and adequate due diligence avoid repetition. modity inventory and receivables from end prior to on-boarding is important given that a consumers. Typically, when clients get into very human phenomenon, confirmation bias, An initiative that attempts financial difficulty, banks financing on this may suppress sensitivity to (and socialisation to enhance the control basis find themselves well-protected against of) potential red flags once on-boarded. loss. However when fraud is involved (the mechanisms against fraud assets are not there or not of the expected A loss of bank participation and adopt a “back to basics” quality, or pledged twice over), very signifi- in this real-world métier cant losses can and do arise – far in excess can impede the efficient approach that unifies of banks’ modelled expectations, thereby flow of international trade standards of transactional leading to valid questions as to whether with attendant cost to the these models and practice are fit for purpo- world economy. administration. se. Given that commodity finance is meant to be a relatively low margin industry (the Questions should also be asked about poten- The size of the ‘Bezzle’ movement (trade) of essential commodities tial shortcomings by third parties, be it collu- from producer to end buyers is an inherent- sion by staff at long standing warehouse kee- Trust is an important feature in all econo- ly high volume low margin business and the pers or the inadvertent failings of auditors mies and an essential lubricant to create low low margins of the trading community can in not picking up on balance sheet inflation, transaction costs. Fraud is the hidden cost of only support a certain financing cost), but hidden risks and losses. Both in and outside trust (sometimes not so hidden: the fact that relatively costly to participate in (following the commodity sector, we have seen that an the EU has a significant trade surplus with transactions from inception to repayment is audit assurance may measure aggregate as- itself can only be a proxy indicator for the work intensive and involves material com- sets according to established conventions but scale of VAT fraud). In his seminal work on pliance costs), low loss expectation and expe- not assure as to their real value; it is more a the 1929 market crash, JK Galbraith coined rience is fundamental to bank participation. quantitative than qualitative discipline. the term “Bezzle”, being the inventory of A loss of bank participation in this real-wor- undiscovered fraud in an economic system. ld métier can impede the efficient flow of in- A number of weaknesses in the overall as- Frauds typically grow to the point at which ternational trade with attendant cost to the sessment were more psychological in nature. they are uncovered and in general they are world economy. Herd behaviour, for example – the notion that brought to light by significant periods of a course of action must be permissible because volatility and retractions of liquidity (of- It is worth outlining that the vast majority of everyone else has been doing it for decades. ten with a domino impact as confidence re- the commodity traders have behaved impec- Other factors include being too complacent verses with events); frauds typically require cably in 2020 and despite extreme market with historical, well-established trading growing liquidity to avoid discovery. turbulences, are showing positive (for some houses and, last but not least, an increasingly record) financial results. They have demons- competitive banking landscape, especially in With the benefit of hindsight, 2020 brought trated that their business model and price Singapore (e.g. if an extra step is requested, the just these conditions to the commodity tra- protection (hedging) have been as robust as fear that someone else may take the business). one should have expected. A minority of bad apples have triggered unprecedented tur- moil in the industry in 2020.

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |13 Finally, the industry participants may have The aim has been to bring relatively detailed sta- to create more uniform ways of working that been describing financing as “transactional” tements of best-practice, covering each element lead the way to greater systemisation, digiti- (commonly meaning loans being secured by of transactional and borrowing base secured sation and the use of nascent technology in the goods used as collateral, including the commodity finance, with the intent that com- trade confirmation, contractual confirma- proceeds of the financed goods to repay the mon adoption by banks will both make the in- tions, inventory tracking and assurance, to loan in a self-liquidating manner), while not dustry safer but also lead ultimately to savings ultimately drive down the prospect for loss always administering the financing to these on costs of administration. The premise is that and the important costs of running a tran- exacting standards. Under these circums- standard practice will lead to less negotiation sactional trade finance business. tances, we may have been to some extent with individual clients and their counterparts confusing the good behaviour of the vast and ultimately facilitate systemisation due to Old-fashioned maxims remain valid – crea- majority of our clients with the impact of our commonality of process requirements. At the ting third party proof points in a transac- transactional administration. time of writing, after numerous interactive ses- tion’s lifecycle. The exciting element is the sions, the three work streams have been com- degree to which technologies are rapidly Reactions pleted and the Banks involved are in process of evolving to facilitate this and it is the inten- finalising a consolidated communication. tion of the Swiss commodity finance indus- Except for two important European commo- try to be at the vanguard of their adoption.  dity finance banks, the vast majority have The recommendations are numerous but some confirmed the continuation of their com- key conclusions are obvious: for a contract to Who does what modity activity. Nevertheless, most banks be transactionally-financed, it should be freely undertook a deep dive portfolio and modus assignable to a financing bank and end pay- Commodity traders play an essential operandi review with some retrenching on ment shall be clearly established without set-off role in the value chain (transportation, client type. or counterclaim. In consequence, if underlying finance, hedging, transformation) commercial contracts are appropriately struc- to deliver goods to the consumer. Simultaneously to Singapore’s Code of Prac- tured, financing can follow smoothly. Others tice, banks involved in commodity finance involve greater interaction with end-buyers, Within this context, trade finance noting that some of the industry events were banks are essential in financing Banks involved in commodity predicated on double-financing of open account the real economy and providing the finance in Switzerland met receivables. Here the industry has moved to liquidity for world trade flow. under the auspices of the notification of assignment to end buyers and STSA to share lessons learned increasingly looks for assurance from those After last year’s negative news flow, and discuss best practice buyers that proceeds will be remitted in line joint efforts are required to restore with the assignment. This can be burdensome banks’ confidence in the sustainability moving forward. to administer, but again, once an agreed way of of commodity trade finance. working is established with clients and major in Switzerland met under the auspices of the counterparts (involving separate negotiation The Swiss hub STSA to share lessons learned and discuss with these buyers), administration becomes best practice moving forward. The objective smoother and can potentially be systemised. The Swiss financial centre has was to produce a set of specific recommen- The working groups recognised that the com- developed a niche expertise to dations to ensure common standards for all mon characteristics in last year’s fraud cases become the main commodity hub industry participants. were a combination of weak corporate gover- in Europe by far for trade finance. nance, speculative (but hidden) behaviour and Recognising that convention and practice poor business ethics. Each of those factors will Not only traders and banks, but can be different between the sub-sectors of incline banks to enhance their due diligence by other service providers linked to it oil, metals and soft commodity finance, three spending more time and resources conducting (surveyors, lawyers, consultants) separate working groups were established extensive operational audits. There is also the often have their main offices in for each sub-sector. These groups (chaired by possibility of traders requiring banks to act to- switzerland to be nearer their clients. the authors) are populated by leading banks gether in order to optimise the resources spent in the commodity finance sector in Switzer- on such exercise. land; Arab Bank, BCGE, BCP, BCV, BIC-BRED, CAI, Credit Suisse, ING, Sberbank, Societe Back to Basics, Back to the Future Generale, UniCredit and UBS. In the short run, higher standards of manual administration are being imposed to keep the industry safe. The long run objective is Overtime, academic qualifications (Masters in commodity trading at the University of Geneva, for instance) have lent credibility to Switzerland’s claim as the place to be for the commodity business. GERMAN VERSION  FRENCH VERSION 

14 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION There are two types of companies: Those who know they’ve been hacked, and those who don’t. Firms are scrambling to mitigate risk. A riskier landscape demands a trusted system Souleïma Baddi the activity they have performed with it (fi- nanced for a bank, for example). This creates Chief Executive Officer, Komgo a digital audit trail against a document that will strongly mitigate the risk of it being reused for fraudulent purposes. K omgo SA is a software develop- Digitalisation is the first step toward efficient ©. Markus Spiske – Unsplash ment and IT services company in- fraud management as it strengthens organi- corporated in Geneva since 2018. sational processes, decreases dependency GERMAN VERSION Founded by leading Swiss and on emails where information is siloed, and international companies in the trade and limits manual checks by enabling automa-  commodity finance industry to drive digi- tion. It frees time for a company's teams to fo- talisation of the sector, Geneva was a natu- cus on what matters. Komgo has seen a surge FRENCH VERSION ral choice in its capacity as a world-leading in demand in the past months, especially  commodity hub, its access to highly skilled for Trakk, as it can be deployed quickly, re- human resources, and its respected role in quires very little change management, and driving best practices for the industry. brings new visibility to the status of trade documents. Leading corporates are now Three years later, there is no doubt that Kom- registering all of their invoices on Trakk, go will transform the trade finance industry which has brought significant comfort to over the next decade. Indeed, the environ- their lenders and trading partners. ment post-COVID-19 is mainly about mitiga- COVID-19 has also compelled many teams ting fraud risk, as fraud is more prevalent in to shift to remote work, and most managers times of financial stress. Regulators are pres- acknowledge that we might never return suring banks to add fraud mitigation tools to to business as usual, which has increased demand for cloud-based software applica- Digitalisation is no longer tions and remote login infrastructure, a key a discussion topic; added-value provided by Komgo. it is an absolute “must have”, The pandemic is also disrupting supply which will play a major chains. Reliance on the movement and pro- role in the future of the cessing of physical paper has proven too trade finance industry. slow, and has delayed the time between order and cash collection. Companies have to hold all their products. This is even more true in more inventory, as delays in shipments of one the commodity space, where transactions component can derail the entire manufactu- are generally not yet conducted via digital ring process; the industry has moved from channels and trusted counterparties; both “just-in-time” to “just-in-case”. This is more banks and trading houses need an easy and expensive and requires more financing, and simple way to enhance their trade execution. emphasises the need to go digital to execute Komgo powers a secure network of veri- safer, more efficient transactions. Komgo’s fied actors generating instantaneous trust network is underpinned by permissioned, between parties, and offers a smart solution, authenticated messaging removing the need Trakk, to increase the security of trade do- for signature verification and call-backs, cuments exchanged between multiple par- while structured data from Komgo messages ties via email (invoices, contracts, BLs, etc.). can be easily mapped and integrated with any Trakk allows users to register the proof of internal system, generating huge efficiency any document to create an immutable, digi- gains and reducing manual errors. tal version, whose genuineness and authen- ticity can be easily verified by anyone, thus Digitalisation is no longer a discussion to- guarding against fraud and falsification. pic; it is an absolute “must have”, which will Banks, traders and inspection companies play a major role in the future of the trade can track the usage of the documents and add finance industry. No organisation can af- ford to be left behind, and those that move too slowly will lose a competitive edge to others who are already working together to build a trusted and more secure finan- cing environment. 

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |15 The new blueprint for commodity finance Guido Bühler At the heart of the energy Founder and CEO, SEBA Bank transition Switzerland has the world's most advanced DLT framework Investing globally Switzerland is in an excellent position to drive the new digital eco- in Net Zero nomy. On the 1st of February 2021, the new DLT (Distributed Ledger Technology) legislation came into force, providing the world's most Energy markets are changing advanced framework to allow blockchain-based FinTech innovation. and we are at the forefront of that change. Vitol has SEBA Bank, the first smart bank in the world to receive a banking and committed $880 million to securities dealer licence from the Swiss Financial Market Authority renewable projects and is (FINMA) in 2018, represents the symbiosis of technology, blockchain backing a ground-breaking and banking to redefine the future of finance. hydrogen and carbon capture and storage project, Blockchain opens up opportunities with superior features and lower contributing to Net Zero. costs within a secure and fully regulated banking environment. The power and elegance of the blockchain are now delivering innovation, Find out more: vitol.com driven by 3 key attributes: • Faster Settlement: Blockchain allow fast settlement (T+0) compared to standard banking settlement systems (T+2 to T+5); • Security: superior protection of the data held on the blockchain against cyber and other attacks as well as blockchain's defence against double-spending; • Decentralisation: creating redundancy in the network that en- sures a small number of overly-powerful entities do not unduly control the network. Innovation in blockchain-based client investment products One of these innovations is the Gold Token, the blueprint for the tokeni- sation of all other precious metals, metals and commodities, and for com- modity finance in general. The Gold Token boasts 1st-priority physical de- livery in investor-specified quantities direct from the refinery, virtually eliminating the massive carbon footprint generated by virtually all other physically stored gold investment products for Swiss physical delivery and significantly reducing it for international delivery. Switzerland is home to the biggest refineries in the world, and we work with the most reputable players who adhere to the highest glo- bal Environmental, Social & Governance (ESG) and traceability stan- dards. One gram of gold is equal to one token, with selectable and ve- rifiable provenance and use – a world first. This token is transferred to a wallet, stored in a fully secured environment. A holder can use it as a means of payment, just like crypto or fiat currencies. Holders of Gold Tokens are not charged holding fees typically linked to gold investment, making it not only a means of payment but also the most advantageous way to hold gold. The Gold Token uniquely combines three key use cases in one: • A payment token (gold-backed stable coin); • A store of value; and • A contract for physical delivery. All three qualities of blockchain technology – speed, security and decentralisation - are combined in the Gold Token. This advantage is only possible because the tokenisation service is both regulated and integrated into a smart banking platform.  GERMAN VERSION  FRENCH VERSION 

16 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Tokenization shaping the future of commodity markets Marco Grossi access to various commodities and indus- but also because of limited price disco- trial scale storage facilities. A digital ecosys- very due to limited standardisation and CEO, Tokentrust tem can address this problem through inte- liquidity. Furthermore, the commodities roperability and fractionalisation. industry is often associated with environ- T okenisation and its use of Distributed mental and social concerns. Making use of Ledger Technology (“DLT”) will bring Liquidity DLT (Distributed Ledger Technology) can a fundamental change to the commo- enrich the entire product lifecycle with dity market and its supply chain ma- Trading of traditionally illiquid commodities is additional and immutable information nagement. It is not simply about digitising the limited due to the lack of standardised market- around fee breakdowns, Environmental existing value chain, but about profoundly dis- places, infrastructure, and products. Facilita- and Social Governance (ESG) and fair pri- rupting it. The optimised processes will result ting a standardised marketplace can increase cing – bringing unparalleled transparen- in winners and losers, particularly through liquidity, ultimately leading to lower spreads, cy to all participants. transparency and related decreased margins better prices, lower entry barriers and more – both for direct industry participants as well efficient supply and demand balancing. Needless to say, that these fundamental as affiliates, such as banks and exchanges. changes also come along with challenges. Efficiency It remains to be seen how quickly incu- The deployment of tokenisation coupled mbent industry participants can adjust with a marketplace for the tokens will solve The commodities market is burdened with their skillset to the new environment, how various problems of the commodity indus- high frictional costs due to many interme- regulation will adjust accordingly and the try and create significant advantages, parti- diaries. Counterparty and operational risks further developments and interplay of DLT cularly in four areas: decrease efficiency even further. A digital and other emerging technologies such as ecosystem can also address these issues by Artificial Intelligence, Nano Technology Access allowing disintermediation, the use of digi- and Quantum Computing.  tal trust (immutable storage of information) Not only do we see a gap between the indus- and atomic swaps (token-token transaction GERMAN VERSION trial and investor commodity market today, allowing for instant settlement or booking but also that of smaller investors not having logic via smart contracts).  Transparency FRENCH VERSION  The final price to a buyer is often opaque due to the long chain of intermediaries, Advertisement

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |17 The commodity trading industry and the UN Guiding Principles on Business and Human Rights Raphael Jenny and based on the experience of two decades specifically for the commodity trading of globalisation marked by increased frag- industry in Switzerland. The Guidance, Legal and Political Affairs Officer, mentation of business production processes which was jointly developed by the Swiss STSA across multiple sectors and countries, the Trading and Shipping Association (STSA), development of complex and lengthy global commodity trading companies, represen- Respecting human rights is essen- supply chains and an increasing number of tatives of the civil society, and Federal tial to achieve sustainable deve- people employed in, and communities af- and cantonal authorities, is an important lopment. In 2015, 170 world leaders fected by such trade. The increase in global milestone underlining the importance of met at the United Nations (UN) trade has raised the standard of living for respecting human rights in commodity Summit on Sustainable Development in many around the world and reduced pover- trading. It provides analysis and examples New York to adopt the 2030 Agenda. The ty levels. At the same time, many were cut off relevant to applying the UNGPs to the spe- Agenda covers a broad set of 17 sustainable from the benefits of development and suffe- cific context of commodity trading. development goals (SDGs) and 167 targets red human rights harm, among others due that serve as a broad framework to guide to impacts from the growing, harvesting, or Mindful of the continuing challenges in the global and national development over the extraction of commodities. implementation of the UNGPs, STSA and its next 15 years. One of the reasons the SDGs members are fully committed to further and the 2030 Agenda are a transformative First ever sector guidance improve and strengthen human rights due development framework is that they are implementing the UNGPs has diligence processes with a particular focus based on human rights, meaning that hu- been developed specifically on the characteristics of and challenges as- man rights principles and standards are for the commodity trading sociated with risks in commodity trading. thus strongly reflected in an ambitious glo- While continuing the discourse with civil bal development agenda. industry in Switzerland. society, academia, and the Federal admi- nistration, the industry under the auspices In 2008 already, UN Special Representa- In Switzerland, this commitment was of STSA, has formed dedicated working tive John Ruggie proposed a framework to translated into the so called National Ac- groups concentrating on peer learning and the UN Human Rights Council (UNHRC) tion Plan (NAP) (launched in 2017 and up- establishing best practices in human rights to address the fundamental relationship dated in 2020) aiming at giving the neces- due diligence processes. This work also in- between business activities and human sary guidance on how to implement the cludes the thorough implementation of the rights. The framework translated into the UNGPs at a domestic level. The NAP thus upcoming indirect counter-proposal as a UN Guiding Principles on Business and Hu- clarifies the position and expectations result of the rejection of the “Responsible man Rights (UNGPs) and adopted by the UN- of the Federal Council with regard to bu- Business Initiative” by Swiss voters in No- HRC in June 2011 defines what governments siness enterprises and aims to improve vember 2020, which introduces mandato- and companies should do to prevent and mi- the protection of human rights in the ry non-financial information disclosure tigate companies' adverse impacts on human context of economic activities. Within the and specific due diligence requirements rights. They encompass all internationally framework of the NAP and its objective to in the use and trade of conflict minerals recognized rights, and apply to all states and promote guidance for businesses, in 2018, and child labour.  business enterprises. the first ever sector guidance on imple- menting the UNGPs has been developed GERMAN VERSION The UNGPs, meanwhile broadly reflected in the SDGs, emerged as a consequence of  FRENCH VERSION 

18 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Towards more equality: the Swiss “Comply or Explain” approach Daniel Rüfenacht at least two of the following three criteria: total achieved through a bottom-up approach by assets of 20 million Swiss francs (balance sheet promoting more women through succession Vice-President Corporate total); sales revenue of 40 million Swiss francs planning or by attracting more outside fe- Communications, SGS Group and who employ more than 250 full-time equi- male talent or will it be a combination of the valent employees (FTE) (art. 727 para. 1(2) CO). two? If companies seek to attract more talent S ince 1 January 2021, the amended Swiss from the outside, how can more female talent Code of Obligations (CO) includes new It is important to mention, however, that be attracted to join the commodities trading guidelines for a minimum quota for re- there will be no legal sanctions for companies industry? The benefits are clear: an increase presentation by women on the board of who do not comply with these quota require- in gender diversity will directly translate directors and executive management. Article ments. Instead, the Swiss authorities decided into a broader representation of opinions 734f of the CO calls for larger listed compa- and a more balanced approach to risk. One nies to have at least 30% more women on their 30% more women on their thing is certain, there will need to be a cultu- board of directors and at least 20% women in board of directors and ral change in recruiting practices. Working management positions. In an ongoing drive at least 20% women in practices will need to evolve to accommodate for transparency, this amendment will also management positions. flexible working hours for family priorities encourage compliance with the constitutional for example. Companies will have to adapt to obligation to ensure equality between women to follow a “comply or explain” approach. This tap into the pool of potential talent available. and men contained in article 8 of the Swiss means that the law sets benchmarks. If these As well as building more awareness of career Constitution. In the event of non-compliance are not met, companies must justify their opportunities with business and manage- with these quota criteria, companies will have non-compliance in their compensation report ment schools for example, they will have to to explain in their compensation reports why and show how they intend to meet the quota. make their hiring communications more in- these have not been met and show what they clusive and create more women ambassador are going to do to correct it. On a practical level, this new measure raises networks to attract new talent.  several questions as to how companies can The gender benchmarks apply to publicly listed meet these new requirements. Will this be GERMAN VERSION companies domiciled in Switzerland which, over two consecutive financial years, can meet  FRENCH VERSION  WISTA Switzerland and promoting equality Maryana Stober and at the same time providing a platform Based on WISTA’s actual analysis of 15 of discussion for sharing thoughts on key companies active in the trade of agricul- President of WISTA Switzerland trends in the industry. We thrive to support tural commodities, oil and gas as well as Women’s International Shipping women in their careers and to pave the way shipping, we found that in 2021 women re- and Trading Association for long-term success. present approximately 25% on the Boards and only around 14% in senior leadership T his year of 2021, as we celebrate WISTA’s chapter in Switzerland dates positions. These numbers indicate that the 50 years anniversary of voting back to 2009 and today we have over 100 some progress has been made since 2018, rights of women in Switzerland, let’s active members in Geneva, Zug, Zurich but we are still far away from a balanced look where we are in terms of wo- representation at the highest echelons of men representation in business and in parti- These numbers indicate the industry. cular in the trading and shipping industry in that some progress has been Switzerland and internationally. While businesses tend to increasingly made since 2018, but we recognise the importance of diversity in WISTA stands for Women’s International are still far away from the workplace as a driver of success, and Shipping & Trading Association, a global a balanced representation numerous companies have committed association for women in the trading and at the highest echelons themselves to gender balance and equal maritime industry. It was established in pay, a lot of work remains to be done to 1974 by several female brokers from Ger- of the industry. promote the representation of women in many, the Netherlands and the UK. Today, leadership positions. WISTA has more than 3,000 female profes- and Lugano. Mindful of the important sionals with national chapters in 53 coun- place that trading and shipping takes As a new generation of young professio- tries. Since 2018, WISTA International has in the Swiss economy, it is our role to be nals – both women and man – join the a consultative status at the International a voice for women. One predominant workplace, WISTA is ready to play its Maritime Organization (IMO). challenge still facing the industry to this part, as a force for positive change, ma- day is the lack of female representation at king sure that everyone has an equal wor- The key mission of the association is to the highest level of management. Bloom- ld of opportunities.  connect senior professional women around berg 2018 data showed that top commodity the world, as well as encourage diversity, in- trading houses had less than 5% of women GERMAN VERSION clusion and women empowerment in the in- in leadership roles. dustry. We are focusing on both promoting  networking and educational opportunities, FRENCH VERSION 

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |19 One on One with Muriel Schwab M uriel Schwab has 20 years’ ex- working in an industry that is always evol- Two years ago, when I joined Gunvor, the perience in the commodities ving, always responding to market changes company had commenced an overhaul, industry, and serves as CFO, at very quickly. How companies in the sector which in many ways remains ongoing. For Gunvor. She first joined Gunvor are striving to respond to the Energy Tran- example, we’re meeting compliance risk in 2007. Prior to her current position, she sition is a good example of that. head-on through investments in our control was the Regional Head of Trade and Com- processes, promoting transparency, and ta- modity Finance at Rabobank in New York. Tell us about your career path following king clear-cut steps, like ceasing the use of She has also previously held positions with graduation from university right up until “agents”. This comes alongside our efforts to Taurus Petroleum, Credit Suisse and ING your current CFO position. strengthen corporate governance and broa- in Geneva. Ms. Schwab holds a Master of den leadership. The company today isn’t the Advanced Management from Yale School of There doesn’t seem to be any single path for company of yesterday, and tomorrow we will Management, a Master of Business Adminis- anyone into commodities trading. My own continue to evolve. To be able to contribute to tration from INSEAD, and a Bachelor of Arts has been: education, finance and trading. these changes has been important for my role. in International Relations from the Graduate I worked for banks, Credit Suisse and ING af- Institute of International and Development ter college. From there, I took on an in-house The commodities sector can respond Studies, Geneva. finance role at Taurus Petroleum in Geneva. rapidly to change, but it is also known Then I joined Gunvor for the first time. The to be very conservative, isn’t it? Why did you choose the trading industry? company offered the chance to work in Sin- gapore, which I did for 6 years while atten- Historically, yes, in terms of culture. But this I have always been interested in working in is starting to evolve as everyone is looking a fast-paced environment with strong inter- There doesn’t seem for an edge, and that clearly comes from di- national exposure, and that first led me to to be any single path versity and inclusivity. Many studies have finance and then to the commodities sector. demonstrated that companies with a more What keeps me in trading is the appeal of for anyone into diverse decision-making base achieve hi- commodities trading. gher performance. Overall, though, I see that society is changing in a positive way. ding INSEAD. I left Gunvor’s CFO Asia-Paci- There is still more work to do. fic to relocate to the US and attend a Master of Advance Management at Yale. I moved back pHroowmiosttinhge ginrdeuastetrrydnivoewrsity? into commodity finance at Rabobank in New York, and Gunvor called again. We have to be more creative about recruiting people, developing and retaining a new diverse Yfaocuemdecnhtailolennogpepsoartsuwnietlile.sW, hbautt wyoeuremtuhsetyh?ave generation of leaders. The trading of today and tomorrow is more dependent on analytic skills, A good job is comprised of interesting challen- including such things as machine learning and ges, and the commodities sector has its fair AI. Ten years ago, it mattered if you could speak share. In finance, especially, we’re constantly English and Chinese. Today, the languages that striving to find creative solutions to reduce matter are Python, C-Sharp, and SQL. Concur- costs and improve profitability–critical for an rently, we have to promote diversity at Board industry that has razor-thin margins. We can level to set the tone from the top.  look into the increasing use of blockchain and digitalisation as a good example of that. Interview by Elsa Floret, Journalist at l’Agefi GERMAN VERSION  FRENCH VERSION  One on One with Céline Coimbra C eline Coimbra is the CEO of La- fargeHolcim Trading. LH Trading is a subsidiary of LafargeHolcim Group. Céline joined LafargeHolcim in 2012 as Project Manager for RMX Sales & Business Development in the corporate orga- nization. In 2015, she became Strategy & Exe- cutive Assistant for the Region Head North America and later on for the Region Head La- tin America. She moved to her previous role at Holcim Switzerland & Italy in April 2018, where she successfully built up the new market organization in the French-speaking part of Switzerland. Céline has significantly contributed to the Group Strategy 2022 – “Building for Growth” with the successful bolt-on acquisition and smooth integration of BHL Béton SA in 2019, as well as with the de-

20 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION velopment of a new concrete product portfo- in me was, and still is at times, strong, but I What part of your resumé demonstrates best how lio. Before joining LafargeHolcim Group, Ce- always push on and trust in myself. you were able to move up the career ladder? line managed a cluster of the RMX concrete business for the largest Portuguese Cement Do you see yourself as a source The company as a team gets the job done, not company, Cimpor. Céline is a civil engineer of inspiration for other young women? the boss. I learned this right away, at my very and holds a master's degree in Structural first job managing 57 people. My experience Mechanics from the University of Coimbra. I find that we women don’t network enough, as chief of staff during the Lafarge Holcim contrary to men who accumulate memberships merger was a better learning experience Why did you choose a career in various business networks. I would like to than doing an MBA. It took me nine months in the building materials industry? engage more with women. But I’m not a rock to feel confident in my job. star, I’m a normal person. I don’t hold an MBA Because my father was a construction wor- or a PhD. How would you describe the cultural ker who later built his own landscaping environment of your company? company. He would bring me along to his job I’ve never spent more than sites and I was fascinated by the result of the three years in any position. After its merger of two formerly “enemy” job he was doing and how it materialised as Not because I wanted to leave companies, the new group’s culture has evol- lasting structures but also as people's hap- a position, but thanks to the ved positively. We are much more focused piness. This is why I chose to study Civil myriad of new opportunities. on what is happening outside the company, Engineering which then opened the doors to focusing on the net zero climate pledge and opportunities in the industry. Would you say that it is easier to work sustainable development. in a male-dominated environment than Can you tell us about your professional background, a predominantly female environment? How can you describe your mission how you arrived at your current CEO position? in a way that could motivate young It is not easier, but for me personally, more women to follow your example and As a risk taker by nature, I would seize oppor- comfortable at times. Men speak out. They what advice would you give to a young tunities that came along which could impact are more straightforward and don’t beat woman who is about to graduate? growth, both mine and the company’s. I’ve around the bush. I personally try to be clear never spent more than three years in any po- and straightforward when I speak. My entire career has been composed of sition. Not because I wanted to leave a position, either sink or swim moments. What I would but thanks to the myriad of new opportunities. What are you most passionate about in your work? recommend is: “Don’t get hung up on titles. Whatever your job may be, just do it proper- How did you manage to succeed in a I find it fascinating to see how different wor- ly. And be indulgent with yourself.”  predominantly masculine work environment? king environments affect people. How they can grow and perform when they are not afraid. Interview by Elsa Floret, Journalist at l’Agefi My parents taught me to fight in life. Their key messages were: «Go ahead. Don’t be GERMAN VERSION afraid. Take risks. If you make a mistake, learn from it, move forward.» My parents  were Portuguese immigrants who arrived in the late seventies. The imposter syndrome FRENCH VERSION  One on One with Deia Markova What led you to work in the field of trade finance? Working in trade commodity finance has given me the opportunity to work in one of the most dynamic sectors in the world, tra- vel around the globe, meet with people from different nationalities and cultures whilst providing for my family. Trade commodity fi- nance is also an area deeply rooted in the real economy. Each customer satisfied, each tran- I never know what I will be doing tomorrow, if I will be at home or travelling. D eia Markova started her career in Zurich, in charge of impact-based financing saction financed means jobs created, goods 2001 at Societe Generale in Paris in solutions aimed at the achievement of the Sus- produced and delivered and often in emerging the Corporate Finance Advisory de- tainable Development Goals. In January 2020, markets. And today, economic development is partment and later joined the Struc- Deia was appointed Head of Trade Commodity no longer possible without environmental and tured Commodity Finance team with a focus Finance in Switzerland and joined the Execu- social progress. on Metals & Mining customers in Russia and tive Committee of SG Zurich. Deia Markova the CIS region. From 2014 to 2017, Deia headed holds a Master of Science in Finance from Pan- Tell us about how you developed your career, the corporate lending business of Sberbank théon-Assas University Paris and a Certificate climbing the professional ladder until (Switzerland), with a focus on commodity of Advanced Studies in International Business you reached your current position as Head producers and traders. In 2018, she joined SG Law from University of St. Gallen. of Trade Commodity Finance? I reached my current position by seizing op- portunities, not being afraid of challenges and unknown territories and continuously focus on delivering the best service to clients.

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |21 I have been lucky to have had a very diversified What interests you most about Trade Finance is an area with a real mission. career: accompanying business development, your work in commodity trade? Over the years, global trade has lifted millions discussing funding strategies and constraints, out of poverty and has accelerated innovation. imagining new impact-based models. I have I never know what I will be doing tomorrow or Now, thanks to technology and innovation, we always aimed to expand my understanding whether I will be at home or travelling. What I of the strategic issues of my clients and co- do know, however, is that I am likely to speak I am an active contributor to construct with them the adapted solutions. and share ideas with different people and eve- this real-world change. ry decision made has an impact. Today, we wit- How have you, as a woman, managed to succeed ness a willingness from our clients to change see a re-shaping of trade activity, which will in a predominantly male environment? the way in which they trade, source and pro- allow it to contribute to the global ambition of duce, in our ambition to contribute efficiently attaining a net zero-carbon world.  Throughout my banking career, I have had to the net-zero carbon world. Knowing that the good fortune to be surrounded by ma- I am an active contributor to this real-world Interview by Elsa Floret, Journalist at l’Agefi nagers, and especially a few male managers, change fills me with pride every day. who always supported me during difficult GERMAN VERSION moments, and taught me how to make bold What advice would you give to working women decisions. I must say that at Societe Generale to reorient themselves towards trade finance?  Trade Commodity Finance we are very well positioned in terms of gender equality as all Trade Commodity Finance is undergoing a FRENCH VERSION regional heads, in France, Switzerland, Asia profound change: we are seeing the accelera-  and US are women. tion of digitisation, with more transparency and better ways to verify data in a trusted way. One on One with Mariam Almaszade Mariam Almaszade is CEO of SO- responsible for their international trading the workplace can depend greatly on the so- CAR Trading S.A. and member of clients. Over the course of 15 years, my career ciety in which they live, and how progressive the board of directors since 2018. evolved naturally from the consulting side to education and workplace regulations are. And Ms. Almaszade began her career the client side. we have a great debt to Simone Veil and women in the legal domain, working with UN orga- like her who significantly advanced women’s nisations and NGOs in Geneva, Switzerland Ttehlel pursoafbeosusitohnoawl laydoduedreuvnetliolpyeodu ryeoaucrhceadreyeoru,rccliumrbreinngt legal rights and removed many glass ceilings. and Baku, Azerbaijan. Prior to becoming a position as CEO? We must all continue their battles and strive Relationship Manager and Member of the Ma- to raise standards and close the unacceptable nagement at De Ceriat, Prensilevich and Blasi Perhaps it is not a journey that everyone can salary gap between men and women. However, law firm in Geneva in 2006, Ms. Almaszade take, but I have worked very hard to get to at the end of the day, I do believe that skill set worked at several law firms specialising in the my current position as CEO. Over the years, rather than gender is the main determinant of Energy sector. She led teams on the creation of I have also learned the importance of being success in this industry. holding and trading structures for Eastern Eu- organised, and of being patient. We must not ropean commodity trading companies. What interests you most about If you can’t learn to make your work in commodity trade? Why did you choose the trading industry? crucial decisions for the benefit of your company while I love the challenge facing me and my collea- I was always very interested in pursuing an under such intense pressure, gues at the beginning of each year. Every tra- international career. I started working with then you will not succeed. ding house starts the beginning of the year international NGOs in Baku in my native Azer- baijan, and then I moved to Geneva to realise expect things to happen straight away, nor to I love the challenge facing my dream. I was hired by a law firm and was succeed from the start. Of course, like most me and my colleagues at the people’s, my career journey was not perfec- tly smooth. But I learned to be calm, to keep beginning of each year. going, stay open to ideas, listen carefully to others, and continually analyse the situation from scratch, with fresh targets, new opportu- before me - and, where necessary, to change nities and perhaps unforeseen challenges. my mind. Such flexibility and openness is very important because the pressure in this As a professional, what advice would you give to a industry is huge. And if you can’t learn to young woman about to graduate/finishing her studies? make crucial decisions for the benefit of your company while under such intense pressure, My advice to everyone - young women and then you will not succeed. young men - is to work hard, study as much as you can, push yourself beyond your comfort How have you, as a woman, managed to succeed zone, and take every opportunity you can. in a predominantly male environment? This industry is demanding and does not suit everyone. And so find a mentor and learn from For me, the most important things required their experiences, good and bad.  to succeed in any job are common to men and women alike. Primarily, you must work hard Interview by Elsa Floret, Journalist at l’Agefi to acquire the skills needed to do the job. And you must take every opportunity that comes GERMAN VERSION your way. Of course, the success of women in  FRENCH VERSION 

22 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Carbon capture is critical generally recognised that carbon capture is to achieve the net zero goal, critical to achieving the net zero goal. But to- but it is very expensive day, we don’t see a globally supportive policy Head of sustainable development at Glencore, environment that would enable it. Carbon Anna Krutikov calls for a globally supportive resulting in frequent power cuts which we capture is very expensive. policy environment that would help the had to supplement with diesel. So we invested industry on CCUS (Carbon Capture Utilisation to upgrade the power infrastructure. Cwahneynoyuobueamskofroersppoelcicifyicsupport? and Storage) and direct air capture. aLantdeM2e0t1a9l,sth(IeCMInMte, ronfawtihoincahlGCloeunnccoirleoinsMmienminbger) Incentives, tax breaks, carbon price, technolo- said it wants all underground equipment to switch gy subsidies... There are also a lot of concerns to battery power by 2025. Are you on track? from the general public regarding where this carbon may go, for example underground. This is a partnership that ICMM has with the There has been a lot of discomfort with that, manufacturers which build that equipment. in particular among the population in Europe. Their aim is to develop a technology which at We need to find ways to sequester this carbon. one point enables that switch. Today, a tech- nology that would work in 100% of the cases WInoaordeMpoarctkleansztiyeewarr,ottheetUhKatb«acsaerdbroensperairccinhgficramn doesn’t exist yet. Geology for example, is a bring parity between hitting emissions targets variable that poses some challenges. Look at and the economics». Carbon price has been up open pits. Electric vehicles tend to be bet- 15% since January, close to 40 euros per ton of ter suited where meteorology is stable and carbon emissions. Hedge fund Andurand Capital dry, like in the middle of a desert in Austra- Management expects it to reach 100 euros by lia. Those are great conditions for electric btheefoernmd oinfitnhgegyreoaurp.sHtoowcbuitgtohfeiarpeumsihssmioanyst?hat All big mining companies have set reduction targets What is going to be really Very significantly! One hundred euros per Tohf othseeicr oCmO2memitmisesniotnssmtoakseupgpreoartt thheeadPlainriessa,gbruetewmheontis. important is […] a globally ton in 2021 would be extraordinary. But yes, auditing the industry's effort, how is it monitored? harmonized approach to under different scenarios we do expect to see carbon taxation. I hope that carbon prices globally going up to a range Internally we have very strict governance. we are going to see this being between 52 and 115 euros per ton by 2040. A Our climate change working group is addressed at the COP (UN number of jurisdictions where we operate chaired by the board chairman and includes Climate Change Conference) have carbon prices, like Europe but also our CEO and CFO. It oversees the target South Africa and Australia. As the carbon setting process and then monitors the com- meeting in Glasgow. price increases, it is going to make a greater pliance with the target. We also annually re- number of GHG (Greenhouse Gas) reduction port our progress in our annual report and vehicles. In a place where rain is less predic- opportunities more economic. in our sustainability report. table or even where it is very cold it affects the longevity of the battery, the recharging plan What is going to be really important is some And externally? and the efficiency of the vehicles. kind of consideration of a globally harmo- As for underground, there have been some nised approach to carbon taxation. I hope that Our data are externally assured by our audi- technologies that looked very promising, but we are going to see this being addressed at the tors Deloitte. By and at large, I believe this is when tested caused some challenges, e.g. fire. UN Climate Change Conference COP meeting how a large part of the industry is operating. in Glasgow [in November]. Probably from any The intermittency of the power supply is large industrial company perspective, it’s im- zToerboeesmpiescsiifoicn,sAbnyg2lo0A4m0,eBrHicPaannidntReinodTsinttoorbeyac2h05n0e.t another challenge. In some countries, solar portant because at present we have a tax that Glencore aims at an absolute 40% reduction of its panels are great, like in Australia. In others, affects our operation base in those jurisdic- total emissions (scope 1, 2 and 3) by 2035, and net where solar radiation is less abundant, it can tions. But if we start to see import taxes linked zero emissions by 2050. What are the main drivers, be more challenging. But there’s a lot of work to carbon, as in Europe for example with car- the key innovations to achieve those goals? in progress to find solutions. bon border adjustment mechanism, or as in South Korea and China who are also talking Our scope 3 emissions that occur with the use Coming back to scope 3 emissions, beyond adjusting about it that affects the whole supply chain. of our products are the most significant in your portfolio to less carbon intensive products, are It’s important to have a harmonised approach, terms of size. They account for about 90% of you looking at any specific technology? In Zurich, otherwise there may be a risk of inadvertent our total emissions. Our portfolio is diverse, for instance, the company Climeworks captures ripple effects that may result in, for example, with metals and minerals that enable the tran- CMOic2rforosmoftthteo ahtemlpotshpehmerreedauncdejutshtepiracratnrbeorendfowoittphrint. the EU becoming less competitive. sition to a low-carbon economy. So for us the Would this kind of innovation be of any interest? primary driver to cut emissions is through a You’re basically hoping for the creation net depletion of our coal portfolio over time. Direct air capture looks interesting (even if I of just one carbon market… don’t know that company specifically). But we In terms of our industrial footprint (scope 1 do not rely on this to achieve our target by 2035. Honestly, I don’t think we will get there in the and 2), the big bucket of our emissions arises For our 2050 ambition however, we do expect foreseeable future... But even a global conver- from the trucks that we use and from the to rely on carbon capture utilisation and sation about the different frameworks and electricity we consume. For the energy, we storage (CCUS), and direct air capture. It is the risk of what we call «carbon leakage», that are looking at opportunities to switch to re- the carbon footprint simply shifts somewhere newables and working in partnerships parti- else in the world but doesn’t actually disap- cularly in developing countries to strengthen pear, is important.  the renewable energy infrastructure. For example in the DRC the source of the energy Interview by Frédéric Lelièvre for our copper and cobalt operations is hydro. But historically, it has been highly inefficient, GERMAN VERSION  FRENCH VERSION 

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |23 Achieving net zero: the role of carbon markets Gérard Delsad of the need to address climate change has sions. Emissions reduction must be the goal, led to a resurgence of more robust govern- but meaningful reductions in emissions will Managing Director, Vitol ment-backed emissions trading systems. To require careful planning, reengineering and be successful, government-sponsored com- investment in all aspects of a developed eco- O ur society is built on CO2 emissions. pliance markets have to interact effectively nomy. This will take time and, in the interim, Almost everything we touch, from with the voluntary market. investments in offsets can contribute to Net a light switch to the clothes we Zero. A second challenge is that many of these wear has been created by genera- Voluntary initiatives are beginning to projects are in the developing world and that ting CO2. This cannot continue, but to stop evolve. As recognised by the Taskforce on developed companies or economies are just and even reverse the trend of centuries, re- Scaling Voluntary Carbon Markets, led by trying to ‘buy’ green credentials. We believe quires significant behavioural change and UN Special Envoy on Climate Action and that if an effective market drives investment a lot of investment. The last 20 years have Finance, Mark Carney and of which Vitol into quality carbon abatement projects, it is shown that good intentions are not enough is a member, a successful market is a liquid a good thing. Furthermore, in many develo- and that other tools are needed. market. Liquidity requires the creation of ping countries, it can generate local employ- standardised contracts built on high quality ment and enable the preservation of forests The scale of the challenge is huge. Every specifications within a respected and robust and the biodiversity they support, arguably year we emit 51 billion tonnes of CO2, but to governance framework. Some voluntary ini- benefiting local communities more. limit global warming to 1.5 degrees by 2050, tiatives are based on projects of questionable we need to achieve Net Zero, a formidable quality, which risks undermining the asset In short, this is a huge opportunity to ensure task. At Vitol we believe that this can only class, but the right framework and controls that, in addition to traditional offsetting pro- be achieved by leveraging the power of mar- with real integrity will attract market par- jects, this market spurs innovation and in- kets and private finance, and combining ticipants and promote investment in carbon centivises investments into CO2 abatement, them with other legislative and regulatory abating projects. In the last few months, po- reduction, avoidance and sequestration, all initiatives. Carbon markets had a rocky sitive steps have been made in this direction of which will be essential if we are to achieve start. The first EU Emissions Trading Sys- with the launch of financial products based Net Zero by 2050.  tem collapsed in 2012 due to the oversupply on UN standard offset criteria. Getting this of credits and a focus on other government right could result in a market worth an esti- GERMAN VERSION priorities. However, renewed recognition mated USD 50 billion by 2030.  Some argue that carbon offsets detract from the more important issue of reducing emis- FRENCH VERSION  Vitol’s rooftop and parking canopy system at Ramapo College, NJ, USA is capable of generating 5.1MW of solar energy.

24 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Climate: in Africa, problems can turn into opportunities Isabelle Chevalley any sorting or recycling project will be to 80% and, as a result, the associated GHG doomed to failure or produce poor quality emissions will also decrease. The remaining Specialist for the environment compost that contains too many plastic par- waste can either be sorted for waste reco- and a circular economy ticles. It requires imagination and, above very such as glass, aluminium, iron, paper, all, adaptation to Africa's cultural diversity. cardboard and even some plastics. For the G reen waste accounts for between But nothing is impossible. other wastes, it is easy to convert them into 60 and 80% of household waste in SRF (Solid Recovered Fuel) to replace the Africa, whereas in Switzerland, The other aspect is the refrigerant gases. fossil fuels used by the cement industry. It it accounts for 40%. This explains Again, this problem can be an opportunity therefore has a great need for fuel to heat why these large landfills emit a lot of me- for job creation. To achieve this, all that is its kilns and is feeling a lot of international thane. Methane heats the atmosphere 25 needed is to create centres for dismant- pressure to greatly reduce the use of fossil times more than CO2, therefore, it is a very ling and recycling electronic waste. Such fuels (coal, heavy oil, gas). important climate issue. At the same time, centres already exist in some countries, but Zero waste in the landfill is not only possible, it the African population is mainly active in the process is not always well formalised also creates jobs and is good for the climate.  agriculture. A sector that is sorely lacking and not all dismantled elements are pro- perly treated to avoid significant pollution. GERMAN VERSION Methane heats the Such is especially the case with these types atmosphere 25 times more of gases.  than CO2, therefore, it is a very important climate issue. The problem also lies in the large financial FRENCH VERSION institutions that prefer to finance large holes  in fertilizer, which is why it must too often to hide waste rather than building waste re- be imported from abroad. The win-win covery centres that create jobs. solution would thus be to transform this green waste into compost. To do so, it is es- There has to be real economic development if sential to focus on collecting organic waste we want to fight poverty in Africa. Ecology is separately from others. Without this effort, a source of employment and waste manage- ment is one of its good examples. These large landfills are important sources of raw mate- rials, even referred to as urban mines. Sorting organic waste at the source will reduce the volume of large landfills by 60 ©. Rodrigo Flores – Unsplash

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |25 How coffee growing is coping with climate change Regenerative Agriculture Nicolas Tamari fertiliser applications and improvements Training farmers in climate-smart practices, in logistics can also significantly reduce CEO, Sucafina such as shading, mulching or cover crop- the overall carbon emissions of the coffee ping, helps to conserve soil moisture and supply chain. Impact of climate change on coffee retain crop residues for soil fertility, while creating additional income for farmers. Time to act Coffee grows in intertropical regions, with the right climatic conditions, namely high From adaptation to mitigation With multiple brands making ambitious humidity and temperatures between 20 and pledges to reduce carbon emissions in the 25 degrees Celsius. But due to global warming Mulching, tree crops and cover crops near future, the time is right for all com- and rising temperatures, research models also allow more carbon sequestration panies to measure their supply chain's suggest that 50% of current arabica zones above and below ground. But improve- carbon footprint and take action to reduce could become unsuitable by 2050 – either ments in wastewater management (used emissions. In the case of coffee traders directly due to heat and moisture loss, or in- in coffee processing), the optimization of this means working at farm level with directly through an increase in pests and di- suppliers, as well as improving the effi- seases associated with climatic variations. Demonstration Garden in West Uganda to determine the suitabi- ciency of internal operations. Extensive lity of cover crops (lucerne, green grams…) and tree crops (bam- opportunities to collaborate on emissions Due to global warming boo) to improve soil carbon and retain moisture and nutrients reduction projects exist already and it is and rising temperatures, important to supply chain data in order to research models suggest understand how best to act. that 50% of current arabica Responsibility starts at home zones could become unsuitable by 2050. To tackle climate change, coffee traders have to address not only their responsi- bilities as supply chain partners but also as individual actors. Wherever possible, they should reduce waste emissions and energy consumption in our operations. To reduce energy consumption, coffee mills could for example commission solar ener- gy installations. At the farm level, a decline in coffee quality “Sucafina’s dry mill in Uganda recently installed 304 solar Beyers Koffie is one of the largest private and yield puts added pressure on the most panels to reduce energy consumption” label coffee roasters in Europe. As part of vulnerable who make up a significant pro- the Sucafina group, the Company has been portion of the estimated 25 million smallhol- completely offsetting CO2 emissions from der farmers who cultivate coffee around the its roasting activities for several years now, world. These risks, and the need to adapt and and has voluntarily been opting for car- mitigate further change, are now much better bon-neutral coffee since 2015.  understood within the coffee fraternity. Many stakeholders are exploring solutions to tackle GERMAN VERSION climate change, both by helping farmers build resilience and by reducing the contribution of  coffee growing to global warming. FRENCH VERSION  COFFEE SUPPLY CHAIN Sucafina has almost completed an end-to-end mapping of its entire supply chain footprint in Rwanda.

26 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Driving sustainability in cotton farming Alan Mclay To achieve our mission, we work with expert ders, some of which are members of STSA, on-the-ground partners to deliver training play a unique role in facilitating the sourcing CEO, Better Cotton Initiative (BCI) and support to more than two million cotton of cotton from more responsible sources and farms in 23 countries. Farmers and farm wor- enabling it to reach the markets of the wor- Cotton is used by nearly everyone ld’s consumer brands and retailers. across the world on a daily basis. We want cotton farmers Cotton production alone supports and farm workers Developing Traceability the livelihoods of more than 250 mil- lion people. Cotton is a natural and versatile to become more resilient Since BCI’s inception more than a decade ago, fibre; it grows well in difficult environments to unpredictable climate we have used a Mass Balance Chain of Custody and it is fully renewable. conditions and be able model, which has enabled the rapid growth of to make a decent living the amount of cotton sourced as Better Cotton Yet the future of cotton is vulnerable to challen- while at the same time facilitating farmers to ges that include climate change, gender ine- from farming. implement better practices to produce more quality, labour shortages, water scarcity and sustainably (Mass Balance is a widely used pest pressure. Today, less than 25% of cotton kers in the BCI programme receive training volume tracking system that allows Better is grown in a way that actively works towards on how to use water efficiently, care for the Cotton to be substituted or mixed with conven- protecting people and the environment. health of the soil and natural habitats, mini- tional cotton provided equivalent volumes are mise the impact of harmful crop protection sourced as Better Cotton.) But as the world pro- Cotton production alone practices, preserve fibre quality and apply gresses, BCI recognises that it is time to explore supports the livelihoods decent work principles. The cotton grown by BCI Farmers ¬– known as Better Cotton – ac- BCI’s retailers and brand of more than counts for 22% of global cotton production. members are well-known 250 million people. names, such as Hennes & Sourcing Better Cotton Mauritz AB (H&M), Levi Strauss The Better Cotton Initiative (BCI) is striving & Co., C&A AG, Ikea Supply AG to transform cotton production from the BCI also works with more than 2,000 member but also several home-grown ground up. BCI is a global not-for-profit orga- organisations across the cotton supply chain Swiss brands such as Migros nisation and the largest cotton sustainability – from farm to civil society to retail – to en- and Coop as well as many programme in the world. BCI focuses on pro- sure there is continuous demand and supply traders members of STSA like moting the livelihoods of cotton farming com- of Better Cotton. In 2020, BCI’s Retailer and Louis Dreyfus Company, munities through the adoption of more sustai- Brand Members sourced 1.7 million tonnes of Ecom Agroindustrial Corp. Ltd. nable agricultural practices. We want cotton cotton as Better Cotton, a 13% increase on 2019. farmers and farm workers to become more re- It is noteworthy to mention that some of BCI’s and Paul Reinhart AG. silient to unpredictable climate conditions and retailers and brand members are well-known be able to make a decent living from farming. names, such as Hennes & Mauritz AB (H&M), going beyond this model to offer full traceabi- Levi Strauss & Co., C&A AG, Ikea Supply AG lity of Better Cotton and deliver more value to 2018 – 2019 COTTON SEASON but also several home-grown Swiss brands more farmers and members. We are currently such as Migros and Coop as well as many working on a new, traceable chain of custody traders members of STSA like Louis Dreyfus model to complement our existing Mass Ba- Company, Ecom Agroindustrial Corp. Ltd. lance system. and Paul Reinhart AG among others. The Future BCI’s demand-driven funding model means that when BCI Retailer and Brand Members BCI will continue to collaborate with other source cotton as Better Cotton it directly trans- sustainable cotton standards and initiatives, lates into increased investment in training for while conducting and commissioning re- cotton farmers on more sustainable practices. search to assess the effectiveness and impact In this unique model, the merchants and tra- of the BCI programme around the world. BCI is a learning organisation, and we look to conti- nually strengthen our Better Cotton Standard System to ensure it continues to address cotton production challenges, contributes to impro- ved farmer and farm worker livelihoods, and meets the sourcing needs of members.  GERMAN VERSION  FRENCH VERSION 

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |27 What do chicken nuggets and cotton have in common? Jürg Reinhart pread use of rainfall (green water) instead Today, Swiss-based companies can offer cot- of artificial irrigation (blue water) results ton that is traceable back to the gin, where CEO, Paul Reinhart in limited soil salinisation. the lint is separated from the cotton seed. B razil is amongst the top producers Brazilian farmers optimize agriculture Brazil is the world’s largest worldwide for a range of agricultu- for productivity and soil fertility. Better Cotton producing country. ral commodities, including soy and cotton. Probably less known is the Brazil, as a leader in agro-technology, has It is important to maintain regular contact fact that both crops are grown on the same sustainability and traceability standards in with Brazilian suppliers to discuss how fields in one season, an agricultural tech- place to ensure that it meets the regulations traceability can be moved to the next level, nique known as “safrinha”. This technique thereby ensuring better transparency to is applied in the northern and western re- ... and as a leader in the end consumer about where the products gions of the state of Mato Grosso, where agro-technology, has come from. Ideally, the system should al- rainfall is sufficiently high to boost produc- sustainability and traceability low tracing cotton down to the field where tivity. The season starts with planting soy standards in place to ensure it grows and from there to the retailer who and after harvest, the time is right to plant that it meets the regulations sells the product to the end consumer (from cotton. The seeds and planting cycles for to produce the food that field to shirt). There are still some hurdles, soy and cotton are carefully optimis ed to but the current efforts of Brazilian suppliers feeds the world. are very promising.  Brazil is amongst the top producers worldwide to produce the food that feeds the world. This GERMAN VERSION goes all the way to the chicken nuggets that for a range of agricultural we buy as end consumers. As cotton is grown  commodities, including in the same fields as the soy that feeds the poultry, one can benefit from the existing FRENCH VERSION soy and cotton... monitoring systems and processes in place.  ensure high productivity at local environ- Our food and clothes grow in the same field. mental conditions to allow such a double crop system within one harvesting season. For cotton, the ecological and social criteria The crop rotation has a positive effect on the are specified in the Responsible Brazilian long-term fertility of the soil and the wides- Cotton (ABR) standard. Thanks to this stan- dard, Brazil is authorised to sell its cotton under the Better Cotton Initiative (BCI), the world’s leading initiative for better cotton. ©. Trisha Downing – Unsplash

28 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION The role of Swiss-based commodity traders in shipping decarbonisation Close the low-carbon competitiveness gap Sebastien Landerretche tors have the opportunity to reduce the fuel consumption and emissions of the ships they Studies (ETC)3 suggest that achieving full Global Head, Ocean Freight, charter from ship-owners, by maximising shipping decarbonisation by 2050 would re- Louis Dreyfus Company technical and operational efficiencies during quire an estimated USD 1.4 to 1.9 trillion. For voyages. Technical efficiency mainly stems years, the shipping industry has witnessed T he shipping industry is entering a from a ship’s hydrodynamic design: hull low returns on capital invested and yet is critical decade of tectonic shifts for shape, propeller, anti-fouling paints, energy expected to fully transform its fuel, designs decarbonised technologies, logis- saving devices (wind propulsion rotors or and land-based infrastructures: a challenge tic chains and market structure. sails and air lubrication systems under the to say the least! Industry fragmentation also While the world contends with the COVID-19 hull to reduce friction). Some of these devices complicates the articulation of an indus- pandemic, climate change continues to pose and appendages can be retrofitted during a try-wide action plan for the move toward increasing threats that we must address vessel’s lifetime and can constitute a transi- zero carbon fuels. With this in mind, closing equally vigorously. And just as the pandemic tion to 2030 targets for ageing conventional the competitive gap of non-fossil fuels re- requires enhanced public/private coopera- ships. Other fuel efficiency gains relate to quires a concerted global carbon levy sche- tion at a global level, so too does the effort to the day-to-day operations of a ship: opti- me to fund research and development (R&D), drive decarbonisation in shipping, in order mal weather routing, adjusting speed to sea raise the entry barrier to a higher playing to yield concrete results. conditions and navigating based on a better field and support the communities most im- understanding of currents. What do these pacted by climate change. According to the latest International Ma- endeavours have in common? Cooperation ritime Organization’s (IMO) greenhouse between operators and ship-owners and grea- To reduce carbon intensity gas (GHG) study published in 2020, GHG ter use of digitalisation through sensor-based by at least 40% by 2030 emissions from shipping (expressed in measurements and computer modelling. compared to 2018, and total CO2-equivalent) have increased from 977 annual GHG emissions million tons in 2012 to 1076 million tons in Collaboration is key by at least 50% by 2050 2018, and are expected to further increase by 50% (over 2018 levels) by 2050 despite Today’s green transition calls for a holis- compared to 2008. efficiency gains, which are completely off- tic, cross-industry effort, admittedly with a set by the continuous growth in seaborne strong impulse from cargo-owners, shippers, Price carbon globally charterers and operators, whose full value Made positive strides through chain emissions footprint is under scrutiny IMO reforms are being challenged by a swif- collaborative emission- and whose strong balance sheets attract green ter European Parliament, which already reduction initiatives, bonds and other sources of financing. Why? approved the inclusion of emissions from Because ships are already an asset class that ships in the EU Emissions Trading Sys- and some private operators requires cross-ownership between stakehol- tem from January 20224. Regionalisation are now even calling for ders through the asset lifecycle. The need of carbon levies will not create optimal a more ambitious horizon for cooperation must also engage seafarers, conditions for the harmonisation of good of zero-carbon-shipping. whose well-being and training are conditions practices according to global standards, for safe and sustainable shipping operations and raises risks of loopholes and a two-tier transportation activity1. In this context, - even more so with the crew change crisis market structure. In 2019, the International emission reduction targets set by the IMO in the context of the ongoing pandemic, as Chamber of Shipping proposed5 a carbon (to reduce carbon intensity by at least 40% alerted in the industry-wide Neptune Decla- levy scheme based on the contribution by by 2030 compared to 2018, and total annual ration (www.globalmaritimeforum.org/nep- shipping companies worldwide of USD 2 GHG emissions by at least 50% by 2050 com- tune-declaration). per ton of marine fuel consumed (estimated pared to 20082) might seem unattainable, at around 300 to 350 million tons per year unless drastic actions are taken now. Al- If you can’t measure it, for all ships combined). This levy would though it has legitimately been acclaimed as you can’t improve it. fund an R&D programme overseen by IMO the least environmentally damaging means Member States. Although the idea of a glo- of transportation, shipping has heeded the The harmonised global emissions reporting bally mandatory carbon levy is pertinent, call for more radical change and made po- called for under the Sea Cargo Charter (www. a more significant levy on carbon-intensive sitive strides through collaborative emis- seacargocharter.org) encourages transparen- fuels should be considered to drive the ra- sion-reduction initiatives, and some private cy and accountability for decarbonisation. dical change needed to achieve decarboni- operators are now even calling for a more It is also an opportunity for each charterer sation. The recent proposal put forward ambitious horizon of zero-carbon-shipping. to work on causes, determine ship consump- for a self-financing “feebate” programme is And yet, today the sector is struggling to tion patterns and improve its emissions foot- particularly noteworthy. “Feebates” are ge- identify a clear way forward. print through iterative engine performance nerally considered the best system to shift enhancements. However, while short-term the cost of negative externalities, in this Start with low hanging fruits efficiency gains are necessary, they cannot case by charging a fee to carbon-intensive improve emissions profiles by more than 15- fuel users while subsidizing vessels with The theory of change teaches us to observe 20% combined, and are therefore insufficient CO2e emissions below an agreed bench- and act first upon our sphere of control and to tackle the real transition from fossil-fuels mark level, which should reflect (if not influence. With this in mind, ship opera- to decarbonisation. Every transition has costs exceed) the IMO’s required CO2 trajectory. and requires visibility, which are considera- According to the study by Texas A&M Uni- tions that an equitable carbon-pricing mecha- nism and globally enforceable regulations must address.

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |29 versity sponsored by Trafigura6, a carbon levy in the range of USD At the heart 250-300 per ton of CO2e would be required to ensure a scalable and of the world’s cost-competitive decarbonisation transition throughout the en- energy markets tire marine fuel supply chain, from well (extraction/production) to propeller (combustion). 55 years moving energy, responsibly and safely IMO’s central role Responsibility is at the core of Ensuring that the feebate funds R&D efforts while supporting com- Vitol’s culture. We recognise munities vulnerable to climate change is a task for the IMO, which is our responsibility to our people, in a position to organise and enforce a truly global approach. A year our customers, stakeholders ago, the successful transition into sulphur cap fuel oil regulations and the communities in which demonstrated the importance of collective efforts and underlined we operate. We understand the the IMO’s central role for alignment and enforceability of solutions risks inherent in our business in tackling global climate challenges – and all the more so with to- and work hard to manage them, day’s manifold and increasingly urgent challenges. striving every day to do better. Switzerland: the new influential impulse at IMO? Find out more: vitol.com “Home” to some of the world’s largest private operators and charte- rers, Switzerland has grown into a hub and force for innovation in shipping. Several Switzerland-based companies, often members of the STSA, instigated, drove or supported a number of recent global sustainable shipping initiatives, such as the Sea Cargo Charter, the “Home” to some of the world’s largest private operators and charterers, Switzerland has grown into a hub and force for innovation in shipping. Poseidon Principles, the Neptune Declaration, the ISC’s carbon levy proposal, the partial feebate proposal and the Sustainable Shipping Initiative’s Ship Recycling Transparency Initiative. The Swiss ship- ping community could further spearhead a global decarbonisation coalition with the support of the STSA and Swiss Maritime Naviga- tion Office, urging the IMO to turn it into a global legal obligation. With growing scrutiny over climate issues from the public, finan- ciers and governments themselves, who are setting bold new tar- gets (notably 2060 carbon neutral China, itself the leading maritime powerhouse), aligning on a concrete carbon levy program and obtai- ning decisive diplomatic support at the IMO remains an urgent prio- rity for the coming months. History is accelerating. We must embrace collective transformation before we are compelled to change. Along the path toward a sustai- nable future, business opportunities will exist on the condition that we create an ordered, fair and ambitious global framework for the decarbonisation of shipping.  1. imoarcticsummit.org/wp-content/uploads/2020/09/MEPC-75-7-15-F ourth-IMO-GHG-Study-2020-Final-report-Secretariat.pdf. 2 www.imo.org/en/MediaCentre/PressBriefings/Pages/06GHGinitialstrategy.aspx 3 www.globalmaritimeforum.org/content/2020/01/Getting-to-Zero-Coalition_I nsight-brief_Scale-of-investment.pdf 4 www.europarl.europa.eu/news/en/press-room/20200910IPR86825/parliament- says-shipping-industry-must-contribute-to-climate-neutrality 5 www.ics-shipping.org/press-release/shipping-sector-proposes-usd-5-billion- rd-board-to-cut-emissions/ 6 www.trafigura.com/brochure/a-proposal-for-an-imo-led-global- shipping-industry-decarbonisation-programme GERMAN VERSION  FRENCH VERSION 

30 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Regulations in shipping’s energy transition More work, less fuel Chris Hughes and the need to accelerate work on mar- At their recent Marine Environmental Pro- ket-based measures to incentivise the tran- Global Lead, Shipping Markets, tection Committee meeting (MEPC75), IMO sition to alternative, low and zero carbon Lloyd's Register agreed on short term-measures to reduce fuels. However, currently the IMO has very the carbon intensity of shipping, compri- little information about the availability and The latest IMO Regulations related sing of a requirement for existing ships costs of these new fuels; the technology to to climate change will impact shipping to be essentially meet the same technical store and consume them onboard; and the markets, and whilst there is much efficiency requirements as applied to new ultimate impacts on markets. The Lloyd’s more to come, they can’t do it alone. ships (EEXI Energy Efficiency Existing Ship Register Maritime Decarbonisation Hub, es- Index), and a requirement for operational tablished for this purpose, aims to accelerate T he IMO 2020 Sulphur transition is Carbon Intensity Indicator reduction (CII). decarbonisation by undertaking collabora- now largely behind us: compliance Both regulations have commercial and ope- tive projects that produce the evidence and levels for bunker sulphur content rational implications for commodity tra- data needed by IMO, and the wider industry, have been above 99% since April ders and charterers. EEXI comes first in late to move from talk, to action. 2020. Now, shipping enters its third pro- 2022/2023, and whilst its aggregate impact pulsion revolution. Sails were replaced by on markets is expected to be limited, it may IMO 2020 Sulphur highlighted the impor- steam, which in turn was replaced by diesel; have more significant implications for indi- tance of involving all stakeholders in the now we need to transition to new zero car- vidual (less efficient) ships. After EEXI co- shipping value chain within the develop- bon emission fuels. Diesel engines will still mes CII: this will put increasing pressure on ment of regulations. All eyes may be on the play a role in consuming the new zero car- fleets between 2023 and 2030 as the require- regulators, waiting to see what comes next: bon fuels, and in a twist of symmetry, we will ments will progressively tighten each year, however, unless we provide them with the see the return of sails to augment the mecha- putting ultimately a use-by-date on each right information, and impetus, it will be nical propulsion systems. However, whilst ship. The impact on less efficient ships will difficult for the IMO to make the bold, timely the first two revolutions were catalysed by be greater; the commercial performance of decisions that are needed to decarbonise technological developments that unlocked a ship will be more sensitive to its technical shipping, or to guarantee the certainty that new economic opportunities; this time re- attributes than in the past; and compliance markets need.  gulation will drive the change by addressing will no longer be black or white - it will be the market failure, and providing the econo- shades of green. GERMAN VERSION mic impetus required for the development of the new technologies and energy sources. More evidence, less talk  Recent IMO meetings included debates on FRENCH VERSION the level of ambition of future regulations,  Shipping: new technologies in practice T he ecological transition of shipping Price, speed, punctuality, and carbon foot- of wind. The economic consequences, such is being driven both by growing print are the four key parameters of a trans- as outdated goods, are too important. If the customer demand for low-carbon portation service. And the integration of wind ship arrives late at its destination, the en- transport services and by the tighte- propulsion in the energy mix of ships must ge- tire post-delivery logistics chain is pena- ning of international regulations on pollutant nerally take into account a trade-off between lised. This implies that wind can never be emissions. To meet this demand, shipowners these parameters in the following order: the main means of propulsion. It will have are for the most part moving towards the to be accompanied by other means, such as use of alternative fuels: the gradual aban- 1. Punctuality: no trade-off possible mechanical propulsion. donment of heavy fuel oil for marine diesel, followed by LNG, and then tomorrow towards Generally speaking, no compromise is pos- 2. Speed biofuels and hydrogen. These last two fuels sible with punctuality. Sea transport is certainly represent part of the solution, but just one link among others in a logistics The speed often depends on the sea route the two other levers are largely under-evaluated chain (truck + train + sea + truck again). cargo ship is following. If the freighter is on and under-used: speed reduction and the use If one wishes to enter the conventional a round trip or if it is travelling from one of wind propulsion. transport market it is not possible to ar- destination to another. In other words, speed rive 3 days late under the pretext of a lack is not necessarily negotiable as such, it is de- pendent on the journey. And yet it is from speed that the rest derives: the price and the percentage at which the sails are used. 3. Fuel economy It is directly related to the desired speed. If a customer agrees to give no speed and time requirements, the sails can be used 100%. If, on the contrary, the client wishes to go fast at 20 knots due to the nature of goods being transported, the boat will run permanently on the engine, and the sails will only slightly reduce fuel consumption. Nils Joyeux, Amaury Bolvin, Bernard Peignon and Victor Depoers, Zéphyr et Borée. Between these two extremes, the speed pa- rameter should be seen as a cursor that is positioned according to the CO2 savings that we wish to achieve:

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |31 8 knots = very low speed = 90% sail / 10% engine 12 knots = low speed = 60% sail / 40% engine 15 knots = average speed = 35% sail / 65% engine 4. The price Generally speaking: the market was not ready to pay any extra costs 4 years ago. To- day it seems to accept an extra cost of 20-30% for a low carbon service. The magic balance Today, for average transport speeds of 15 knots, a saving of around 30% can be achieved. The construction of a sail freighter costs about 15% more than a conventional freighter. This results in higher CAPEX (capital expenditure), which in turn leads to fuel savings. The advan- tage is to be more resilient: if the price of fossil fuels rises, our transport price is less impacted than that of conventional ships. There are several sailing transport projects Weather routing The ship will be commissioned in 2022 and in Europe. Each one adopts quite distinct construction began in February 2021 in Po- commercial choices. Some favour a radical Thanks to wind statistics from the last land. The different elements of the rocket and zero CO2 approach, which implies low- 10 years, it is possible to simulate a large are built in different European countries, speed transport and a high price, which is number of trips using powerful routing they will be collected by our boat in the only possible for products with high added software. Based on the average fuel sa- ports of Bremen, Rotterdam, Le Havre, Bor- value. Others address the conventional mar- vings achieved on these simulations, it is deaux, Livorno, and transported to Kourou ket with a less radical approach, but one that possible to estimate the savings that can be in French Guiana, from where the Ariane allows them to address larger markets and achieved on a given shipping line, with a rocket is scheduled to leave. therefore greater savings in absolute terms. given vessel, depending on the seasons and the weather regime. Furthermore, once Designed by the Bureau VPLP Design, this The world fleet is made up of about 50,000 the ship has been built and commissioned, ship will mark a turning point for modern cargo ships. The average life expectancy of this same routing tool can then be used to sailing transport, taking it from a margi- ships is 30 years. If the IMO (International plot the most suitable route for the ship ac- nal solution to a real future solution for the Maritime Organisation) wants to respect the cording to the weather forecast for the co- world fleet. The ship is 121 metres long and limits it has set for itself, namely a 40% re- ming days in order to make the most of the 21 metres wide and is equipped with four duction in CO2 emissions per transport work wind on the planned crossing. wings with a surface area of 363 m² each.  by 2030, pursuing efforts towards 70% by 2050, compared to 2008, it is important that The first modern sail freighter GERMAN VERSION maritime transport should begin a rapid en- over 100 metres long ergy transition. It is not conceivable to wait  for the gradual renewal of this fleet by sail In 2018, Zéphy et Borée with the joint freighters, it will be necessary to equip exis- venture of the maritime company Jifmar FRENCH VERSION ting vessels with sails. It should be borne in Offshore Services - won a major call for  mind that wind propulsion is not suitable for tenders to transport the Ariane 6 rocket. all types of ships, nor for all shipping lines in the world. Advertisement www.swiss-supplychain.com

32 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION The future of trade finance in Switzerland and Singapore Marc Gilliéron Baldev Bhinder discounted and other transactions amounting to funding…”. These examples point to the pro- Partner, Chabrier Avocats, Switzerland Managing Director, blem of understanding a company’s leverage. BlackStone & Gold, Singapore At the heart of the challenge of understanding M odern day trade finance has leverage lies the paucity of credit information morphed from the business of to trade finance focused on BLs and invoices on companies, which caused certain lenders to financing trades into a business presented by a small group of lenders within extend credit limits a few weeks before a com- of creating trades for finance as a network for authentication. The promise pany’s collapse. The Code spells out the provi- certain back-to-back physical trades evolved of blockchain technology in such registries sion of such information but the problem re- into more synthetic structures more akin to have been advocated for years but it misses mains that a lender is beholden to its borrower financial products, in a pursuit of liquidity. key aspects of trade finance. For a registry to provide full and frank disclosure of its debt But liquidity, whether to plug an internal to work, market participants need to be in- exposure. More time and resources need to loss or as a form of credit to make a trader re- volved and the only person who can truly be dedicated to understanding whether “fi- levant to counterparts, can be addictive. Re- authenticate a BL would be its issuer. Full nancial accommodation” has been dressed up ceivables financing further compounded the visibility can only be obtained if the physical by traders. This will inevitably mean slower problem as traders without any assets could goods can be digitally tracked from source to disbursements and higher lending costs but is sell their invoices and the lure of creating in- end user and the prospects of doing so do not that really a bad thing? voices unrelated to any trade started out as appear imminent given that the majority of appealing and ended up overwhelming. The commodities are shipped from developing Second, the transparency and control of the ease at which a document can be forged or countries without an adequate level of digi- trade where traders should provide “infor- manipulated to create a fictitious trade com- tal sophistication. While the registry does mation on the end-to-end process and trade bined with the difficulty of detection, made not provide all the answers to the problem, cycle” clearly point to the fundamentals this a seductive proposition for companies it does go some way in getting market parti- of understanding the trade structure and addicted to liquidity. And with any addic- cipants to ask the right questions. being able to exercise its most hallowed hall- tion, there comes a tipping point. mark – self liquidation of the asset. Assign- Asking the right questions appears to be ments have been specifically flagged with The Solution the foundation of the Code of Best Practices, a recommendation that invoices be sent by Changing the Risk-Reward Paradigm launched by the Association of Banks in Sin- the lender directly and acknowledgments of gapore. The Code, which is not legally bin- such assignments be received directly from Singapore has led the way in addressing the ding, provides guidance on how liquidity is the debtor rather than the borrower to mini- problem with the introduction of two signifi- accessed both in terms of a macro risk analy- mise risks of forgery. This remains an area cant initiatives in 2020: sis of the borrower as well as on a transactio- that requires constant monitoring as recei- nal deal level. It highlights non-exhaustive, vables are the perennial Achilles heel of The trade finance registry is currently being non-prescriptive examples of good corpo- trade finance because they are notoriously piloted across a select group of banks. The rate governance and risk management poli- difficult to verify or monetise. registry focuses on the very fundamental cies on the one hand and due diligence and objective of ensuring a bill of lading (BL) has transaction transparency on the other. The success of these initiatives are yet to be not been financed multiple times. By sharing seen but at present, it stands as a signpost for data points across various BLs and invoices Two aspects of the Code are worth highligh- lenders everywhere to return back to basics between a select group of lenders, partici- ting because they are indicative of the larger in understanding their borrower’s leverage pants will gain greater visibility over the challenges plaguing commodity financing. and intended trade.  physical movement of goods, thereby redu- First, as part of the requirements for business cing instances of multiple financing. There due diligence, the Code speaks of “monies bor- GERMAN VERSION are however notable limitations with the re- rowed and any other financial accommoda- gistry as it takes a fairly piecemeal approach tion” as well as “turnover that have been sold or  FRENCH VERSION  Advertisement

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |33 The impact of the counterproposal to the Responsible Business Initiative Mark Veser Claude-Aline Dubi gement and communication. The involvement of the Board of Directors and C-levels com- Head Sustainability Services, EY Senior Consultant bined with an early assessment of the current Sustainability Services, EY state and expectations of key stakeholders On 29 November 2020, the “Res- (internal and external) is essential. Not only ponsible Business Initiative” was tEoarelny sausrseecsosmmpelniat nrecceommended are governance and oversight generally im- rejected in a popular vote. There- portant in a business environment facing fore, the indirect counterproposal Forward looking, an early and detailed as- increasing regulations, they are also vital to will come into force, triggering new non-fi- sessment of the current reporting and risks meet the rising stakeholder’s expectations. nancial reporting and due diligence requi- along the value chain is recommended. The rements. This article reflects the situation counterproposal is likely to be applicable Outlook at the time of writing, which may change de- from 2022 onwards, leaving only a modest pending on future developments. timeframe to close potential gaps. Will the Some open questions remain as of today. How non-financial reporting requirements be are conflict areas, high-risk areas and reaso- bRyeqtuhierecmouennttesripnrtorpoodsuacled applicable? Where do the products or ma- nable grounds for suspicion of child labour terials originally come from? How were the defined? Will reporting on due diligence be The non-financial reporting requirements goods produced or minerals sourced? Who made an integral part of existing non-finan- affect Public Interest Entities (PIEs; listed and else was involved in the supply chain? What cial reporting? Will due diligence on child FINMA regulated entities) if they fulfil the are the possible negative impacts or adverse labour also require an external review? To quantitative criteria as indicated in the left co- effects in the supply chain? which extent will SMEs and companies with lumn in the table below. The entities in scope low-risk profiles be exempted from the re- will have to report on specific non-financial Ensuing this assessment, affected companies quirements? The Federal Council will provi- topics by following a “comply or explain” ap- will have to define or amend their reporting de additional guidance in a new set of ordi- proach. The non-financial reporting requi- and supply chain policies and ensure pro- nances regarding these questions. Currently, rements largely reflect the European Union’s ducts’ traceability. Additionally, companies companies at the European level are also fa- (EU) current Non-Financial Reporting Direc- should develop a plan to address and reduce cing increasing regulations in reporting and tive (NFRD), in force since 2017. the risks and adverse effects identified in managing risk along their supply chains . their supply chain. These regulatory developments may not only The counterproposal also introduces due influence the Swiss regulator but can also diligence requirements for companies (re- Overall, it is also an opportunity to review serve as a reference point for applying a broa- gardless of size and listing) with headquar- the entire risk and compliance management der scope on non-financial reporting, risk ters, central administration or main establi- system regarding coverage of supply chain and compliance management than explicitly shment in Switzerland (right column in the related risks – even beyond conflict minerals required by the counterproposal.  table below). Companies affected are those and child labour. The requirements will also importing to or processing in Switzerland undeniably affect several functions within a GERMAN VERSION four defined types of minerals or metals (tin, company such as risk and compliance mana- tantalum, tungsten or gold) from conflict or  high-risk areas as well as the ones offering products or services where there is reaso- FRENCH VERSION nable cause for concern of child labour. The  affected entities will have to operate a risk management system along their value chain THE OUTCOME OF THE 29 NOVEMBER VOTE GIVES RISE and report on their fulfilment of the due di- TO INCREASED REPORTING AND DUE DILIGENCE REQUIREMENTS ligence requirements on an annual basis. Additionally, the due diligence requirements INDIRECT COUNTERPROPOSAL on minerals and metals will be subject to an annual review by an independent third party. NON-FINANCIAL REPORTING MINERALS AND METALS FROM CONFLICT AREAS OR CHILD LABOR Implications of the due diligence requirements ENTITIES AFFECTED PIES, IF TAKEN TOGETHER AS A GROUP (AGGREGATED/CONSOLIDATED) • SWISS COMPANIES IMPORTING TO OR PROCESSING IN SWITZERLAND The degree to which companies are affec- • ≥500 EMPLOYEES MINERALS OR METALS FROM CONFLICT AND HIGH-RISK AREAS OR ted will depend on the extent to which their • CHF 40 MILLION IN REVENUE AND/OR CHF 20 MILLION IN TOTAL ASSETS OFFERING PRODUCTS WHERE CHILD LABOR MAY POTENTIALLY BE value and supply chain encompass subsi- INVOLVED IN THE VALUE CHAIN diaries and third parties in high-risk areas. COMPLY OR EXPLAIN PRINCIPLE • POTENTIAL EXEMPTIONS FOR SMES AND LOW-RISK COMPANIES Complex value chains are typically expected in industries such as minerals, metals or TRANSPARENCY / TOPICS TO BE ADDRESSED: • OPERATION OF A RISK MANAGEMENT SYSTEM ACROSS THE ENTIRE agri-business where various tiers of sup- DUE DILIGENCE • ENVIRONMENT (INCL. CO2 TARGETS) SUPPLY CHAIN pliers in-between the source and the buyers REQUIREMENTS • SOCIAL ISSUES • ANNUAL REPORT (PUBLIC DISCLOSURE) ON THE FULFILMENT OF DUE in Switzerland could affect the supply chain • EMPLOYEE MATTERS DILIGENCE OBLIGATIONS transparency. A company importing any of • RESPECT FOR HUMAN RIGHTS those minerals must be able to assess if it was • ANTI-CORRUPTION AND ANTI-BRIBERY originally sourced from a conflict or high- • APPROVED AND SIGNED BY THE HIGHEST MANAGEMENT AND risk area. Similar challenges will also apply to companies when assessing potential risks ADMINISTRATIVE BODY AND APPROVED BY THE BODY RESPONSIBLE of child labour. FOR APPROVING THE ANNUAL ACCOUNTS RESPONSIBILITY • APPROVED AND SIGNED BY THE HIGHEST MANAGEMENT AND • THE HIGHEST MANAGEMENT OR ADMINISTRATIVE BODY FOR REPORTING ADMINISTRATIVE BODY AND APPROVED BY THE BODY RESPONSIBLE FOR APPROVING THE ANNUAL ACCOUNTS • AUDIT OF COMPLIANCE WITH DUE DILIGENCE OBLIGATIONS • NO OBLIGATORY AUDIT ON REPORT CONTENT EXTERNAL AUDIT • VOLUNTARY LIABILITY • REMAINS UNCHANGED BUT FINES OF UP TO CHF 100,000

34 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION The Swiss Government has identified corruption as the single highest financial crime risk exposed to Swiss commodity traders. Commodity trade finance – Money laundering, fraud and financial crime risks in 2021 and beyond Olivier Bazin In Switzerland, commodity trade finance in excess of CHF 100'000. Critics have pointed banks and other financial intermediaries out that this does not include trading (as op- Partner, Holman Fenwick Willan LLP are subject to national laws and oversight by posed to extraction) firms, although the law FINMA. As such, each bank is required to put specifically delegates authority to the Swiss L egal observers will agree that fraud in place appropriate processes to know its Government to extend the application of this and financial crime are not new phe- client, its ownership, source of funds, the pro- law to trading firms. nomena and they are not limited to posed transaction, counterparties and coun- commodity trade finance. tries, and other facts that may be relevant to Connected to this, certain large traders have the market in which the client operates. This announced they will no longer work with in- In addition to the risk of fraud, financiers face is not an absolute and uniform set of rules termediaries. This has always been an area other financial crime risks, namely the risk of – following FATF recommendations, Swiss of heightened risk for banks who will care- participating in money laundering, breaching law requires each bank to adopt its own “risk- fully assess corruption risks and the size international sanctions or rules on the financing based approach” to Client Due Diligence, the and proportionality of the fees payable. of terrorism or nuclear proliferation, and the determination of “red flags” and triggers risk of facilitating bribery and corruption. Un- for Enhanced Due Diligence (e.g. where the Transactional commodity like fraud, where the bank is usually an innocent transactions are complex, unusually large, trade finance remains victim, these other financial crime risks poten- or have no apparent economic or legal pur- a heavily scrutinised, tially carry direct legal liability for the financier. pose)3. Under Swiss law, where a bank or financial intermediary knows (or has valid documented and statistically Swiss criminal laws punish grounds to suspect) that money laundering is low-default business. money laundering and, taking place (e.g. assets connected to one of its client relationships have been implicated in a Transactional commodity trade finance re- as such, a Swiss commodities crime)4, it is required to immediately notify mains a heavily scrutinised, documented and trader may be sanctioned Swiss law enforcement authorities (MROS). statistically low-default business. The higher in the same way as any risk for banks occurs where funds relate to other person or entity Some observers have criticised the fact that consulting fees, to open account payments or in Switzerland. Swiss commodity traders are generally not ancillary flows where there is little information subject to the requirements of the Anti-Mo- about the underlying transaction, or to corrup- Over the past 20 years there have been ney Laundering Act in the same way as banks tion risks in producing countries. Even with concerted efforts on a Swiss and international and financial intermediaries (unless they digital solutions there will never be a 100% assu- level to combat financial crime, money laun- are engaged in commodity trading (or deri- rance against individuals who are determined dering, bribery, corruption and the financing vatives) for the account of a third party, or in to obtain funds by deception. Commodity Trade of terrorism and proliferation. These efforts specific situations such as trading of bullion). Finance banks deal in documents but there can are led by numerous international bodies, in It is important to note, however, that Swiss be no banking without trust.  particular the Financial Action Task Force criminal laws punishes money laundering (FATF-GAFI)1, an intergovernmental body and that as such a Swiss commodity trader 1 www.fatf-gafi.org/publications/fatfrecommendations/docu- composed of 39 States (including Switzerland). may be sanctioned, no differently to any other ments/fatf-recommendations.html FATF Recommendations are considered to set person or entity in Switzerland5. 2 iccwbo.org/publication/wolfsberg-trade-finance-principles the authoritative standard on the subject. (2017, updated 2019) The Swiss Government has identified cor- 3 In the EU, the 5th Anti-Money Laundering Directive has The Wolfsberg Group (a group of 13 respected in- ruption as the single highest financial crime been transposed along similar lines into national legislation ternational banks), with the International Cham- risk exposed to Swiss commodity traders. of Member States. ber of Commerce (ICC) and the Bankers' Associa- This is in the context of corruption of foreign 4 Swiss Anti-Money Laundering Act, Art.9 al.1 let a. tion for Finance and Trade (BAFT), has issued its public officials in connection with the pur- 5 Swiss Criminal Code, Art. 305bis. \"Trade Finance Principles\" 2 to provide guidance chase of natural resources, in particular but 6 Swiss Criminal Code, Art. 322septies. to the global banking industry on the manage- not limited to, oil. Some notable legislative ment of trade-related financial crime risks. changes have come into force in this respect. GERMAN VERSION Corruption of foreign public officials is now a crime under Swiss law6. In parallel, changes  to Swiss company law have entered into force on 1.01.2021 requiring companies active in the FRENCH VERSION extraction of natural resources to report, as  from 1.01.2022, all payments to governments

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |35 Looking into the future of regulation through a green tinted magnifying glass Lisa Weihser tal and social impact. Physical trading firms Working Group, which is working on a draft have been able to work with certification legislative text got delayed by the COVID-19 Legal & Regulatory Affairs Officer, STSA bodies, improving living conditions for pro- pandemic. Hence, following a decision by ducers and enabling them to tap into growth the Basel Committee to postpone the final Sustainability, a recurring theme markets with higher margins. At the same implementation of Basel III, the new rules time, consumers are able to track their coffee are expected to enter into force on 1.1.20231. Contrary to popular assumptions, commo- beans by directly scanning the QR-code on the A second Qualitative Impact Assessment is dity trading and its financing is by no means package. When it comes to other commodities scheduled to take place in Q2 of 2021. an industry that operates in a regulatory like metals and minerals for example, it is vacuum. There is a wide range of internal more difficult for consumers to know if a com- Transparency at the forefront of change (self-regulation) and external regulations ponent of their phone or car was produced and initiatives that impose strict require- while respecting the surrounding environ- In Switzerland, the transparency trend is ments for the dutiful execution of the va- ment and international responsible sourcing also gaining traction, not least with the in- rious activities. In recent years, the regu- standards set by the OECD. Notwithstanding direct counter-proposal to the RBI imposing latory landscape has predominantly been this difficulty, the trend for responsible sour- new non-financial reporting duties notably influenced by a call for more sustainability cing from conflict-free zones and sustainable in relation to environmental, social and em- and transparency along the whole spectrum supply chains is gaining traction (e.g. in the ployment-related matters. Parts of the indi- of the value chain from the sourcing, storing, EU Conflict Minerals Regulation which ente- rect counter-proposal are expected to enter processing and transporting of raw mate- red into force in 2021). into force in early 2022. In the meantime, rials to delivering them to the end consumer. various unanswered questions need to be This is a natural phenomenon, since a rapid The commodities industry clarified by the Federal Council with res- human population growth translates into is known for its agility and pect to its implementation. The most urgent a surge in demand for already constrained know-how when it comes to ones include affected entities and the scope natural resources. Therefore, the 2015 Sus- rapidly adapting to a changing of requirements. tainable Development Goal (SDG) 12 calls for a profound business transformation towar- environment. Change is The Federal Council’s recommendation ds sustainable consumption and production important and we should following the postulate 17.4204 Sey- patterns. It was only recently with the Swiss doux-Christe published in February 2020, Responsible Business Initiative (RBI) that this embrace it. urged the industry to develop sector-specific trend was accelerated. The transparency and guidelines on due diligence (in particular re- sustainability agenda is being driven by le- Increasing expectations for responsible bu- lated to corruption)2. It is worth highlighting gislators and regulators as much as by consu- siness conduct (RBC) can also be seen in the that like all natural and legal persons, com- mers whose scrutiny is adding new challen- financial industry; not only in wealth mana- modity traders are subject to the Swiss Cri- ges to demonstrating a products’ provenance gement but also in trade finance. The role for minal Code, and anti-corruption legislation and to tracing its story. Innovative tracea- banks in driving sustainable behaviour in applies. Equally applicable are the Swiss Un- bility initiatives built around a Blockchain global supply chains has been gaining mo- fair Competition Act, the OECD Convention core no longer present a mere competitive mentum after a sequence of events, such as on Combating Bribery of Foreign Public Offi- advantage but are becoming an integral part the financial crisis 2007-2008, the introduc- cials in International Business Transactions of companies’ risk management. tion of the SDGs in 2015, the Paris Agreement and the UN Convention against Corruption. 2016, the European Green Deal 2019 and seve- Nevertheless, in an effort to increase trans- Blockchain’s ability to transparently record ral climate protests in 2020. With the OECD parency, sector-specific guidelines that set complex transactions, track goods, and re- potentially establishing a sub-group looking out a risk-based approach and identify the duce fraud makes it a natural fit for the com- into sustainable trade finance, potential fu- red flags will soon be developed by the indus- modity industry, which is still inherently ture sustainability-linked trade finance re- try under the auspices of the Swiss Trading gulations might soon become a reality. On and Shipping Association (STSA). It is worth highlighting the EU level and following the European that like all natural and Green Deal, also the European Commission The commodities industry is known for its legal persons, commodity intends to put forward a renewed sustainable agility and know-how when it comes to rapidly traders are subject to finance strategy. Banks may then measure adapting to a changing environment. Change the Swiss Criminal Code, the borrower’s performance against specific is important and we should embrace it. It is sustainability targets (United Nations Gui- what makes us call established practices into and anti-corruption ding Principles, SDGs) and make the terms of question and gives us a fresh perspective on legislation applies. financing dependent on a number of Key Per- ways to improve. In the face of these multiple formance Indicators linked to Environment, regulatory developments, working together based on an antiquated paper trail system. In Social, Governance criteria. with all the stakeholders - the Swiss authori- the case of agricultural commodities, sustai- ties, international bodies, industry experts nability is most often associated with the sha- Stability of the banking system and beyond is what will be key to a successful ring of improved farming or processing tech- and sustainable transition.  niques and many traceability solutions have Drawing on the lessons of the financial cri- already been developed. These allow compa- sis, the Basel III reforms aim to bolster capi- 1 https://www.bis.org/press/p200327.htm. nies to holistically assess their environmen- tal and liquidity requirements to enhance 2 https://www.efd.admin.ch/dam/efd/fr/das-efd/gesetzgebung/ the stability of the financial system. This berichte/rohstoffhandel.pdf.download.pdf/RH-BE-f.pdf. impacts banks who provide the significant working capital required by trading compa- GERMAN VERSION nies to operate. The progress of the National  FRENCH VERSION 

36 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION Working from home is the symbol of greater work flexibility for workers and a more trusting, less commanding and controlling management style. Working from home – from pleasure to frustration? Adrian Tüscher Christophe Bellino in sick leaves. About a third of the respon- dents stated that the rise of virtual meetings Partner, Attorney-at-Law, Director, Tax & Legal, has moved their management closer to em- KPMG Law KPMG Accounting & Payroll Services ployees through more regular and somewhat more personal virtual meetings and boosted Working from home is one also with operational day-to-day processes, cross-border networking within the own or- of the symbols of the trend associated risks and costs. In other words: an ganisation and thus, is helping the industry towards greater work flexi- adjustment of the entire business model. to overcome one of its oldest weaknesses. On bility for workers and a more the other hand, spontaneous contact with trusting, less commanding and controlling Are companies ready for the “new normal“? local peers declined which led to less collabo- management style. Having to work from ration and innovation. home due to the pandemic, however, more While most managers have accepted that and more loses this taste of freedom. What their workforces will never work the way Human Resources itself sensed a momentum to used to be a compulsory presence in the of- they used to anymore, only a minority are take advantage of increased remote work arran- fice is now one at home. already preparing for the new normal by gements and improved technology to widen re- reworking their strategies and operating cruitment efforts to talented professionals who What the future of work might really look like models. Still, the focus is very much on bu- live far from headquarters, including younger siness continuity related to financial issues, generations and those who did not previously Working from anywhere, meeting through which outweigh other critical points. And consider a commodity career. With a view virtual platforms etc. will undoubtedly re- often legal and compliance hurdles hinder beyond the pandemic, most of the interviewed main important elements to increase em- the implementation of flexible solutions. HR leaders identified a trend towards a higher Neither current tax and social security laws, appetite of employees of all grades to freely While most managers nor their labour and immigration counter- choose between working in the office or from have accepted that their parts accommodate the increased flexibility workforces will never work need. And the pandemic has even increased Spontaneous contact with the appetite of domestic regulators. Thus, local peers declined which the way they used providing greater flexibility is not only a led to less collaboration to anymore, only a minority strategic and operational challenge but also are already preparing for a compliance stretch that requires careful and innovation. the new normal by reworking assessment of related risks. home. They concluded therefore that there is a their strategies A statement for the commodities industry need to reinforce and tighten their ethics and and operating models. compliance reviews and procedures, which can The authors interviewed HR leaders of se- become lax in remote work situations. ployee satisfaction and employer attractive- lected KPMG clients in the commodity sec- ness. But in the wake of the pandemic the tor. Most of them confirmed that they had All in all, flexibility is key. Not only for em- term “employer attractiveness” has taken on already introduced working from home be- ployer attractiveness but also for the sake important new facets like employee health, fore COVID-19. of securing business continuity, compliance job stability and reliability. and sustainable success. With respect to However, many stated that they had to adapt workplaces, flexibility clearly means going Thus, to remain attractive employers must be their infrastructure and accelerate digitisa- towards hybrid models allowing both the em- ready to meet their duty of care towards their tion considerably to secure permanent re- ployer and the employee for a needs-and pre- employees and guarantee business continuity mote business continuity and the safety and ference-based alternation between work in even in the most turbulent times. Certainly, well-being of the staff. the office and remotely. The biggest upcoming IT capabilities respectively digitalization will challenge will therefore be to establish and play a major role, but the challenge is much Employees had adapted very quickly to the maintain two parallel, fully functional, com- more multifaceted. It requires a rethinking change, which was much appreciated by ma- pliant and affordable work environments.  of legacy, not only in dealing with personnel nagement. Also, employees who had to conti- and their workplace, skillset and needs, but nuously visit the office for logistic reasons, e.g. GERMAN VERSION traders, showed a high level of understanding.  Overall, the interviewed companies rated their switch to remote working a success. FRENCH VERSION Some even reported unexpected positive  side effects such as a significant decrease

SPECIAL EDITION |MARCH 2021 |  |COMMODITIES |37 Trader's unique role in business and Human Rights Dorothée Baumann-Pauly Serra Cremer Iyi This influence is not specific to a commodity or an industry. By entering into long-term Director, GCBHR at the Geneva School Consultant, GCBHR at the Geneva School commitments with suppliers and demanding for Economics and Management, for Economics and Management, compliance with concrete human rights stan- University of Geneva University of Geneva dards in the sectors they invest in, commodity traders can advance the corporate responsibi- The commodity trading and shipping industry Another example is the humanitarian crisis lity to respect human rights while ensuring a has a unique role in driving respect for human in the Democratic Republic of the Congo exa- wider market acceptance of the commodities rights in business. With its power to enhance cerbated by COVID-19. Disruptions to mining they source responsibly. As a result, commo- the value of commodities through investment activities and border closures complicating dity traders can act as a powerful force for decisions, the industry can also play a vital supply continue to intensify the difficulties driving positive change, even in the deepest part in mitigating the human rights impact of faced by millions of households reliant on layers of supply chains. the pandemic and support the development the Congolese mining sector. Exposure to of sustainable business. human rights risks, including health and In order to equip business leaders in the safety issues and child labour, is accentuated commodity trading and shipping industry T he pandemic poses unprecedented during the pandemic because on-site supply with the knowledge and tools to manage hu- human rights challenges for global chain audits are often impossible, despite the man rights challenges, the Geneva School trade. One example is the ongoing heightened need for close monitoring. Simi- for Economics and Management integrates crew change crisis involving hun- larly, companies that source coffee and cocoa human rights elements in its course offe- dreds of thousands of seafarers stranded are under pressure to tackle the increased rings: The Diploma of Advanced Studies in aboard vessels worldwide. The Neptune prevalence of child labour. Commodity Trading, a part-time leadership Declaration, a collaborative agreement that program developed in collaboration with the seeks to resolve the issue, was signed by This is where commodity traders with their STSA, and the Master of Science in Commo- over 600 maritime stakeholders including inherent expertise in risk management and dity Trading, which offers a core course on commodity traders. It calls for several ac- leverage to influence corporate actions can business ethics and human rights.  tions such as recognising seafarers as key come into play. Our research at the Geneva workers to grant them priority access to Center for Business and Human Rights illus- GERMAN VERSION vaccines and adopting universally accepted trates the unparalleled influence commodity health protocols during crew changes. trading firms have on upstream actors such  as mine operators and mining cooperatives. FRENCH VERSION  Master in commodity trading online during Covid-19 Eliane Palivoda Herren Jean-Paul Vulliéty COVID-19 was swift. At Unige, the systems to deliver this education were put in place Senior Program Officer, Master and Director, Master and Executive very swiftly. Adapting to this new reality Executive Diploma in Commodity Diploma in Commodity Trading, was not particularly difficult. I often work Trading, University of Geneva University of Geneva remotely for my own institution in En- gland, but until last spring that was a bit O n 16 March 2020, teaching at the based in foreign countries and guest spea- unusual - now it is the norm. Both for lectu- University of Geneva (Unige) mo- kers were able to join and give their lectures rers and students it takes a few sessions to ved online. Since then, the Uni- even when they had to do it in the middle adjust to it. You need to keep an eye on time versity has constantly adjusted of the night in order to be in the Swiss time and give more frequent breaks; the chat the measures to accommodate the change of zone. On the negative side, the social interac- box and the audience reactions are also im- circumstances and to ensure student’s and tions with the professor during breaks and portant for engaging with the audience. As- professor’s well-being. Additionally, courses students after class hours were inexistent sessment can also be tricky as well - can one and exams had to be redesigned to allow because of the pandemic. This is a shame as take an exam from home? Perhaps this is an for sufficient interactivity and to best meet these times usually allow people to discuss opportunity to revise how we deliver ter- the academic requirements. Even though informally and bond together which is part tiary education, in a way which offers flexi- the Unige has successfully overcome this of creating a network but also friendships. bility to both learners and teachers. I think challenge, hopefully online teaching will We know that networking is extremely im- the biggest negative from this experience not become the new normal, as nothing can portant, especially in the commodity tra- is the lack of human contact, especially replace face to face interaction. ding industry. Thankfully, social platforms among students. The delivery of education allowed us to keep in touch and as soon as the continues. Most learning materials are on- Romain Gimblett, 12th Intake student, situation allows us to, we will make sure to line anyway, the transition to e-learning Master of Science in Commodity Trading catch up (safely)”. started before COVID-19 anyway. What is equally important going forward is to “We have been following most of the classes Prof. Michael Tamvakis, Commodity Economics be able to look after the mental health and online during the last 2 semesters of our and Finance, Director, MSc in Energy, Trade & Finance wellbeing of both learners and teachers.”  Master Program. Attending classes virtual- at Cass Business and Metals, Ores and Minerals ly had both positive and negative aspects. On Professor, Master of Science in Commodity Trading GERMAN VERSION the positive side, we managed to pursue our studies without having to postpone classes “After the initial uncertainty of whether  which would have ultimately led to postpo- to hold lectures in person or remotely, ad- ning the student’s graduation. Lecturers justment to university education during FRENCH VERSION 

38 |COMMODITIES |  | MARCH 2021 |SPECIAL EDITION To teach is to learn twice, says a pleasant proverb that may sound like a paradox. Education during COVID times: Waltzing among constraints, creativity and agility Silviane Chatelain manded an important adaptation not only ving room or from their car (a real-life expe- from the participants, but also from the rience although not really recommended…). Education & Training Manager, course lecturers. We had to find and test STSA many options to offer the same variety of We registered an overall satisfaction rate on teachings, such as group works, directed the modules of 96% which indicates that the si- Y et this thought has proven to be exercises, case studies or trading games. tuation has not affected the desire of the course very relevant to our educational We also had to find a way for the exams to lecturers to pass on their passion for the com- activities in 2020, since the out- take place electronically while ensuring modity trading activities to the next genera- break of the Covid-19 pandemic. the good respect of programme rules. tion and we are sincerely grateful to them! Indeed, this unprecedented turmoil in our daily lifestyle has imposed a general recons- We had to review both We learnt a lot about our ability to adapt to ideration of the way we teach in our various the implementation methods changing situations and to bring the best out educational programmes. and the framework to deliver of ourselves. It compelled us to adopt new courses. Also, the teaching ways of teaching which would not have been We had to review both the implementa- tools that we had to adopt, considered under normal circumstances. tion methods and the framework to deliver We highly value human relationships and courses. Also, the teaching tools that we had in a context saturated the importance of interactions between par- to adopt, in a context saturated with ever with ever changing ticipants and course lecturers, but how to changing constraints and to be able to conti- make sure that they really understood the nue to provide high quality teaching, posed constraints and to be able subtleties or the complexity of what you just an added challenge. to continue to provide high said? How can you read their eyes if their camera is off? Another key paradox that should be un- quality teaching, posed derlined: on the side of the applications for an added challenge. Overall satisfaction rate our training courses, the demand was par- on the modules of 96%. ticularly high, and we even had to refuse One of the negative effects of online corresponding profiles. This phenomenon classes has been the reduced networ- At the end of the day, we should admit that was probably stimulated by the fact that king opportunities between classmates, it worked well and that all parties were this new context offered an opportunity to the course lecturers and even with the satisfied, sometimes a bit frustrated, but consider a professional reorientation, or STSA Learning team. Many of the partici- satisfied. This opens a whole new world by the fear and anticipation of a highly pro- pants of previous intakes have built solid of possibilities: thanks to the experience bable contraction of the employment mar- friendships and exponentially grew their we gained with online courses, we are ket. The fact that the confinement, due to the network in the commodity trading vil- now able to offer the STSA programmes to lack of convivial outings, sports and cultu- lage. Networking did exist in this special young talents employed by our members ral activities, left more free time, certainly year of 2020, but more timidly. Confine- without them having to relocate to Gene- also contributed to this increase in demand. ment and distance learning had also re- va. Thanks to online teaching, we reach duced transversal learning – participants participants from other Swiss cantons At STSA Learning, providing several si- tend to share more knowledge, make com- and from abroad. multaneous training programmes over the ments, and ask questions when in class, as last four months required balancing acts, opposed to in a video conference. This year 2021 will (hopefully) be the first flexibility, and organizational rigor. First- one to see the return of classes with face- ly, all spring programmes had to be can- In retrospect, we can consider that the lec- to-face as well as online participation at the celled and postponed until autumn, with tures went smoothly and that goaded by same time. Such a hybrid classroom will su- the consequence that all the programmes of necessity, everybody had to adapt to the si- rely bring its share of difficulties, but what the year had to be squeezed into four very tuation. The course participants even appre- is also certain is that we will keep learning a short months. With the capacity of the ciated to save time in transport and enjoyed lot, which is the most essential component!  STSA Learning classroom not allowing the being able to follow the courses from their li- necessary social distancing, large meeting GERMAN VERSION rooms had to be booked in hotels. After uti- lising the latter only three times, stricter  confinement rules had been imposed by the authorities. Hence, we had to adapt again FRENCH VERSION and swap to fully online modules. This de- 



This special edition has been produced with contributions from STSA, professionals from the commodity trading activity and the support of the following organisations.