Environmental, Social, and Governance: More than just words.
These words, more commonly known as ESG are an integral part of commodity trading. But why are traders, even those that once skirted the rules, now crafting expert policies to govern how they trade. More than that, why are they are spending hundreds of millions of dollars to make ESG departments front and center of their prospectuses. What is the drive behind this change, and is it really anything other than PR?
The cost of getting it wrong
Among the large trading houses, producers and consumers, you'd be hard pressed to find one that hasn't had a negative encounter with an ESG issue. Some, like oil spills or bribery cases are highly public. Others have stayed hidden behind closed doors. But in 2025, any incident that runs foul of public perception quickly becomes a major business risk.
Public perception and consumer power
The first driver was already mentioned - public perception. Over the last decade the public has become increasingly aware that without improvements in how commodities are sourced and converted, we risk irreversible damage to the planet and devastating consequences for communities.
In the past, the public often turned a blind eye to this, and whether the perceived consequences come to reality or not, consumers are now actively voting with their wallets. Companies that fail to respond to public pressure risk boycotts, and rapidly shrinking profits. Some call it "cancel culture", others simply call it the free market.
Regulation and politics
Governments are not immune to this pressure either. In democracies, politics is ultimately a popularity contest. Younger generations, who are more environmentally conscious and politically active, are demanding stricter environmental and social standards. As a result, regulations are tightening worldwide. To operate in many countries, companies must comply. Given the global nature of commodity markets, every trader, large or small is exposed to these policies.
Financing
Access to financing has become a critical ESG driver. Banks, many of them publicly owned, are changing their priorities. They are demanding documented ESG policies from companies prior to extending credit. The last thing a bank wants is to be tied to a deal that ends up involving pollution or child labor. Whether the bank was complicit or not doesn't matter, they will be tarred with the same brush as the trader if things go wrong.
This isn't just about trading companies. In order to obtain financing for new mining projects, drilling capacity, pipelines, ship-building, practically any new project, banks now demand evidence of how environmental and social risks will be mitigated. Without it, financing is increasingly tough to secure.
Several industries are looking at an entirely different pricing model for commodities that have been produced using 'green' techniques vs. older technology. Green premiums in metals like copper, aluminum, steel, and nickel, where production involves lower carbon footprints are starting to trade at higher prices. ESG is not just cost avoidance, it's a profit driver.
Insurance
Insurance companies are also following the lead of banks. Cargoes, vessels, or projects that don't meet ESG criteria face considerably higher premiums, or sometimes outright refusal of cover. Without insurance, trade becomes impossible.
Talent and recruitment
While in the past the issue of ESG may have been bottom of the list of graduates' questions, it is now often near the top. The newest generation of employees care deeply about these issues and in order to attract the best talent, companies must demonstrate a genuine commitment to ESG. Those that fail to do so risk losing the next wave of leaders to competitors that take ESG seriously.
Beyond the environment
ESG is not just about climate. Companies are spending millions on anti-bribery and anti-money laundering, and anti-corruption training. When I began my career there was no ESG department. My anti-bribery training consisted of clicking through an e-book with the basic gist being "don't take or give money in a suitcase". Today, training involves interactive workshops, policy creation, and regular reviews.
Companies conduct far deeper KYC procedures, not only analyzing the financial health of a counterparty but also scrutinizing the ethical behavior of owners and employees. Similar to banks, traders don't want to get caught up buying from, or selling to a company that might tarnish their reputation by association.
It doesn't stop at personal behavior either, companies are increasingly using technology to verify complete supply chains. IoT sensors, blockchain tracking, and satellite imagery, all being used to prove everything from ethical cobalt sourcing, deforestation-free palm oil, to vessel emissions monitoring.
Proof and the risk of greenwashing
The cynic may say that traders are simply following the guidelines to prevent a PR backlash. But in reality, the leading companies recognize the benefits and see it as a way to strengthen their business and improve industry standards.
It is not enough to simply have ESG policies, companies must prove they are real. ESG audits, emissions reporting, and third-party certifications are now standard practice to avoid being accused of greenwashing. Companies that talk a big ESG game without actually implementing policy can face both reputational and legal damage, often worse than ignoring ESG altogether.
Liability and market access
Failure to meet ESG standards is not simply a PR issue, it increasingly leads to lawsuits, fines, and even bans from certain markets. For example, the EU Corporate Sustainability Reporting Directive (CSRD) and the forthcoming Corporate Sustainability Due Diligence Directive (CSDDD) will make companies legally liable for human rights and environmental abuses in their supply chains.
ESG is a competitive necessity
The cynic might say traders are simply following the rules to avoid PR backlash. In reality ESG has become a strategic advantage:
It secures financing and insurance
It opens doors to premium pricing
It ensures access to key markets
It attracts the next generation of talent
It strengthens resilience against regulation and litigation
In today's commodity markets, failing to integrate ESG into your business is not simply falling behind, it's risking your license to operate.
Are you treating ESG as a burden or as a competitive edge?
