Are We Ready for Change on Carbon Emission and Sustainability Encountered in International Trade?

We are entering a period in which the behaviours of the counterparties or suppliers will be used as a trump card by the purchasing and legal departments. The companies pay special attention to those issues while establishing their supply chains especially when purchasing goods from countries where the environmental regulations are not available/are weak.

Within this frame, complying with the “code of conduct” is embedded in the contracts during the issuance of contracts with multinational companies. Work related to “due-diligence” are carried out for the customers. Companies are requested to “voluntarily” comply with the established standards related to corporate responsibility, and perform risk management and follow-up works.

According to the findings of the research of the U.S. Securities and Exchange Commission as of 2019, 80% of the contracts contain regulations related to environmental requirements.

And according to the Pace University and the Institute of International Commercial Law study conducted in 2019, 80% of the contracts are climate-aware contracts and 70% of them contain important articles related to sustainability.

However, in case of violation of the abovementioned articles written in the contracts, detailed regulations have not been applied related to the rights and obligations of the parties yet.

On the other hand, the things I mentioned above are now issues of the past. Those approaches and practices is from a world which has experienced significant changes in the past 5 years and before the outbreak. Today, a new era starts for the international trade law, sustainability, and emission reduction rules; and unfortunately, we are not ready for this new era.

I will be clear about it, and I do not intend to be too polite. Everyone has a word for “sustainability” and “reduction”. Except for the recent projects which I am a part of, the vast majority of the exporters know little about them and are not aware of them sufficiently. Besides, many of them prefer not to look up at the incoming meteor. I would like to briefly mention some points which I consider important:

• The carbon emission controls all over the world imposed with the Paris Agreement, the circular economy, and the EU Green Deal are encountered as public law/state interventions. Consequently, companies have also begun to encounter this wave with attempts to give and take commitments to reduce emissions from both themselves and their suppliers.
• At first, the companies focused on the emissions which they emit directly during the production phase, purchased as energy, and released indirectly, or which arise depending on the upper and lower supply chain, and they set targets for those commitments.
• Of course, setting a goal is an independent work from putting it into practice. The efforts to achieve those goals, organization, resources to be allocated require great technical and economic infrastructure. Especially when the control is involved for the suppliers, service providers, and customers within the supply chain and for the emissions within the distribution network; a multi-layered and complex structure will emerge.
• For Turkey, we can predict that we will make a carbon emission adjustment of € 18 for every € 100 export for now. At worst, the exportation would end when we do not meet the new rules and customer requests.

Things we can do:

1. Planning for Greenhouse Gas Protocol Scope 1, Scope 2, and Scope 3;
2. Calculating the carbon emissions of “Science Based Targets Initiative” products;
3. Obtaining consistent values from the emission databases and comparing the universal “offset” values.
4. Ensuring the integration of ERP and CRM systems;
5. Obtaining ISO 14001 Environmental Management System and ISO 14062 Carbon Footprint Standard Certificates;

Undoubtedly; the calculation works for the things I mentioned above will be conducted and put into practice today by the environmental engineers, industrial engineers, young people who are studying at the university or recently graduated from business and other related departments; not by pretencious exportation bosses who try to impress their customers with expensive watches on their wrists, ultra luxury vehicles they dirve, or palatials built to look like factory buildings…

Some of the readers may ask about the relation of those issues with law. Firstly, decarbonization of production and supply processes emerges as an intrusive rule of public law (please consult your legal counsel about the meaning of it). Secondly, your customer will work with you in their standard contracts, specifications, work orders with the standards related to the abovementioned issues in case they are from one of the EU Member countries. In other words, it is imperative that the policies and practices are consistent with the production capacity, delivery deadlines, and quality targets or the Turkish exporters since the Greenhouse Gas Protocol and ISO documents will appear as an element which is connected to the commercial contracts. Otherwise, they may have to pay compensation and penal clauses due to essential violation of the contract, and they may incur unplanned costs.

I warn you in advance that carbon is the new currency!

In May 2022, a ton of carbon is charged as € 84 in the EU emissions trading system. Within this frame, the companies will need to allocate the costs for the calculation, control, and reduction of residual emissions in addition to the costs spent on the agencies for website promotion fairs, product catalog studies, and social media optimization. Besides, I am sorry that this is not a need which can be solved with money alone, which can be instantly satisfied with the issuance of images or participation in the fair; it is a revolution requiring time and patience in general, especially change in labour and mentality, and perhaps the effects of which cannot be observed in the first years. It should be noted that the traditional export markets, multinational companies which are customers and supply chains of which we are a member have no longer been a part of corporate communication to reduce sustainability and carbon emissions and put it at the core of their main operations.