Sustainable finance / International trade

, Financing a more resilient economy: Adaptation finance gains in importance

Which physical climate risks are most relevant to corporates, and how can adaptation investments strengthen their resilience and competitiveness?

Physical climate impacts are already disrupting the infrastructure and supply chains on which international trade depends. This summer has been dominated by heatwaves in Europe, and parts of the River Rhine – Germany’s most important commercial waterway – saw water levels fall to record lows of just 10 centimetres in August. Cargo barges were prevented from transporting goods as the river became effectively unnavigable, and major industrial producers located on the riverbank faced immediate production delays and missed contractual delivery dates.

Elsewhere in Europe, nuclear power plants that draw cooling water from rivers also faced operational constraints from the low river levels, directly threatening power supply and critical supply chains.

In this context, corporates are very concerned about securing supply chain resilience and energy price competitiveness. This is why we have seen corporate strategies move from broad emission reduction goals towards adaptation goals – industry is embracing practical physical resilience concepts that address day-to-day operational realities.

Companies are increasingly investing in diversified energy sources to reduce dependence on external suppliers and improve energy security. Renewable energy offers significantly lower operating costs once infrastructure is established, while also reducing dependencies on external suppliers and volatile fossil fuel prices.

Indeed, various German companies are taking equity stakes in solar parks, investing in on-site wind turbines and committing to large-scale transformation projects – not necessarily just to help mitigate climate change, but as strategic investments to ensure operational stability and predictable costs over the next twenty to thirty years. Of course, this expansion in economic activity has to be financed appropriately – and adequately, given the scale needed.

We have mentioned how corporates are investing in protecting their supply chains. This brings us back to international trade – how is it changing, and are financial institutions tailoring their trade finance solutions to meet these changing needs?

The investments businesses make to strengthen resilience are also shaping the way goods are produced and distributed. The adoption of clean technology is becoming a competitive advantage for exporters. Here in Germany, for example, environmental technology (“Green Tech”) exports totalled €132 billion in 2023, representing 13 percent of world trade in clean tech goods and significantly outpacing Germany's overall share in global trade of approx. 7 percent².

On the financing side, recent trends and data point to the growing integration of sustainability criteria into trade and trade finance. The Asian Development Bank (ADB) found that 90 percent of banks factor environmental, social and governance consideration into their trade financing decisions.

But there are challenges, too. Many trade transactions are structured around the short-term flow of goods, and banks seldom have full visibility over the end-use of those goods at the point of origination. Existing project-loan or bond taxonomies, which assume complete visibility over end-use, bend or break when applied to letters of credit, guarantees or payables programmes.

How can these challenges be addressed by the trade finance sector?

Without an internationally recognised, trade-specific framework, the risk of misleading or unsubstantiated environmental and social claims increases, discouraging capital from flowing to genuinely sustainable trade. Greater transparency is therefore needed.

The ICC Principles for Sustainable Trade and Trade Finance (PSTF)³ address the issue directly. Developed in collaboration with a wide range of industry stakeholders, the principles provide a globally applicable framework for classifying trade finance as green, social or sustainability-linked. Commerzbank was among the first four banks globally to endorse the ICC PSTF in June 2025, followed by a second cohort of approximately seven banks in November 2025.

To make sustainable trade workable in practice, the ICC PSTF provides clear definitions by evaluating transactions through two lenses:

• Purpose-based assessments: Applied where end-use is known, such as guarantees, standby letters of credit, or export credit agency finance.
• Goods-based assessments: Applied where only the physical item is visible, such as import letters of credit, payables finance or factoring.

Just as letters of credit are governed globally by UCP 600 rules, the goal here is to bring sustainable trade finance to the same level of standardised, globally recognised practice.

For adaptation efforts to succeed, they will need to be scaled globally, including in developing markets. Do you see the requisite multilateral support for adaptation and sustainable finance more broadly?

Without a doubt. We cannot have standards set in developed economies and exported to others as an additional compliance burden. Developing countries face the same physical climate risks as, for example, Europe, and often to a more severe degree. So the business case for resilience finance is universal. The Rhine's drought this summer has parallels across river systems in South Asia, sub-Saharan Africa and Latin America.

Multilateral or development finance institutions already play a vital role in connecting developed and developing markets, and many of them are working to promote goals related to adaptation and mitigation.

The European Bank for Reconstruction and Development (EBRD) acts as a crucial market bridge through its Trade Facilitation Programme (TFP), which aims to contribute to EBRD’s goal to dedicate at least 50% of its total annual business volume to green financing. Its “Green TFP” established in 2016 is a dedicated sub-initiative under the broader TFP and has been recently gaining momentum.

By providing AAA-rated guarantees behind letters of credit issued by banks in higher-risk markets, the EBRD enables transactions that commercial banks of industrial countries could not otherwise support at viable rates – or in some cases not at all. Recently, Commerzbank confirmed a letter of credit issued by a Ukrainian bank to finance an agricultural irrigation system at a competitive interest rate because the EBRD backed it with a guarantee.

The efforts towards transparency and harmonisation of standards that we just discussed are also helpful here. Having closely followed the development of the ICC Principles for Sustainable Trade Finance as an observer, the EBRD is actively aligning its Trade Facilitation Programme with the ICC assessment criteria. The Asian Development Bank (ADB) similarly applies framework-based sustainability criteria across trade facilities.

What are banks doing to support corporate clients and medium-sized enterprises as they look to invest in adaptation initiatives that enhance their own competitiveness?

While large corporates maintain internal sustainability departments, medium-sized enterprises like those that make up the German Mittelstand often lack the resources to dedicate adequate time or resources to sustainability or adaptation.

These businesses need a banking partner to understand the landscape on their behalf – to help navigate which government subsidy schemes apply to their sector, what the ICC principles mean for their trade finance arrangements, where their supply chain is exposed to physical climate risk and how that risk can be financed or mitigated.

Carbon capture and other CO₂-reduction technologies, for instance, require complex finance structuring and guarantee mechanisms. For clients who may not even be aware that these schemes exist, the banking partner’s role begins well before any financial instrument is issued.

There are also specific solutions that can be offered. Under the Venture Tech Growth Financing programme in partnership with development bank KfW, Commerzbank provides funding specifically for companies whose business models or technologies have sustainability credentials – supporting fast-growing companies that often lack investment-grade ratings and would otherwise struggle to access sufficient capital.

Finally, banks also facilitate complex cross-border structures. For international corporate clients undertaking multi-million-euro renewable energy projects across the globe, financial institutions can issue direct guarantees through local branch networks in key markets while partnering with on-the-ground banking partners to issue local fronting guarantees.

As we have seen with the ICC principles, the frameworks needed to support sustainable trade at scale are in place. The task is adoption, consistent application and the continued expansion of the institutions – banks, development partners, ECAs and corporates – willing to operate within them.