ESG Policy for Commodity Traders

Environmental, Social, and Governance (“ESG”) principles have become integral to the commodity trading landscape, not just with investors but also counterparts and lenders. Commodity traders are expected to demonstrate environmental stewardship, ethical sourcing, and robust governance to maintain access to global markets. This guide provides a framework for drafting an ESG policy tailored for commodity traders in Singapore, aligning where possible with the SGX Sustainability Reporting Guide (2025) and global frameworks such as the standards set by the International Sustainability Standards Board (“ISSB”), incorporating recommendations from the Task Force on Climate-related Financial Disclosures.

1. Understanding ESG within the Commodity Trading Context

There is no one size fits all for an ESG policy particularly when it comes to commodity traders who need to consider key challenges in their business such as:

• Speed: Trading very much requires speed and ESG protocols and processes have to be nimble enough to operate without stopping deal flow.
• Products in a Supply Chain: The nature of the commodity products is diverse, ranging from minerals to metals, and oil to agricultural products, each requiring a unique ESG lens, particularly considering the invariable assessment of the practices of the suppliers and downstream buyers.
• Complex Provenance: Commodities pass through multiple parties, are often blended, and may be transhipped, thereby making full visibility over origin challenging.
• Jurisdictional Risk: Trading may involve high-risk geographies with weak governance, sanctions exposure, or conflict financing concerns. 

2. ESG Governance Structure and Accountability

Accountability and transparency are the cornerstones of ESG governance. The Board retains ultimate oversight for ESG strategy, with senior management responsible for implementation. The ESG governance structure should ensure accountability, consistency, and transparency across the trading lifecycle, e.g.:

• An ESG steering committee comprising Legal, Risk, Operations, and Compliance teams.
• An ESG Officer tasked with ESG reporting, monitoring, and training responsibilities.
• A periodic Board review of ESG performance and disclosures.
• A mechanism for escalation to the ESG steering committee.

3. Materiality

There can be a lot of noise around the multitude of ESG factors across supply chains, jurisdictions and asset types. These should be viewed through a lens of materiality. The ISSB defines information as material “if omitting, obscuring or misstating it could be reasonably expected to influence investor decisions”. The key is to understand material ‘E’, ‘S’ and ‘G’ risks in your business, for example: 

• Environmental risks: Emissions, climate adaptation, waste, spills, energy efficiency, deforestation.
• Social risks: Supply chain labour practices, health and safety, community engagement.
• Governance risks: Anti-bribery, corruption, sanctions, trading at below market price, new suppliers and politically-exposed person concerns, and trade-based money laundering.

4. Policy Objectives and Scope

The company’s ESG policy should define the company’s ESG vision, objectives, and clear ascertainable targets (qualitative and quantitative). It should include reduction targets in carbon emissions, alongside transition planning objectives such as the adoption of renewables, and steps to gain greater visibility over ESG risks in supply chains. It should also tie these objectives to the performance of the company, and where possible to existing internal policies such as any extant code of conduct, anti-bribery, and sanctions compliance frameworks. Some examples of targets are listed below:

Carbon emissions reduction targets

• Absolute emissions reduction targets for Scope 1 (direct emissions into the atmosphere from business activities) and Scope 2 (indirect emissions, e.g. from the purchase and use of electricity).
• Intensity-based targets for Scope 3 emissions (all indirect emissions that occur in a company’s value chain, including both upstream and downstream activities, which may entail preferring suppliers or buyers with lower emissions and/or ambitious emissions-reduction targets of their own.
• Portfolio decarbonisation: Reduce exposure to high-carbon commodities and utilising alternatives.

Transition planning

• Shift toward renewable energy commodities (LNG as transition fuel, biofuels, hydrogen).
• Investment in carbon markets and offsetting.
• Alignment with Paris Agreement 1.5°C pathway by reducing Scope 1, 2 and 3 emissions and implementing a phase-down strategy for reliance on thermal coal, with a clear timeline.
• Ensure 100% traceability of high-risk commodities such as palm oil and metals.
• Implement zero-tolerance policies for forced labour and corruption.
• Align financing practices with ESG risk assessments.

5. Implementation Across the Value Chain

The ESG policy should be embedded as far as reasonably possible across every stage of the trading lifecycle; from sourcing to transportation and storage, and downstream processing. Recommended implementation measures include the following:

• Conduct ESG due diligence before onboarding suppliers or counterparties.
• Monitor emissions from shipping and warehousing; align with IMO decarbonisation standards.
• Integrate ESG risk scoring into credit and trade approvals.
• Deploy blockchain or digital traceability systems to verify commodity origin.
• Include ESG compliance clauses and audit rights in supplier contracts.

6. Creating ESG Obligations in Contracts

Embedding ESG obligations in trade and financing documents ensures enforceability and alignment with global expectations. These clauses protect traders from reputational/ legal risks arising from supplier misconduct or environmental violations. Key contractual provisions to safeguard ESG concerns include:

• Representations and warranties on ESG compliance and reporting accuracy.[1]
• Covenants requiring continuous ESG performance and disclosure.
• Termination and remediation rights for ESG or sanctions breaches.
• Audit and inspection rights for ESG verification and upstream emissions.

7. Disclosure & Reporting Requirements

Climate-Related Disclosures (“CRD”) will be required for large non-listed Singapore companies[2] from FY 2030 onwards by SGX. SGX’s CRD requirements encompass the standards set by the ISSB in IFRS S1 and IFRS S2. IFRS S1 sets out general requirements for disclosing all material sustainability-related financial information and should be read with IFRS S2 which focuses on CRD only, outlining requirements for reporting on physical[3] and transitional[4] risks. The 5 years between now and FY 2030 should give commodity traders a sufficiently long runway to put in place frameworks for robust climate reporting.

8. Continuous Improvement and Enforcement

In order to adapt to an ever-changing global situation, particularly in relation to climate, an ESG policy must remain dynamic. It is not just prudent, but necessary to regularly review and enhance a company’s ESG framework to ensure resilience to evolving climatological, political, market, legal, and regulatory developments. Some examples of continuous improvement measures include:

• Conducting an annual ESG performance review and KPI tracking.
• Implementing periodic staff training on ESG awareness, ethics, and sanctions.
• Conducting ESG audits and internal control testing.
• Creating whistleblowing and grievance mechanisms for suppliers and staff.
• Ensuring the regular publication of CRD, ESG reports and/or sustainability reports for stakeholders.

Understanding ESG is now as vital as any other aspect of a trader’s business. Sufficient resources should be dedicated to map out material operational ESG risks and formulate a policy around them.