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The environmental and social risks of trade finance are associated with the production of those goods being traded and vary by industry sectorand location. Companies selling to foreign markets are required to comply with local and international social and environmental regulationsand in many cases also face public scrutiny. Importing and exporting companies are therefore exposed to some level of reputational risk.

Given the short-term nature of trade finance, a financial institution will have limited leverage to manage environmental and social risks once it has approved a transaction. However, a financial institution can have simple transaction screening procedures to avoid supporting the trade of products and substances that are subject to bans and international phase-outs.

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