Supply chain resilience trumps sustainability
Corporates want to improve sustainability in their supply chains, but, if anything, the barriers to doing so are getting worse.
Research conducted by HSBC and East & Partners asked more than 400 large corporates in Asia-Pacific about aspects of their supply chains, including sustainability. Only 5% of those surveyed had sustainable finance solutions, and of those who are incorporating sustainability into their supply chains, four out of 10 don’t have metrics in place to measure the progress. Even among those that do have the metrics, 38% are just informal general outlines.
What is troubling here is that the situation is getting worse, not better. HSBC asked the same question in 2020. Back then, 4% of corporates said there were barriers to incorporating sustainability into their supply chains. Now it is 43%. On top of that, there is a lack of knowledge about specifics such as sustainability measurements, and also a reported lack of support from senior management.
The abiding theme of the last 12 months has been supply-chain disruption, and the greatest corporate priority has been resilience, rather than sustainability
Why should this be? The abiding theme of the past 12 months has been supply-chain disruption, and the greatest corporate priority has been resilience, rather than sustainability.
Corporates come to banks to ensure suppliers have sufficient liquidity, and there is plenty banks can do to assist with that, including giving greater visibility deeper into a client supply chain. It is only then that questions of supply-chain sustainability can really be explored.
HSBC says one of the factors holding back the adoption of sustainable trade finance is the difficulty in measuring what is and is not considered sustainable. For many trade finance transactions, industry environmental, social and governance (ESG) standards do not yet exist, though banks such as HSBC are working with regulators and industry bodies to develop them. The International Chamber of Commerce (ICC) sustainable trade finance steering committee, for example, is trying to develop standard definitions.
There are also government-led initiatives, such as the Green and Sustainable Trade Finance and Working Capital Framework from the Monetary Authority of Singapore, which helps banks extend green financing to buyers and suppliers.
Other HSBC research, this time with BCG, found that decarbonizing global supply chains – accounting for as much as 80% of the world’s total carbon emissions – will require upwards of $50 trillion of investment into small and medium enterprises (SMEs). “That is a huge amount of money that clearly cannot be delivered by supply-chain financing alone,” HSBC says, calling for a concerted effort among multilaterals, corporates and banks.
HSBC says it expects the number of sustainability-linked trade transactions it handles this year to double, “and all indications are that our growth in the future will be exponential”. One hopes so, and across the whole industry, for there is clearly a lot to do.