Tackling supply chain sustainability

COVID-19 exposed the vulnerability of supply chains globally. In the early days of the pandemic, as multiple lockdowns disrupted the flow of raw materials and finished goods around the globe, businesses scrambled to bolster their supply chains’ resilience. This had the effect of driving trade finance deeper into the supply chain, steadying suppliers’ working capital and thus the supply of goods to the buyer. But in a post-pandemic era where businesses must balance growth plans with ESG goals, the question now being asked is: are supply chains sustainable enough?

Our latest Navigator findings confirm that sustainability is very much front of mind for international businesses operating in Southeast Asia. Nearly half (47%) of the decision-makers from China, France, Germany, India, the UK and the USA in our survey state they would invest between 5 and 10% of their operating profit into increasing the sustainability of their business in Southeast Asia over the next 12 months.

With supply chains accounting for as much as 80% of the world’s total carbon emissions¹, it’s no surprise that they are under scrutiny from multinationals looking to improve their sustainability credentials. 37% of respondents cite ‘using partners which are more local to my business’ as their highest priority, followed by ‘reviewing sustainability credentials of suppliers’ (36%). Companies are also keen to deepen their connections with the region through investing in and / or supporting local communities (36%). Promoting nature-positive supply chains and supporting a circular economy are also seen as routes to making business in the region more sustainable.

The need for a collaborative approach

While international businesses may be keen to advance their sustainability agenda, SMEs, which can make up to 90% of a supply chain², may not have the resources or the expertise to keep pace. Incorporating sustainable practices is costly, and many SMEs are still in recovery mode from the pandemic. To make progress on their sustainability journey they will need support.

Forward-thinking companies are addressing this issue through sustainable supply chain finance (SSCF) programmes. These offer more favourable financing terms to suppliers that demonstrate their progress in improving their environmental, health, safety and social standards.

Powerful partnerships

The US retail giant Walmart has pledged to remove a gigaton (1 billion metric tons) from its supply chain by 2030.³ But like many retailers, a large proportion of Walmart’s Scope 3 carbon emissions were embedded in relationships with SMEs. To incentivize its suppliers to reduce their carbon footprint, in 2019 the retailer partnered with HSBC in a SSCF program.

Recently the apparel company PVH has also partnered with HSBC in a SSCF program, in what is the first tied to both environmental and social objectives, and based on suppliers’ sustainability ratings.⁴

As demonstrated by these and other sustainable supply chain finance programmes, finance is a powerful lever to improve the sustainability of businesses. Embedding sustainability in global supply chains is not only beneficial for the environment and society, but also for companies’ bottom lines.

1. Rethink product design – revaluate how it’s made, how it’s used, start again if needed. Build to last, rather than build to replace.
2. Embrace collaboration – a supply chain connects companies around the globe. Share knowledge, tech, investment, resources – and across the sector too.
3. Build capabilities – invest in training; hire people with sustainability expertise.
4. Invest in R&D – explore how alternative fuels, low-energy manufacture and carbon capture might neutralize or reduce your footprint.
5. Harness the power of data – better data structures mean you measure carbon emissions, water usage etc. across the supply chain in real-time.
6. Think holistically – aim for workable standards and practices rather than frequently changing policies.
7. Enable financing – set up banking partnerships to help small suppliers finance net zero strategies.

HSBC has the tools, network and relationships to support businesses on their sustainability journey. Find out how we can help.

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