More corporates are facing barriers to incorporating sustainability into their supply chains at a time when ESG is rising fast and high on the corporate agenda.
A recent HSBC research report, based on a survey of 415 large corporates across Asia Pacific, has shown that 43% of companies encounter barriers to incorporating sustainability into their supply chains, up from 4% in 2020. The same survey found that only 5% of companies have sustainable finance solutions in place for their supply chains.
“There has been more public awareness around ESG, so demand from corporates for ESG solutions has increased,” says Ajay Sharma, Asia-Pacific Head of Global Trade and Receivables Finance at HSBC. “However, the lack of industry standards and the general shortfall in knowledge and understanding around what is ‘sustainable’ are holding back the adoption of ESG in supply chains.”
The lack of definitions around sustainability measurements is the biggest barrier to incorporating sustainability into supply chains, cited by more than one in three (36%) respondents. Furthermore, of the 33% of companies that have ESG policies in place, 41% have no ESG metrics. Without a common framework, corporates find it difficult to effectively measure what is and is not considered sustainable, to report progress and success, and to audit on the level of compliance.
That said, banks such as HSBC have been working with regulators and industry bodies to develop sustainable financing frameworks. An example is the ICC sustainable trade finance steering committee , of which HSBC is a member, which aims to define and set standards for sustainable trade finance. HSBC has also piloted the Monetary Authority of Singapore’s Green and Sustainable Trade Finance and Working Capital Framework, a government-led initiative aiming to guide banks and financial institutions on extending green financing for clients.
“Covid-19 has forced many corporates to reassess the resilience of their supply chains, to make sure their suppliers have enough liquidity. We have multiple deals wherein we use historical performance data to extend credit deeper into our clients’ supply chains,” adds Sharma. “Now corporates are coming to us to explore what sustainability in the supply chain actually means from a financing perspective, how to quantify and report it, and what the benefits are.”
Another piece of HSBC research, this time with BCG, found that decarbonising global supply chains – which account for as much as 80% of the world’s total carbon emissions – will require upwards of USD50tn investment into SMEs. “That is a huge amount of money that clearly cannot be delivered by supply chain financing alone. Driving sustainability improvements in trade will require a concerted effort from multilateral development institutions, corporates and banks to direct funding as well as knowledge, technology and resources to SMEs” says Sharma.
Looking ahead, HSBC says it expects the number of sustainability-linked trade transactions it handles this year to double. “Our approach is to co-create with clients, looking at what they are doing and what they can measure in a transparent manner so that they can be audited by third parties. This co-creation process takes time, but all indications are that growth in this space will be exponential”.
Discover more by downloading the full ‘Asia Supply Chains: A New Era’ report here.