23 July 2018

Supplying Businesses with Choice to Become Sustainable

If altruism and social responsibility isn’t reason enough for businesses to invest in becoming more sustainable, then how about simple practicality?

Alan Turner, Head of Commercial Banking, HSBC Singapore.

First published in The Business Times, 20 July 2018

The past few weeks has seen a flurry of grim reports on the environmental health of our planet. This comes on top of the U.S. withdrawal from the 2015 Paris Agreement. And yet despite the upheaval, climate discussions are continuing.

Countries are stepping up their hard targets for green policies. The European Union for example, has raised its goals1  for the amount of energy consumed from renewable sources from five percent to 32% by 2030. And here in Singapore, a carbon tax will be enforced starting 2020 to encourage companies to bring down emissions2.

It’s clear, regardless of one’s position on the science of climate change, the drive to become sustainable is increasingly at the top of domestic agendas. It’s a conscious decision, an acknowledgement that habits and practices must change in order for us to thrive.

So, if altruism and social responsibility isn’t reason enough for a business to become sustainable, then how about just simple practicality? Or as Singaporeans like to say, do or die.

Carrots and Sticks

Companies are increasingly subject to external scrutiny from customers, suppliers and communities to behave ethically. At the same time, governments and regulators are coming up with incentives to make decarbonising business operations palatable to corporates. These factors have a direct impact on a business’s bottom line.

This is especially so in Singapore. The nation has been on a journey towards sustainability even before environmental issues became a global hot topic. The government has made a conscious effect to “green” the country since the 1960s and, like many other countries, has taken a carrot and stick approach to achieve this.

With the goal of having at least 80% of the buildings in the garden state to be green by 20304 , the Building and Construction Authority (BCA) has initiatives like the $50 million BCA Green Mark Incentive Scheme for Existing Buildings to encourage energy efficiency5. The carbon tax is the stick.

Public policies aside, there are also private sector benefits. Just this year, HSBC was part of Asia’s first sustainability-linked club loan with Olam International. What’s noteworthy about this deal is that it linked the interest rate of the loan to achieving specific Environmental Social Governance (ESG) criteria6 . So, if Olam hits its ESG targets, the loan becomes a little cheaper. Add in that taking a more sustainable route generates positive publicity, it’s clear why going green is becoming so attractive.

The Supply Chain Factor

But how do supply chains factor into all of this? The answer is simple: typically 80% or more of a business’s environmental impact is located in its supply chain7 . Considering 80% of the world’s international business and trade also passes through supply chain networks8 , this is where the most impact to the environment occurs.

A supply chain is a network of resources, organisations, activities and people that move a product from supplier to customer, and it involves the transformation of raw material and components into finished products for the end customer.

Think of it this way. You’re looking for a gourmet dining experience so off you go to a Michelin starred restaurant. You’re expecting stylish interiors, first-rate wait staff and of course, amazing dishes. But to get all of this, in addition to sourcing top quality food, everyone working at the restaurant must adhere to high levels of hygiene. What if the chef doesn’t wash his hands after the loo and immediately cooked your food? Or the delivery boy dropped the ingredients on a dirty floor and the kitchen washers do not bother to clean up. Or if the pots and pans are all rusty and mouldy. The restaurant’s managers would never let this happen. It would be an affront to their reputation and business.

In the same way, behind every point of purchase and brand is a huge network of interconnected suppliers, customers and business relationships working together. The impact of this ‘ecosystem’ on sustainability is significant. And more and more businesses, both big and small, are realising its importance.

HSBC’s Navigator research (a survey of over 6,000 businesses worldwide) found that while only 18% of smaller firms rate being sustainable as important to them today, almost half (46%)9  said it would be important to them over the next three years.

Good Business Sense

The fact is, quality and sustainability of supply chains make good business sense. Across markets, we are seeing companies responding to increased demand from buyers to be more sustainable. These buyers are being influenced by end-consumers who are making the conscious decision to support companies that are adopting green standards.

Many businesses have taken steps to control their carbon footprint. Now, they are looking to their network of suppliers to adopt similar practices. Navigator tells us that 31% of global businesses are already on the path to sustainability – having made changes to their supply chain for reasons including the climate, ethics, and customers’ or partners’ expectations10 .

Banks are already working on pilot solutions to help some of the most progressive buyers meet their sustainability objectives. This can take a number of forms: from green lending to innovative schemes such as programme-based lending that finances the investment needed by key suppliers, or by using variable pricing in Supply Chain Finance schemes to incentivise suppliers to meet sustainability targets.

We’re keen to work with more companies that are serious about sustainability – from large buyers with ambitious targets on sustainability throughout their entire supply chain, to smaller companies recognising that a transition to being more sustainable is in their best interest.

Green finance is a new and evolving frontier. HSBC has the privilege of working with companies and industry experts to explore innovative ways that finance can play its part in sustainability. We strive to be a driving force to enable businesses as well as their supply chains become sustainable.

Because the bottom line is this – sustainability safeguards our future. And that mean making our supply chains green. Doing the right thing – making the transition to sustainability isn’t just about the environment – it’s about choice. Are you with the programme, or not?

China, Europe fill the gap as US cedes global climate leadership (ST, 050718)

https://www.straitstimes.com/singapore/singapore-budget-2018-carbon-tax-of-5-per-tonne-of-greenhouse-gas-emissions-to-be-levied

Sustainable Singapore Blueprint 2015, https://www.mewr.gov.sg/docs/default-source/module/ssb-publications/41f1d882-73f6-4a4a-964b-6c67091a0fe2.pdf

3rd Green Building Masterplan, https://www.bca.gov.sg/GreenMark/others/3rd_Green_Building_Masterplan.pdf

https://www.bca.gov.sg/GreenMark/others/circular_11_Oct.pdf

https://esg.theasset.com/ESG/34308/olam-secures-asias-first-sustainability-linked-club-loan-facility

7 Carbon Disclosure Project

8 UN Global Compact

9 HSBC Navigator: a global survey of over 6,000 businesses by Kantar TNS over Dec 2016 – January 2017

10 HSBC Navigator: a global survey of over 6,000 businesses by Kantar TNS over Dec 2016 – January 2017

 

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