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Keeping supply chains sustainable: The Business Times

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Consumers today are used to their access to a global marketplace. They ring up purchases such as toys for Christmas or essential food items, knowing that these can be shipped from thousands of miles away.

Likewise, corporations around the world now have access to goods and services that can be imported globally. In turn, they have a large marketplace to export out its wares.

Behind all that convenience and range of choice, is the global supply chain - the flow of goods that help to bring parts of a toy to a single factory to assembly, and for fresh produce to arrive at every household’s doorstep.

But here’s something to chew over: as much as 80 per cent of the world’s total carbon emissions comes from global supply chains. And given expected net-zero outcomes, that means global supply chains will urgently need to start decarbonising.

An estimate developed by BCG and the Global Financial Markets Association showed that it will require more than US$100 trillion in total investment to reach a net-zero economy by 2050, a white paper by HSBC and BCG published in Oct 2021 showed.

“The longer this investment is delayed, the greater the amount required, and the more extreme the damage from storms, fires, droughts, and ecosystem harm (to cite only a few forms of damage) in the meantime,” the white paper said.

Companies are realising too that making their supply chains sustainable can lead to greater productivity, efficiency, and cost-savings, as well as partnership opportunities and stronger brand reputation, said Iain Morrison, head of global trade & receivables finance, HSBC Singapore.

“These are high payback investments that are beneficial not only to businesses, but to the environment and society as well. Implementing sustainable practices also translates into increased transparency and traceability, which are important to ensure that supply chains are resilient to withstand future shocks – a hard lesson learnt from this current global health crisis.”

These supply chains link businesses - both big and small - to the end consumer, which is why organisations must start looking not only at their direct emissions, but also their indirect emissions - emissions from their suppliers, as well as the usage and disposal of their products.

The white paper showed that an estimated US$25-50 trillion of the estimated US$100 trillion investment needed to deliver net zero supply chains will have to be directed towards small and medium-sized enterprises (SMEs).

That represents a “substantial challenge” in terms of market access and risk appetite, as well as the education, incentives, technology, and other resources to use these funds effectively.

“Every industrial sector has its own version of the supply chain challenges, and each industry requires its own solutions. But they all have a similar dynamic in common. In all key supply chains, there are small, medium and large enterprises, and each group requires different capabilities and resources.”

While more than half of the 73 corporations whose leaders were surveyed by HSBC and BCG had a net zero transition plan, many corporates have not yet determined how they will realise these pledges, the white paper showed.

“For SMEs, the number is probably much smaller,” the paper noted. It found that the vast majority of SMEs surveyed by BCG and HSBC did not have a plan to transition to net zero, and less than a sixth had a defined carbon reduction target for their businesses.

HSBC’s Morrison said firms that deploy the use of data can get better visibility within their supply chains.

“Supply chains are rich with operational data and offer potential – once hurdles are overcome – to be closely monitored for efficiency and other carbon-related factors. They are also vulnerable to climate effects – they falter during severe storms, floods, droughts, and fires – and thus provide constant reminders of the need for urgent action,” he said.

"Businesses must start to invest in enabling transparency into their end-to-end supply chain, and to understand the company’s true environmental impact - technology is the key.”

Agrifood firm Japfa is one listed company in Singapore that has developed an internal platform to enhance the data collection and quality in this regard, said its chief financial officer Kevin Monteiro.

To find out what are the material ESG issues in the firm’s business, in 2019, Japfa started a life cycle assessment (LCA) of its poultry operations in Indonesia.

The LCA is a science-based assessment of the company’s entire vertically integrated production cycle from feed and farming to the live-chickens and chicken products sold. This exercise took 2 years to complete. Japfa was the first vertically integrated poultry producer in Indonesia to conduct a formal environmental LCA - which is not required by regulations now.

“We had taken this initiative as part of our commitment to sustainability,” he said.

“The LCA identified our hot-spots, where we see as opportunities to improve our processes to make a positive environmental impact. Key focus areas identified by the LCA were waste and water issues.”

Japfa’s Monteiro said growing population, increase in disposable incomes, climate change as well as demand for safe and nutritious food are impacting the food system and the supply chain. Given these pressing demands, it is necessary to improve yields, traceability and nutritional value, as well as reduce environmental impact, he observed.

“We recognise the importance of traceability in a sustainable supply chain and, through our vertically integrated business model from feed and breeding to commercial farming and distribution, our products are traceable along our supply chain,” Monteiro said.

“Technology also plays an important role to provide more transparency. For instance, our poultry operations have 300 chick vans integrated into our SAP system for tracking purposes and we use a barcode system to allow traceability of our poultry.”

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