Harnessing innovative finance to realise sustainability ambitions
on 9 Dec 2021Now more than ever, governments, corporations, banks and individuals recognise their role in limiting the extent and impact of climate change. In Germany, for example, the government announced a new Sustainable Finance Strategy in May 2021 with a focus on climate action and sustainability. Regulators in Europe and beyond have also signalled their intention to ensure that corporations work with suppliers that operate within internationally acceptable employment and production standards. For many companies in Germany, the challenge is to find the most effective ways to realise their sustainability ambitions and meet their various environmental and social obligations.
The business case for sustainable supply chains
The environmental, humanitarian and business case to invest in sustainable trade and supply chains has become compelling. Supply chain emissions are, an average, 11.4 times higher than a company’s own operational emissions, emphasising the need to engage suppliers in sustainability efforts. There were 40 weather disasters in 2019 alone that caused economic damage above $1 billion, with continued global warming likely to push the number and severity of these events even higher. The associated supply chain risks are enormous. Recent CDP data suggests that the total financial impact amongst 8,000 suppliers to 154 major buyers due to environmental risks (climate change, deforestation and water insecurity) in the next five years could reach $1.26 trillion.
In our recent landmark study of over 900 companies, Critical Indicators of Sustainable Supply Chains, 64% of European participants said that natural disasters would have a very significant impact on their supply chains. To help manage these risks and limit climate change, 94% stressed the importance of environmentally sound and transparent supply chains; however, only 36% believed they had achieved this, compared with 50% of North American participants, and 41% globally. Digitisation, use of common KPIs and disclosure reporting all play a role in improving supply chain visibility and sustainability, but financing is essential to achieving more resilient and sustainable supply chains and incentivising supplier behaviours.
Innovative financing to incentivise sustainability
Victoria Claverie, Head of Trade for Europe, Standard Chartered comments, “Sustainable financing, that brings financing and purpose together, is a relatively new phenomenon but is gathering momentum as financiers and their clients seek to realise their environmental, social and governance (ESG) ambitions. At Standard Chartered, our vision is to be the world’s most sustainable and responsible bank. We are committed to sustainable finance that has a positive impact on our communities and environment.”
An important element of sustainable supply chains is to provide smaller businesses with the opportunity to participate in global supply chains. The growing reach of technology and e-commerce is helping to improve equality and make global trade more accessible, including to small and medium-sized enterprises (SMEs). With greater access to buyers and suppliers, these SMEs become an even greater part of global sustainability efforts. Sustainable finance, including sustainable supply chain finance, can play a crucial role in enabling SMEs to develop their ESG credentials whilst supporting inclusive economic growth.
To support these ambitions, Standard Chartered has designed its sustainable trade and supply chain approach across four key activities:
| Sustainable goods and services | Sustainable suppliers | Sustainable end use | Transition industries |
|---|---|---|---|
| We work with customers and partners to ensure that underlying trade flows meet respected sustainable industry certification standards | We design sustainable financing programmes to incentivise production which leads to an improvement in environmental or social metrics | Our green and sustainable finance products help customers to invest in clean energy, water, infrastructure and transportation | We help industries in transition from high impact activities to invest in sustainable power and energy, responsible sourcing and reduced carbon footprint |
One of the challenges of linking financing to sustainability goals has been the lack of consistent, transparent and universally accepted metrics that can be measured and monitored. This is changing quickly, however, through initiatives such as the EU Taxonomy for Sustainable Activities, and the German governments’ push for more reliable and comparable data as part of its Sustainable Finance Strategy in areas such as environmental and human rights issues.
Against this backdrop, Standard Chartered is already helping clients to translate their sustainability ambitions into tangible outcomes; for example:
- Working with a large German sportswear manufacturer on a Supplier Finance facility to support and incentivise suppliers in several countries in Asia Pacific to pursue sustainable business practices, with pricing based on their sustainability score
- Helping a low-carbon energy technology group to invest in smart energy solutions through a first-to-market sustainable end-use performance bond
- Implementing a sustainable Islamic supplier finance solution to a large infrastructure company. The company achieved its dual objectives to support small and medium-sized suppliers in a challenging economic environment, and encourage sustainable activities through preferential receivables financing terms based on sustainability targets
- Working with a cotton yarn manufacturer to finance procurement of sustainably sourced cotton. This facility helped to encourage and incentivise sustainable sourcing, with the benefit that financing could be extended to the company, or its their suppliers, as they engage in such sustainable trade practices.
Heinz Hilger, CEO, Standard Chartered Bank AG concludes,
“Our footprint makes us uniquely placed to support German companies’ trade and supply chain objectives. We have an unrivalled depth of presence, knowledge, solutions, and relationships in the countries in which German companies’ supply chains are located. By bringing funding, purpose and innovative thinking together, we are helping clients to realise their sustainability ambitions in the world’s most challenging markets, and build more resilient global supply chains.”