Research from HSBC shows that business across Europe are using lessons learned during the pandemic to protect themselves against future shocks – and an increased focus on sustainability is front and centre.


The latest HSBC Navigator report asked more than 1,500 companies in Europe what they were thinking, feeling, and planning for the year ahead. The response was overwhelmingly upbeat: despite the challenging environment for trade over the last two years, the vast majority have a positive outlook, with 82% saying they expect to see revenue growth over the coming year and almost three-fifths saying they are more optimistic about their prospects than a year ago.

But with this enthusiasm comes a healthy dollop of pragmatism. Three-quarters said they anticipate challenges and disruption to their supply chain over the next 12 months, while 62% said that they expect international trade to become “more difficult” in the year ahead.

“Corporates across the region are doubling down on resilience strategies. Weathering the maelstrom of geopolitical uncertainty, Brexit and Covid-19 has meant they’ve had to work hard to shore up supply chains,” says Sibel Sirmagul, regional head of product and propositions, global trade and receivables finance Europe at HSBC. “Increasingly, they’re recognising that embedding sustainable practices is the answer: not only will this have a positive impact on their reputation but also their performance and profitability in the face of ongoing disruption.”

A quarter of German companies, 17% of UK companies, and 15% of French companies claim that the Covid-19 pandemic has made them place a greater focus on ESG factors. Along the same lines, a similar number of companies across Europe see climate change and other ESG related issues as the biggest macro threats to overcome in the next 12 months. In effect, sustainability is no longer a nice-to-have for businesses in Europe, but rather a business-critical consideration.

That said, companies aren’t solely focused on the risk aspect of sustainability. Almost nine-tenths of businesses in the region say that a more sustainability-driven business model would have a positive impact on their overall growth, with 72% saying that they expected an increased focus on ESG improvements to boost their bottom line over the next three years.

“The business case for action is well-established,” says Sirmagul. “The conversations with clients have really evolved in recent years, taking sustainability from a side consideration to a central focus.”

There’s still some room for improvement, however. Although over the next 12 months, European businesses expect to invest on average over 6% of their operating profit in building out the sustainability of their business, just 33% are putting targets in place to achieve net zero.

“The biggest challenge for many corporates is knowing what to focus on,” says Sirmagul. “Across the board, businesses are taking steps to boost their in-house environmental performance, from reducing plastic waste to reviewing energy usage and cutting down water use, but when it comes to delivering on scope three emissions, for example, many are struggling to respond.”


Improving sustainability in the supply chain

Aside from higher costs, which over a third of respondents to HSBC’s research perceive as the main barrier to becoming more sustainable, the most pressing issue for European businesses is around aligning their suppliers to their goals. Typically, scope three emissions – the indirect emissions from a company’s value chain – are the biggest part of a company’s carbon footprint, and, since they occur among suppliers rather than in-house, they’re often the hardest to get a handle on.

But they cannot be ignored: pressure is mounting, both from regulators across the region who are tabling ambitious net zero legislation, as well as end consumers who now consider the social and environmental impact of the goods they buy as being more important than price alone.

“If companies are serious about aligning with the 1.5°C Paris Agreement target, they can’t only focus on the small amount of their emissions profile that is accounted for by their own operations,” says Sirmagul.

This is a concern for European corporates, with almost one-fifth saying that they worry about suppliers not meeting their sustainability requirements – particularly in light of the European Union’s post-Covid-19 recovery plan, which revolves around building a green, digital and shock-resilient European economy. In many cases, corporates are seeking out environmentally responsible suppliers or looking for innovative alternatives for raw materials and other inputs. Almost eight in 10 European companies now say that they prioritise suppliers based on their sustainability practices rather than their operational resilience and ability to deliver quickly.

“Transparency has become an important part of the conversation,” says Sirmagul. “Businesses want to know the details regarding the source of their raw materials or inputs, but with supply chains often several tiers deep, this is not always a straightforward task.”


Capacity building

One way of tackling this is through sustainable supply chain finance programmes, whereby large companies empower suppliers who meet ESG objectives to access cheaper financing. HSBC has partnered with several multinational corporates, including Walmart, to roll out these programmes in recent years.

“Sustainability can be costly, and you don’t usually see the results on day one. That’s where sustainable finance comes into play,” says Sirmagul. “In programmes such as the one we co-created with Walmart, suppliers setting the highest ambition can take advantage of receiving the lowest pricing. Suppliers can then use the financing proceeds to manage their own working capital and their sustainability-linked improvements. In thisway, instead of a large business just telling its suppliers toshift to net zero, we’re actually co-investing and allowing the finance to flow through to enable them to do so.”

Leveraging the data received through sustainable supply chain finance programmes can also better inform Europe’s corporates on where they can have the most impact. Given the right support and incentives, their suppliers can more easily deliver on their targets and achieve their sustainability ambitions.

The key, Sirmagul says, is to focus initiatives through value chain mapping, emissions assessments and benchmarking. “Companies can then work with their banking partners and suppliers to create long-term sustainable impact, giving them the tools and capability building to accelerate the net-zero transition.”


Leveraging sustainability for growth

The latest HSBC Navigator results are clear: there has been a fundamental shift in business attitudes towards sustainability, and corporates must now assume responsibility for every touchpoint along a supply chain in order to align to a net-zero future.

As European businesses reimagine and reinvent the way they work to build resilience against future shocks, corporate leaders are focusing on their supply chains and taking a longer-term view.

Although there remain challenges ahead, the future of trade is a bright one, and by collaborating to transform SMEs, banks and corporates have a vital role to play in ensuring sustainability remains at the heart of trade’s growth story for the months and years to come.

*The HSBC Navigator report was published in November 2021, prior to the Russia/Ukraine conflict.