Supply chain sustainability not only benefits the environment and society, but also improves companies’ bottom lines, a recent survey by HSBC shows.
Navigator: Now, next and how for business polled more than 8,500 companies across 34 markets, finding that fully 84% of companies who are looking to make ethically or environmentally sustainable changes do so in order to improve their revenues and financial performance.
The survey results also demonstrate how sustainability in supply chains has gone from being perceived as a luxury to a necessity. In the past, many emerging market firms have been unable to divert resources from their main business activities to focus on areas such as sustainability which do not generate returns. Today, 36% of companies in emerging markets are planning to make sustainability-related changes to their supply chains over the coming three years, versus 27% in developed markets. This indicates a shift in attitudes and a growing realisation that sustainability brings financial rewards. Indeed, globally, of those companies making sustainable changes to their supply chains, the bottom line beats ‘sustainable outcomes’ as the main motivator.
Speaking to GTR, Stuart Nivison, global head of client network banking at HSBC, says: “Over the past three years there has been a paradigm shift in the way sustainability is viewed. It’s not about altruism; it’s driven by business dynamics.”
He adds that global buyers are increasingly facing pressure from end consumers who consider the social and environmental impact of the goods they buy as being more important than price alone. HSBC’s survey found that almost a fifth of respondents would now select suppliers based on their sustainability practices. As a result, those who don’t adapt run the risk of losing buyers. In response, the most forward-thinking businesses have already started taking action, with 21% of emerging market firms saying they have already reduced their impact on the environment, as compared to 15% in developed economies.
According to the Carbon Disclosure Project (CDP), a UK-based non-profit which works with over 6,000 corporations on carbon emissions reductions, around 80% of a company’s environmental impact is found in its supply chain, and green credentials of suppliers and partners are major factors in a firm’s reputation and performance. Recognition is also a motivator – the HSBC survey found that 85% of businesses want to achieve a sustainability standard recognised by their sector or market. Again, this is higher in emerging markets at 92% than developed markets at 81%.
“Sustainability is a topic that comes up more and more in our discussions with both buyers and suppliers,” says Nivison. “Sustainability means sustainability of business models. We are already looking at this from a risk perspective in our decision making and we will start to factor this into our credit decisions.” He adds that the bank is currently talking to some of the more progressive buyers about the financing needs of their suppliers.
While the Navigator survey shows a large uptick in intent to make a change, execution still lags. “There is a big gap between those that have that intent and those that have actually specifically decided or committed to make a change to their supply chain going forward,” Bryan Pascoe, HSBC’s global head of client coverage tells GTR. “Banks such as HSBC have some work to do with our corporate customers to bridge that gap between intent to improve their supply chains and how they operate, to actually delivering on that.”
In recent months, banks have played a growing role in driving the sustainability conversation forward. In April, HSBC said it would no longer fund new coal-fired power plants, greenfield oil sands projects or offshore oil or gas extraction in the Arctic, with some exceptions. It will also prohibit the financing of new large dams for hydro-electric projects which do not align with the World Commission on Dams Framework, as well as new nuclear projects inconsistent with the International Atomic Energy Agency standards. HSBC’s move follows similar announcements from other financial institutions last year, including National Australia Bank, Deutsche Bank, ING, BNP Paribas, Natixis and Axa.