Many multinational companies are developing shared goals with their suppliers, and some have begun offering preferential treatment to net-zero focused suppliers.
Time is short and the stakes are high. As 78 per cent of multinational companies (MNCs) will have begun removing suppliers that endanger their net-zero transition by 2025, suppliers must move quickly to avoid losing business. Difficult decisions will need to be made on the journey to net zero. MNCs need to retain reliable, resilient supply chains, and net-zero transformation of their suppliers will take time. Although decarbonisation poses serious challenges for many companies, failing to develop and implement a net-zero strategy is not an option. However, suppliers cannot do it alone. The MNCs setting the pace and cascading targets down their supply chain will need to collaborate with their smaller partners to make net zero a reality.
MNCs are exploring a range of strategies to help their suppliers’ transition. Sixty-four per cent of MNCs are developing shared sustainability goals with suppliers, although these could be broad targets that encompass a range of sustainability and ESG aims rather than specific emissions-reduction measures. Almost half of MNCs (47 per cent) are offering preferred supplier status – a sales advantage – to sustainable suppliers, and 30 per cent are offering preferential pricing. A significant minority are even offering grants or loans to their suppliers to invest in reducing emissions (18 per cent) or data collection (13 per cent). While these developments are positive, there is clearly still some way to go before such incentives become the norm.
The financial services sector has a critical role to play in achieving a low-carbon just transition aligned to the Paris Agreement. As a bank with a strong trade focus and a footprint in emerging markets, we are committed to supporting the net-zero and sustainability agenda in the supply chain. Just 60 per cent of the financing needed to achieve the 17 United Nations Sustainable Development Goals in low and middle-income countries is being met. In Africa, this is as low as 10 per cent . Innovation has been our hallmark for 160 years and we are determined to use our expertise to direct capital to where it is needed most. Our footprint in Asia, Africa and the Middle East includes some of the markets worst hit by environmental and social challenges. We want to make the world a better, cleaner and safer place and minimise the negative impact of our financing. In other words, do more good and less harm.
Sustainable Trade Finance
Both multinational companies and their supply chain partners will need the right finance to transition to net zero. Trade finance can help make global supply chain activities more sustainable by offering companies the products and solutions they need to achieve their sustainability agendas. Standard Chartered’s is designed to help companies implement more sustainable practices across their ecosystems and build more resilient supply chains. It builds the Loan Market Association’s Green and Sustainability-linked Loan Principles into our trade financing framework, encouraging clients to improve disclosure, reporting and definition of use, while meeting their Environmental, Social and Governance goals.
The Transition Finance Imperative
The markets and sectors that require the most financing to transition to low carbon business models are often left out of green finance. In emerging markets, they also tend to be the sectors that are essential for livelihoods and economic growth. The same regions can be the most vulnerable and least prepared for the increasing frequency and severity of weather events from climate change. To to reach net zero we must transition eight of the most carbon intensive sectors in our portfolio: oil and gas, metals and mining, power, manufacturing, commercial real estate, chemicals, shipping and aviation.
We want to ensure that capital flows to the best performing clients, even those in traditionally high carbon intensive sectors. For clients who share our ambition and are ready to act, we will fund and facilitate USD75bn towards sustainable infrastructure and renewable energy. For clients who are just starting on their journey, we will provide sector-specific guidance on what they must do to prepare for a low carbon future, tailored region by region. For clients who haven’t launched their climate transition effort yet, we are helping to identify the most relevant transition levers – ensuring our clients create climate transition plans aligned to our climate ambitions. See our sector-specific transition frameworks for more detail.
