MNCs aggressively pushing carbon cuts on suppliers

FAIL to cut carbon emissions in line with the net-zero plans of their biggest clients, and Singapore businesses could be in trouble.

According to Standard Chartered's inaugural Carbon Dated report, Singapore-based suppliers are risking US$146.6 billion in exports if they do not keep up. In fact, 91 per cent of multinational corporations (MNCs) with a supply chain in Singapore have set emission reduction targets for their suppliers, asking for an average reduction of 30 per cent by 2025.

The report, which looks at the risks and opportunities for suppliers in 12 emerging and fast-growing markets, noted that 15 per cent of MNCs have already begun removing suppliers that might scupper their transition plans. In total, MNCs expect to exclude 35 per cent of their current suppliers as they move away from carbon.

It is of course not just MNCs that are setting hard targets. In Singapore, the government has said it aims to halve its 2030 peak greenhouse-gas emissions by 2050 and achieve net-zero emissions as soon as it is viable.

What are the options?

Notably, carbon offsets are an avenue which is quickly gaining traction. Carbon credits are essentially tradable certificates that represent the reduction, avoidance, or removal of a certain amount of emissions from the atmosphere. Firms can buy these credits to offset their emissions.

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The wider Asia region carries a third of global potential supply of Natural Climate Solutions (NCS), or conservation, restoration and improved land management actions that can increase carbon storage or avoid greenhouse-gas emissions in landscapes and wetlands across the globe.

Singapore is getting into the game with a new global carbon exchange to be headquartered in the city-state. Announced earlier this year, Climate Impact X (CIX) will be jointly established by Standard Chartered, DBS Bank, Singapore Exchange and Temasek.

To start with, CIX will feature carbon credits from various high-quality NCS. It is already in talks with global rating agencies to provide independent ratings to these projects. It is expected to be launched by the end of this year.

Driven by corporate climate commitments, global demand for high-quality carbon credits in the voluntary carbon market is estimated to increase by at least fifteenfold by 2030, up to 1.5 to 2 gigatonnes of carbon dioxide annually.

Such options might prove key to companies moving forward as MNCs increase pressure on their suppliers to become more sustainable. Particularly in the near term, today's low-carbon technologies including current renewable energy solutions are unlikely to be enough.

Standard Chartered's study showed MNCs believe that companies based in emerging and fast-moving markets face the biggest challenge.

Specifically, some 64 per cent of MNCs said they believe emerging-market suppliers are struggling more than developed-market suppliers with their net-zero transition. Further, 57 per cent are prepared to replace emerging-market suppliers with developed-market suppliers to aid their transition.

They further identified two key reasons why they feel emerging-market suppliers are failing to keep pace: insufficient knowledge (56 per cent versus 41 per cent for developedmarket suppliers) and inadequate data. Two-thirds said they use secondary sources of data to plug the gap left by supplier emissions surveys, and 46 per cent say that unreliable data from suppliers is a barrier to reducing emissions.

Support structures

Patrick Lee, cluster chief executive officer for Singapore and Asean markets (Malaysia, Vietnam, Thailand and representative offices), Standard Chartered Bank (Singapore), noted that while pressure is mounting on suppliers, especially those in emerging and fast-growing markets, they cannot go it alone.

"As a global trading hub with thousands of MNCs based here, the opportunities for Singapore suppliers to decarbonise and reduce their carbon emissions are too huge to be ignored," he said. "To reap the potential benefit, the whole ecosystem must work together."

MNCs are stepping up. Most (that is, 47 per cent) are leaning towards offering preferred supplier status to sustainable suppliers, with a further 46 per cent investing in new technologies on behalf of their suppliers. Some MNCs are going further, offering grants or loans to their suppliers to invest in reducing emissions (18 per cent) or data collection (13 per cent).

Meanwhile, banks such as Standard Chartered and DBS jointly led a workgroup of 12 other banks to create and conduct a proof of concept (POC) for a digital Trade Finance Registry to enhance lending practices and improve transparency in commodity trade. The POC was developed on a blockchain network supported by technology provider dltledgers.

"A digital trade registry requires innovative use of technology, close collaboration of partners in the ecosystem and progressive regulatory support," said Himanshu Maggo, head of trade innovation, Asean, Standard Chartered Bank.

"Major trade financing hub countries have expressed interest in an interoperable network which can enhance cross-border transparency and trust in the ecosystem while ensuring client data confidentiality. A digital trade registry with such attributes can promote trust and transparency, which in turn will help advance sustainable trade finance growth and effective risk management."