Carbon’s ‘hidden passport’: Financing sustainable supply chains

THE battle against climate change will be decided not solely in boardrooms or by governments. Much of the outcome will be shaped within global supply chains, where carbon emissions accumulate at every stage, from raw materials to finished goods moving across borders, operating much like a “hidden passport”.

Supply chains are not only where most emissions are embedded, but also where progress is hardest to track. While many large corporations have made strides in measuring and reporting their operational emissions, attention is now shifting to their supply chains, which often account for the bulk of their indirect emissions.

Bridging this gap requires more than standards and software. It demands trade financing structures that recognise and reward sustainable practices, empowering companies – big and small – to see sustainability as a value-add, not a cost, to business.

Sustainability as a mother tongue for businesses

A key development in global sustainable trade finance is the launch of the International Chamber of Commerce’s Principles for Sustainable Trade Finance, a global framework that brings consistency and credibility to ESG-labelled trade finance.

Leading banks are now moving to endorse these principles, reinforcing their commitment to a more transparent and effective sustainable finance ecosystem. These principles complement banks’ sustainable finance frameworks (SFFs), which guide the use-of-proceeds for ESG-labelled financing.

In 2025, UOB’s SFFs were enhanced to incorporate the Singapore-Asia Taxonomy (SAT) developed by the Monetary Authority of Singapore – a science-based system that seeks to harmonise what qualifies as “green” or “transition” financing.

By referencing SAT, the frameworks offer both regional relevance and international credibility, creating a common standard that reduces complexity and cost for businesses.

Together, principles and taxonomies form a shared foundation for sustainable finance, enabling companies to activate their sustainability initiatives with confidence, purpose and impact.

Building blocks for a low-carbon future

The built environment is among the hardest sectors to decarbonise.

It is responsible for nearly 34 per cent of annual global carbon emissions, according to the United Nations Environment Programme; two-thirds of this comes from daily building operations, while the rest is tied to construction. Materials such as cement and steel contribute roughly 18 per cent of annual emissions, making embodied carbon a critical challenge.

Unlike operational emissions, which can be reduced over time through efficiency upgrades or renewable energy, embodied carbon is locked in once construction is complete. That makes it critical to influence supply chains at the point of design and build, ensuring sustainable materials are prioritised to reduce embodied carbon.

A leading Chinese state-owned enterprise builder has taken steps in this direction by deploying a green supplier financing solution to strengthen its network of subcontractors and suppliers for green construction projects valued at over S$1 billion. The initiative, supported through UOB’s digital supply chain financing platform, has helped streamline processes and enabled faster information exchange.

They’re not alone. More anchors are even embedding sustainability-linked features into supplier financing, incentivising suppliers to meet pre-agreed sustainability targets, such as reducing emissions or achieving specific green certifications. Financing becomes a lever to cascade sustainability from large anchors to dozens of smaller firms.

From smelters to supermarkets

The focus on materials extends beyond construction into consumer goods. In the beverage sector, aluminium cans are prized for their recyclability; most of the metal can be recovered and reused without loss of quality.

But recycling alone is not enough. The sustainability story must also cover how aluminium is produced in the first place, from energy use at smelters to labour and governance standards across the supply chain.

That is why global beverage brands are increasingly turning to certifications like the Aluminium Stewardship Initiative (ASI). ASI sets standards for responsible aluminium production and sourcing across the value chain.

Its Chain of Custody (CoC) standard ensures traceability from production to finished products. With CoC, manufacturers such as Kian Joo Can Manufacturing – one of Malaysia’s leading packaging producers – can credibly demonstrate to global beverage companies that their packaging is sustainably sourced and responsibly produced.

Kian Joo leverages UOB’s SFF to obtain green trade financing for aluminium sourced from ASI-certified suppliers, supporting its decarbonisation efforts while remaining competitive in a low-carbon economy.

Anchors casting ripples of change

Like a ship’s anchor holding steady through its chain, corporate anchors can influence and transform their value chains. When anchors adopt sustainable practice, their impact extends far beyond their immediate operations, reaching the many suppliers and partners that form part of their ecosystem.

For suppliers, this unlocks working capital and lowers the barrier to adopting sustainable practices. For anchors, they get to strengthen relationships through direct support of their supply chain partners while meeting their decarbonisation goals.

Asean’s imperative is unmistakable. Leading firms must proactively embed sustainability into supplier engagement, transforming it from a compliance exercise into a strategic advantage. Suppliers in turn should not wait for directives; they ought to invest now in sustainability capabilities and practices that position them as indispensable partners.

Banks play a critical role in this ecosystem and must continue to refine the mechanisms of trade finance, ensuring capital flows to initiatives that drive long-term value and resilience.

As carbon becomes an increasingly traceable element of global commerce – its “hidden passport” stamped with every transaction – the challenge lies in our ability to design the checkpoints of tomorrow. These checkpoints must safeguard long-term prosperity by aligning trade flows with sustainability, transparency and resilience.

Both writers are from UOB. Lim Lay Wah is head of sector solutions group and global financial institutions group. Samuel Tan is vice-president of ESG solutions, sector solutions group.