Ensuring sustainability throughout supply chains may require initial investment but companies can see long-term cost savings.
In a survey by HSBC, almost a third (31%) of companies globally plan to make sustainability changes to their supply chains over the next three years. Of those making changes, 84% cited cost efficiency and financial performance as their main motivation for doing so.
While improving working conditions or buying more efficient machinery can require initial investment, businesses will see a long-term reduction in costs, energy and power, Stuart Nivison, global head of client network banking at HSBC, told SM. As well as the benefit of cost-saving, increased customer interest in sustainability means companies that aren’t considering the social and environmental impact of their businesses could ultimately face revenue or reputational risk.
Regulators and investors are also putting pressure on companies to disclose their sustainability practices, leading 85% of businesses to want to achieve a sustainability standard recognised within their sector, but businesses could find their green credentials are also important to their bank.
Nivison said: “My personal view is that banks will increasingly be looking at sustainability as part of their credit decisioning. We are already looking at what we call ‘transition risk’ with some of the industries that we think will have to make sustainability-related changes. It could involve the automotive industry going electrical, the future of coal-fired power generation or labour conditions in apparel supply chains. There are a lot of different aspects but we need to consider them all in our credit decisioning.”
The survey revealed that one in five (20%) companies have taken greater control of their supply chains in the last two years, which has presented them with an opportunity to take action to become more sustainable, and 17% claim to have already reduced their impact on the environment.
With access to both large companies and their suppliers, Nivison believes that banks can play a crucial role in communicating and raising awareness about sustainability at all levels. By equipping their relationship managers to inform customers about sustainable practices and partnering with forward-thinking buyers who are driving change throughout their supply chains, banks can support the businesses they work with to be more sustainable.
Nivison said: “One of the useful tools we have is finance. If we know a sustainable supplier is strategically important to big buyers and they’re going to be working together for several years, we would rather bank them than a company that isn’t even thinking about these issues. We can provide companies with the finance to make investments and we can provide it to companies that need to make changes in manufacturing. For example, if you are making electric batteries for cars and you’re doing it well, that’s a good lending decision.”
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