Supply Chain Synergy

6 7 We think we can get some early wins in our green strategy by concentrating on our energy use and sources. This is already happening in our distribution fleet where we are converting our vehicles to hydrogen and moving away from diesel.” Treasurer, US$5.5bn Korean wholesaler When German industrial and consumer heavyweight Henkel wanted to accelerate its sustainability journey in Asia, it realised that it needed to join forces with its suppliers. In fact, their operations had as much impact on its sustainability metrics as Henkel’s own activities. Sustainable Future: Responsible supply chains in Asia The solution was a sustainable supply chain finance programme to increase sustainability across the ecosystem by incentivizing environmental and social improvement while also enhancing supply chain resilience. Henkel already had an existing supply chain financing structure, which its suppliers could access. But it decided to create an enhanced programme for suppliers that could demonstrate strong or improving sustainability performance to access financing at a preferential rate. One of the challenges companies encounter when setting up such a programme is the complexity in measuring and monitoring supplier performance against independent sustainability metrics. To address this, Henkel partnered with a specialist company to provide independent assessments, reviewed every three years. Regional complexities Across Asia, companies are pushing to integrate environmental, social and governance (ESG) factors into their supply chains as part of their wider sustainability SUPPLY CHAIN SYNERGY The rise of sustainable finance in Asia has given companies in the region a valuable tool to integrate suppliers along environmental, social and governance lines Solutions in the shape of sustainable supply chain financing Citi’s Chopra argues that amid the backdrop of slow-moving government regulation around ESG factors, CFOs and treasury departments in APAC can instead take advantage of sustainable supply chain financing to align suppliers on ESG ambitions. There is a huge global shift towards sustainable finance,” says Kanika Thakur, Asia Pacific Head of Corporate, Commercial and Public Sector Sales, Treasury and Trade Solutions, Citi. “That increases the scope for companies in the region to use this as a tool to improve their overall sustainability profiles.” An obvious incentive to look at sustainable options is cost. “Everything sustainable has become slightly cheaper than the usual financing costs,” says Steven Elms, Global Sales Head of Corporate, Commercial and Public Sector, Treasury and Trade Solutions, Citi. If you are able to pursue a genuine green path with your suppliers, not only can you help them reduce their interest financing costs but also move faster towards an integrated ESG ecosystem.” A second and more fundamental reason, Elms says, is that ESG factors have become essential to a company’s long-term survival and success. “ESG is no longer a good to have; it’s a must have.” Steven Elms Global Sales Head of Corporate, Commercial and Public Sector, Treasury and Trade Solutions, Citi Top five obstacles to greater ESG supply chain integration 1. Lack of workable and consistent definitions 18% 2. Too complicated/unsure where to start 17% 3. Impact cost of compliance on production of goods 16% 4. Overly complicated regulatory settings 14% 5. Suppliers resistent to change 13% Proportion of renewable energy used in operations China 35% Korea 33% Vietnam 30% India 21% Australia 20% Taiwan 21% 18% Thailand 12% Hong Kong 19% Singapore targets. But in stark contrast to Henkel’s success, few are making headway. According to the research carried out by Citi in partnership with East & Partners, corporates in the region have hit multiple barriers on their sustainability journeys, from struggling with inconsistent definitions and high compliance costs, to an overly complex regulatory environment and suppliers who are resistant to change. “The range of diversity, smaller countries, different regulations and mix of demographic profiles make it a challenge to have a long-term sustainability plan,” says Megha Chopra, Asia Pacific Head of Trade Sales and Client Management, Treasury and Trade Solutions, Citi. “The consequence is that while many other regions of the world are gaining ground on sustainability, Asia is falling behind.” In India, for instance, 18% of corporates said that their efforts to integrate sustainability policies along their supply chain suffered from “overall complexity”. The same percentage reported that a principal barrier was resistant suppliers. Overall, only 5% of large companies in the APAC region either encounter no issues implementing sustainability measures or have already fully implemented them. Kanika Thakur Asia Pacific Head of Corporate, Commercial and Public Sector Sales, Treasury and Trade Solutions, Citi