7 апреля 2024 г.

Greening Supply Chain Finance in the 2020s

Thomas Krantz
Advisor to the Managing Director
Global supply chains are phenomenal business creations. For financial services professionals, at first glance the complexity of supply chain production of finished goods is overwhelming, let alone the many questions entailed in unraveling this knot and understanding how it all works – and then figuring out ways to prompt reduction in the energy costs and materials involved in moving parts and finished goods around the world.

While admitting how daunting the task is, the author is tempted to remind readers that there truly is no choice.  There are ethical reasons to demand rigorous efficiencies of business.  The bottom line both for business and life on this planet is that the changing climate has all too evidently arrived.

Let’s break down the problem into somewhat more digestible lines of attack.  Financial services and businesses must deploy a multitude of strategies all at once, often as interwoven as the supply chains themselves.

The WAIFC workstream’s stated goal is “to get supply chain energy costs down to net zero.”  Whether through various capital instruments and loan requirements financial services have the capacity or ability to induce global production and trade to get to net zero or not should not block every attempt to move in that direction.   Let’s take this question to the next level down.


Directions to follow

ChatGPT gives guidance in the form of instructions to look in these ten directions:

  1. Sustainable sourcing
  2. Reducing emissions in transportation
  3. Energy efficiency in production of goods
  4. Reduction of waste of materials and recycling
  5. Transparency and traceability of each step
  6. Collaboration and partnerships
  7. Certification and standards
  8. Innovation and technology
  9. Regulatory compliance
  10. Consumer awareness and education


WAIFC’s position

Finance is the business of directing savings towards productive investments, short- or long-term.  WAIFC members are not manufacturers or transportation companies, or even financial services institutions themselves:  rather, they promote the institutions in their jurisdictions that provide the spectrum of financial services, from others to others.  It is not the role of WAIFC members to direct capital flows, but it can be their job to educate and advocate green finance in the broad interest of society.

A financial institution has immediate profitability objectives as well as the need to assure its long-term strategic viability and prosperity. A financial center agency typically has only the long-term, broader concern of promoting steady growth of the sector and maintaining and reinforcing an unquestioned reputation for fairness, certainty, transparency in the dealings of the actors registered there. WAIFC members’ goals are somewhat apart from the financial institutions in those cities.

Talent is a constant concern for enterprises as well as the financial center agencies.

Different age groups view the importance of green finance differently.  Clearly, younger people have a longer view forward to imagining what the changing climate will bring to their lives.  There is a match here:  in the drive to stay attractive to young, talented people, financial institutions have an incentive to promote a more positive view of the future by acting to assure it.  Over the past several decades as ESG bubbled to the surface in public policy debates and corporate boardrooms, across the world there appears to be a strong correlation amongst young people who want to work for companies that are seen to be innovative and caring for society and the planet.[1]


What green finance/ESG does and does not do

The OECD has run surveys and workshops on ESG business and finance since the late 1990s, sparked initially by exploratory work being done on the stock exchanges in Johannesburg and Sao Paulo.  Independently of one another, Brazil and South Africa were experiencing dramatic sociopolitical change, each in its own circumstances; and with so much up for debate, the leaders of those bourses rewrote listing rules to prompt corporate public company boards to change their practices.

It is still not clear in the 2020s if careful, best practice board governance, attention to an enterprise’s social impact, and serious work to reduce a company’s carbon imprint actually changes the value of the enterprise.[2]  ESG bond and stock market indices similarly do not show, yes or no, that the care taken by corporate boards translates into corporate outperformance of the general market.  Nor is underperformance an outcome.

But is that really the point?  Are we asking the right question?

At the time in the 1990s, the leaders of those exchanges were trying to reposition corporations as valuable, leading institutions in their societies.  While they may have hoped that this prodding with the use of public disclosure standards would lead these shares and bonds to outperformance of the general market and above-average increases in company values, the emphasis was essentially “being out to do the right thing.”  They wanted for-profit businesses to be seen by citizens to be positive social actors.  This was also true of the OECD’s first draft of Principles of Corporate Governance, promulgated in 1999.[3]


Homework for WAIFC Members

As the list at the beginning of this opinion demonstrates, greening the supply chain for global trade is daunting, complex, interconnected, difficult to estimate, quantify, and assess given all that must be considered.  So what?

As leaders in the financial centers in which they operate, why would anyone in this position not want to encourage public discourse and prompt changes in corporate behavior?  This is the essence of public leadership.

Like news, money travels quickly around the world, and one cannot ignore the competition for investment capital.  But financial center leaders have loud voices, and a public that already feels the heat and the wet of climate change.  It should be the most evident public relations move for corporations to demonstrate their positive role in society by stepping up to the carbon challenge and the reduction of waste of materials:  at worst, it seems from these past decades that there is little commercial cost in implementing rigorous ESG practices; at best, the public would respond positively to business leadership being exercised in the communities in which they operate.

The thing about greening the supply change is that it is touches on everything everywhere.  Better practice in energy and materials use happens everywhere, and businesses are sensitive to the need for capital at every point in production.  Net zero may be far off, but making a start is work for today.



[1] https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/corporate-responsibility/ey-ja-2023-sustainability-report-27-july-2023.pdf.  Ernst and Young Generational Sustainability Report, 2023.

[2] https://www.mdpi.com/2071-1050/14/22/15302

[3] https://legalinstruments.oecd.org/public/doc/322/322.en.pdf


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