Digitisation Key to Supply Chain Sustainability

Corporate supply chains are a focus of the global push to sustainability. The spotlight is on where and how companies source the commodities, materials, goods and services that form the building blocks of their own products. The new Supply Chain Due Diligence Act in Germany¹, for example, which was passed this year, requires companies there to monitor the environmental and social sustainability of their supply chains abroad. It is likely to be the first of many such acts.

One key step that companies are taking to improve the sustainability of their supply chains is digitisation, and specifically gathering the data needed to make the necessary decisions to improve sustainability.

The payments industry will be at the heart of this approach due to the new standard that is being introduced called ISO 20022. This is a single, standardised approach for the messages that initiate and accompany a payment transaction and which is to be used by all financial standards initiatives. It will provide a much richer data set along with each transaction and as such will allow much deeper analysis of the sustainability or otherwise of global supply chains.

With ISO 20022 coming in there will be a lot more data available around each and every payment transaction. This will be a huge support to sustainability because it will allow buyers to know where the goods they are buying are coming from and give much greater visibility into the supply chain.

Sustainability Reporting

Having this level of data is important. because if the data is embedded in the transaction, it can automatically be transferred into a company's own systems. This will be useful when assessing a company’s own carbon footprint to meet the increasingly stringent reporting standards on sustainability. Granular sustainability reporting on corporate supply chains will become more present in the region. As well as the German supply chain law in January 2023, the EU's Corporate Sustainability Reporting Directive (CSRD) came into force, initially affecting large companies within the EU. This could expand to anyone wanting to do business with the EU.

Trust

The second aspect of sustainability data that is valuable is the trust that it can bring. Building trust that a product has been either sourced or manufactured sustainably will be a key business driver as consumers and businesses alike become more focused on the sustainability of their own consumption and procurement. The saying here is trust but verify. Consumers need to be able to trust that when they buy sustainable coffee that is has been grown, packaged, and transported in a sustainable way. That comes from being able to back up the claim with data. And payments are very well set up to receive and manage that kind of data.

The next wave of innovation could come at the credit and procurement card level. One area that we are exploring is how to use cards to increase sustainability. For instance, if you are using procurement cards to buy something, as well as the transaction details - such as the vendor name and the price - can you also get the underlying carbon data? Can you get data on the vendor's sustainability record or the emissions it took to manufacture these goods that you bought? While this is currently at a conceptual stage, the possibilities it contains merit much deeper exploration.

AI

Having the data necessary to understand the sustainability of an existing supply chain is the first step. The next will be to find ways to change suppliers if necessary. And that is more complex. According to recent news reports² , multinationals and shipping companies are turning to generative AI solutions to help them quickly identify and contact new suppliers if existing suppliers fall short.

Freight data company Freightos recently undertook a survey of 60 supply chain professionals³ to ask them about their AI intentions. While only 7% were already using AI, and another 7% were piloting it, a full 96% expected AI to fundamentally change their industry.

The use of standardized data sets will be key to allowing supply chains to become more sustainable. This is not just a systems and AI perspective, but also from a verification and assessment perspective.

HSBC has the global reach, deep understanding of the new standards that are emerging, and strong access to the data that will underpin the development of supply chain sustainability.

“Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability”