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HSBC’s Sibos Spotlight: Holistic ESG Transition in Value Chains
22 Plays3 years ago
The second episode of our Sibos podcast miniseries sees HSBC's Surath Sengupta join TMI's Eleanor Hill to explain why the appetite for sustainable supply chain solutions has accelerated. In this ESG deep dive, Surath considers the supply chain reconfigurations corporates must be prepared for and identifies key action points for treasurers in terms of seizing sustainable SCF opportunities.
This is HSBC’s Sibos Spotlight, a podcast mini-series in collaboration with Treasury Management International (TMI). Throughout this series we will explore the critical topics impacting the transaction banking landscape, specifically looking at sustainability, digitisation and innovation. We will examine the opportunities and challenges disrupting the areas of payments, trade, custody and traditional business models.
To find out more about HSBC's transaction banking insights and presence at Sibos 2022, visit here.
Hosted on Acast. See acast.com/privacy for more information.
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Transcript
Introduction to Global Business Insights
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Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening.
00:00:17
Speaker
And now onto today's show.
Focus on Transaction Banking and Innovation
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Speaker
Welcome to TMI's TreasuryCast and HSBC's Cyboss Spotlight.
00:00:27
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I'm Eleanor Hill, Editor of TMI, and I'm delighted to be working with HSBC to bring you an in-depth look at the events from this year's Cyboss.
Sustainability in Payments & Trade
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Speaker
Throughout this series, we will explore the critical topics impacting the transaction banking landscape, specifically looking at sustainability, digitization, and innovation.
00:00:44
Speaker
We will examine the opportunities and challenges disrupting the areas of payments, trade, custody and traditional business models.
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Speaker
Joining us today to delve into the topic of sustainable supply chains is Sarath Sengupta, who's Managing Director and Global Head of Portfolio Management and Sustainability, Global Trade and Receivables Finance at HSBC.
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Some of you might recognize Sarath from last year's Cyboss podcast series, where we introduced this topic of ESG and D&I in supply chains.
Passion for Sustainable Supply Chains
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Speaker
And we're delighted that Sarath has agreed to sit in the hot seat once again and tell us all about developments in this area.
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So, Sarath, welcome back.
00:01:24
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It's really great to have you here.
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How are you doing?
00:01:26
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I'm very good, Eleanor, and massive thank you for having me here once again.
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It's an absolute privilege to talk about this
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topic which is so close not only to the organization's heart but also to my own personal sort of ambition and art.
00:01:40
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Absolutely.
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And you know, it's my favorite topic as well.
00:01:43
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So we've got loads to squeeze into this podcast.
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But it would be great, Sarath, if you don't mind kicking us off with a little bit of a bigger picture, an overview around the appetite for sustainable supply chain solutions, and maybe how that's changed since we spoke 12 months
Convergence Towards Sustainability Goals
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ago.
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Speaker
You know, what's been the sort of direction of travel around this since Cybos last year?
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Oh, it's been such an incredible journey these last 12 months.
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So if you recall, we spoke about why this is so important last time.
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So the fact that 80% or up to 80% of a company's carbon footprint is in its supply chains.
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We also spoke about the three R's, the reconfiguration, the repurpose and the resilience of supply chains.
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And since that, there has been such an accident.
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all our customer base, it's been really, really impactful.
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So if you look at the top end of the book from the large corporates, there we are starting to see a convergence happening between the treasury people, the people in corporate sustainability and people in procurement sort of coming together, converging around the common goals around sustainability.
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So we are starting to see that happen a lot more.
SMEs and ESG Expertise Demand
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At the lower end, from the SME perspective,
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And that is not just led by their buyer demand, but their own sort of operating models.
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And this is actually resulting in a lot more strategic conversations that are happening across the value chains and a greater demand for two things.
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One is a greater demand for more ESG expertise.
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demand for new financing needs to support these transitions.
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Yeah, yeah.
00:03:37
Speaker
That makes complete sense and it's great to hear that this is progressing so quickly because I think there was maybe a worry with everything that's going on in the macro environment that sustainability and supply chains might be pushed down a little bit but I think it's been the complete opposite and seeing so much progress.
Sustainability Leadership in Markets
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It's completely opposite and if I would just add there actually Eleanor, is
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the globe so it is obviously led to an extent by the by the buyers in the developed markets so the developed markets kind of leading it um but you have fast followers in the in the developing markets and in some cases uh they may actually leapfrog um ahead in industries as well so it's quite an interesting space in that sense
00:04:23
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Yeah, that leapfrogging as we've seen with sort of technologies in the past, like you say, there's a good opportunity there.
00:04:29
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So it'll be exciting to see sort of who comes out on top over the months and years ahead.
Integrating ESG in Supply Chain Finance
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But let's move on a little bit and maybe get into some of the practicalities around this, Sarath.
00:04:40
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So give us maybe some ideas about how corporates are building both ESG and also DNI criteria into supply chain finance programs.
00:04:50
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Just wondering if you've got any maybe practical examples that you could share with our listeners.
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This is a great question, because in a lot of cases, people earlier used to look at ES and GS three separate silos that need to be tackled separately.
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Definitely.
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I think more and more people are realizing that each of these cannot be tackled in isolation.
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They are completely intertwined.
00:05:14
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So let's take E and S, for example.
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You cannot, for example, tackle climate change or the impact on climate without realizing the impact that it can have on social lives of people, their livelihoods, etc.
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So you cannot come up with a solution that sort of says, OK, this is the solution to to tackle climate change without understanding what is the social impact of that solution.
00:05:39
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Let's take an example of the textile industry, for example, where water usage is a massive concern.
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Now, there can be solutions to sort of recycle, etc., etc., around textiles.
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But any solution that is put in place has to take into account the impact that it has on the labor force in Bangladesh or in India.
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in Vietnam or other emerging markets, which is dependent on this textile supply chain for their livelihood.
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So you can't do one in isolation of the other.
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The other piece is that as we develop these supply chains, we have to see how we use this for greater good and how we sort of bring different parts of society into the supply chains which were earlier sort of alienated from the supply chain.
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So I'll give you a practical example that we are working on with Walmart.
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where we are incentivizing minority owned and woman owned businesses in Walmart supply chains.
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So there is a special program that we have developed in conjunction with Walmart to incentivize such suppliers.
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So to bring it around, these two are completely intertwined and the government's piece provides the guardrails around this.
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And without the three sort of working together,
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we will not be able to achieve anything meaningful.
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So just to delve into that Walmart piece there, Surat, so that those minority owned and woman owned businesses, they get sort of preferential rates on the SCF on the
Walmart's Incentives for Minority Businesses
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financing program.
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Speaker
How does that work exactly?
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There are certain criterion guardrails around this.
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But yes, the idea is to incentivize through better financing opportunities for either woman owned or minority owned suppliers to participate
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Excellent stuff.
00:07:28
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Well, it's great to see such a high profile example.
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And I'm sure there will be many following suit in the near future, fingers crossed.
00:07:37
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Absolutely.
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The idea is to kind of scale this across various industries and other companies as well.
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Yeah, yeah, which would be fabulous
Reconfiguring Supply Chains for Sustainability
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to see.
00:07:45
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And clearly there's been a lot of progress made in this area, even since we spoke last year.
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But, Zareth, where do you think we still have maybe further to go in aligning supply chains to sustainability criteria and the kind of standards that are coming out?
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And I'm just wondering if there are any particular types of supply chain reconfigurations that corporates need to prepare for in this evolving environment?
00:08:11
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if you look at supply chains and what we are doing in sustainable supply chains, what corporates are doing, what we are financing, et cetera, is still just the beginning.
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And the beginning has been sort of incentivizing behavior change in suppliers.
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to help them go up the value chain.
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What does that mean?
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So for example, you incentivize suppliers to reduce their carbon footprint, reduce the greenhouse gas emissions, etc.
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So that's what you incentivize so that that is achieved by using the same supply chain, but incentivizing them to have better behavior or use better ways to reduce their carbon footprint.
00:08:51
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Yeah.
00:08:51
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But the next stage that is coming is complete reconfiguration of these supply chains.
00:08:57
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So driven by consumer demand, where consumers are demanding greater transparency around what they use or utilize or eat or drink, there is going to be a significant reconfiguration of supply chain.
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Now there is a requirement, for example, to go after organic cotton instead of normal cotton.
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And that means that your supply chain has to be reconfigured to be able to do that.
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Or your supply chains have to be reconfigured.
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Speaker
The infrastructure has to be reconfigured.
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configured to be able to consume renewable energy as your primary source of energy rather than fossil fuels, which has been your significant source of energy for a long time.
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So all of those changes are now going to happen.
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It's the first part has started happening, but the next two are now going to happen.
00:09:48
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I'm not saying it's not happened at all, but it is going to progress and scale up significantly more.
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We did a study along with BCG.
00:09:56
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So it was an HSBC-BCG paper in which we kind of worked with a lot of other companies, looked at the market and sort of thought, what are the big steps that need to change?
00:10:05
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And I'll give you some examples, not all of them.
00:10:08
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It's a very good paper if anyone wants to read it.
00:10:11
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I'll give you three examples.
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One is in supply chains, people need to start rethinking the product design completely.
00:10:17
Speaker
So is the product apt for the future and what is the supply chain required?
00:10:21
Speaker
So as an example, economy of the future, is it going to be more sharing of vehicles?
00:10:26
Speaker
So what does that mean?
00:10:27
Speaker
How does that sort of operate from a supply chain perspective, both upstream and downstream?
00:10:32
Speaker
Yeah.
00:10:33
Speaker
The second is embracing collaboration between buyers and SME suppliers.
00:10:38
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So there is an asymmetry, right, between what the buyers can access, large buyers can access, vis-a-vis what an SME can access.
00:10:46
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So there has to be a collaboration where technology, investments, knowledge is transferred more seamlessly into the SME suppliers.
00:10:56
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So that is the other sort of big change that is required.
00:10:59
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And the third, of course, is where banks and other financiers will have to play a big role is around enabling financing.
00:11:07
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So in that paper, we estimate that about $50 trillion of financing is required to be directed towards SMEs for their transition.
00:11:18
Speaker
Wow.
00:11:18
Speaker
That's not a small amount.
00:11:21
Speaker
So now that needs to come together for these transitions to happen.
00:11:26
Speaker
So this is a massive space.
00:11:31
Speaker
it will become much much more active as we go along and people need to think multi-dimensionally on this topic.
Consumer Demand and Supply Chain Transparency
00:11:39
Speaker
Yeah absolutely getting ready for that transition which is it's upon us and you've got to start making those steps towards it even if they're small steps because as you say it is a huge initiative it's there's an awful lot that's required but it is possible if people start thinking around it and acting around it now
00:11:59
Speaker
So yeah, very interested to see how that develops over the coming years.
00:12:03
Speaker
Just wanted to come back to that topic that you mentioned, Sarah, around carbon footprints and the transparency there.
00:12:10
Speaker
So interestingly, in the last couple of weeks, I don't know if you've seen it on LinkedIn, there's been a
00:12:15
Speaker
a photo of a particular trainer and on the tongue of the trainer, they've got all of the carbon footprint that's been produced to produce that particular shoe.
00:12:25
Speaker
And it's just that kind of transparency that is now coming forward to consumers.
00:12:30
Speaker
But how do you think that that kind of data, that transparency around carbon footprints is going to change the way that supply chains not only operate, but are actually financed in the future?
00:12:40
Speaker
This is a very, very interesting time because this is fully led by consumers.
00:12:45
Speaker
So consumers are forcing some real activity in this space.
00:12:51
Speaker
So if you heard of the terms from the palm to the fork or from the bean to the cup, basically people want to know where exactly, and taking your example of trainers as well, where exactly is my end product coming from?
00:13:06
Speaker
Who is it sourced?
00:13:06
Speaker
Who is sort of working on it?
00:13:12
Speaker
So all of those things mean that there is an increased level of transparency that is being demanded.
00:13:18
Speaker
Now,
Role of Technology in Transparency
00:13:19
Speaker
that is really a very good thing because that forces companies to be far more aware of their supply chains and be very transparent about those supply chains.
00:13:30
Speaker
However, it's still not fully there because data is still a big challenge.
00:13:34
Speaker
There is a challenge around availability of data.
00:13:37
Speaker
There is a challenge around authenticity of data, and there is a challenge around actually having actionable data.
00:13:44
Speaker
But we are getting there because the consumers are forcing this transparency.
00:13:49
Speaker
People are starting to overcome those challenges using technologies like Internet of Things, using technologies like geospatial technologies, etc.
00:14:00
Speaker
So with all of that, actually what is happening is two things.
00:14:05
Speaker
One is on the physical supply chains, there is a reconfiguration happening.
00:14:09
Speaker
Mm-hmm.
00:14:10
Speaker
where companies are more aware of where things are sourced from, how they're sourced, will now have to reconfigure those supply chains accordingly.
00:14:19
Speaker
Or even in some cases, because of new technologies, they may need to sort of reconfigure their sort of requirements into those new technologies rather than the old technologies that they were using.
00:14:30
Speaker
So one is that reconfiguration of physical supply chains that is
00:14:33
Speaker
almost inevitable and has started happening.
00:14:36
Speaker
But on the financing, it is even more interesting.
00:14:39
Speaker
So if you look at financing, typically big banks like us, we were financing supply chains primarily around tier one and tier two suppliers of big buyers because that's what we had transparency about.
00:14:55
Speaker
Now we have transparency right down to the farmer.
00:14:58
Speaker
We know that what a farmer in India is producing is probably ending up
00:15:03
Speaker
in a Unilever product that Unilever is then selling.
00:15:07
Speaker
So given that transparency that is being brought into place, we are now able to finance much deeper into the supply chain because we know where the risk ultimately is.
00:15:20
Speaker
So I think the whole financing model is also changing.
00:15:24
Speaker
So not only is the physical supply chain changing, the financial supply chains are also changing through deep-tier financing based on this transparency, data and tech.
00:15:34
Speaker
Yeah, and absolutely for the better.
00:15:35
Speaker
That's been one of those things around SCF for absolutely ages that it's been sort of
00:15:41
Speaker
for almost an elite and not that that long tail not all of the way through but to be able to actually get it down to every single person in that supply chain is amazing and extremely encouraging
00:15:53
Speaker
So Rath, you mentioned there a couple of different technologies.
00:15:57
Speaker
Just wondering if there's anything else you wanted to highlight around the way that technology is changing supply chain finance.
00:16:03
Speaker
Is there anything new that you think our listeners might want to be aware of or any particular challenges that you see ahead around technology and SCF?
00:16:13
Speaker
Yeah, technology is such a big piece in the sustainability puzzle,
00:16:20
Speaker
break it in a way.
00:16:22
Speaker
It is said that technology that exists today can only take us up to 2030.
00:16:27
Speaker
The technology that needs to take us beyond 2030 does not even exist today.
00:16:35
Speaker
So there is a huge amount of work that is required across big techs who are investing in the space, as well as a huge startup company
00:16:44
Speaker
culture that has developed around climate tech, as they are called, which is also looking at coming up with new innovative technology to support the transitions that are required.
00:16:56
Speaker
And that itself, that whole sort of ecosystem needs to be developed.
00:17:01
Speaker
That ecosystem needs a massive amount of financing as well.
00:17:05
Speaker
which banks like us are actively looking at how we can A, leverage and B, sort of support as well.
00:17:13
Speaker
Right.
00:17:14
Speaker
So there's a big play out there.
00:17:16
Speaker
I think the other piece is that we will see a paradigm shift in the way financing works.
00:17:23
Speaker
Because as we look at using technology in the way we finance, so I gave you the example of deep-tier financing using Internet of Things, using trade tokens, et cetera, and going deeper into the supply chains.
00:17:37
Speaker
But there are other sort of technology-enabled financing.
00:17:42
Speaker
So I'll give an example of GRASS, which is a global risk assessment services project, which is supported by the German Federal Ministry of Food and Agriculture.
00:17:54
Speaker
This project actually uses high resolution remote sensing data and data from the latest generation of satellites to document changes in land use.
00:18:05
Speaker
This is to ensure that there is no deforestation, for example.
00:18:09
Speaker
which is one of their must have or a bare minimum for the supplies of farm oil in the European biofuel market.
00:18:16
Speaker
So you see suddenly you have technology which is enabling you to see what you want to finance, what you don't want to finance, what you want to incentivize, what you want to disincentivize.
00:18:25
Speaker
So I think there will be a
00:18:27
Speaker
complete shift in the way we finance based on the technology that is being developed to support the sustainability requirements of the planet.
00:18:39
Speaker
Exciting times, that sounds very interesting.
00:18:40
Speaker
I'll have to have a little look at that program there that you mentioned, which also has a fabulous name, so hats off to the people behind that.
Aligning Corporate Strategies for Sustainability
00:18:49
Speaker
So Rath, you've given us a really good overview of everything that's happening in this space, but for our listeners, obviously the corporate treasurers who are out there on the front line, what would you say are the key action points in terms of seizing these sustainable supply chain opportunities that we've spoken about?
00:19:06
Speaker
Eleanor, I think where we have seen very successful outcomes is where corporate treasurers
00:19:14
Speaker
the procurement people and the corporate sustainability agendas have come together to come up with common goals.
00:19:23
Speaker
So that is something that I started off with, but I want to say that again, because that is where successful outcomes come.
00:19:30
Speaker
If these three are working in slightly different directions, then the outcomes are not always the most successful.
00:19:40
Speaker
common goal is very important.
00:19:42
Speaker
The second is not just think of the cost today, but think of the impact of the business tomorrow as well, because some of this will require an investment today.
00:19:53
Speaker
But if this investment is not made today, the business may not be pit for future tomorrow.
00:20:01
Speaker
Yeah.
00:20:02
Speaker
The third is, as I spoke about, supply chains are going to be incredibly important.
00:20:09
Speaker
And some of the suppliers are SMEs who do not have the level of access that some of the larger corporates have.
00:20:16
Speaker
So sharing of investments and technology through the supply chains is also going to be extremely important so that they bring their supply chains along with them.
00:20:27
Speaker
A corporate cannot solve its carbon footprint problem without solving that of its supply chain as well.
00:20:34
Speaker
So A, adapt.
00:20:37
Speaker
Adapt new financing and new technology solutions.
00:20:41
Speaker
B, act.
00:20:42
Speaker
direct firms and technologies across the value chains, and see accelerate work not only on the short term, but on the future as well.
00:20:54
Speaker
So adapt, act, and accelerate.
00:20:56
Speaker
The last, what I would like to say is don't look at this as a challenge only.
00:21:01
Speaker
It can be extremely overwhelming if you look at this as a challenge.
00:21:06
Speaker
It's actually a massive, massive commercial opportunity.
Collaborative Approach to Sustainability Opportunities
00:21:10
Speaker
As old sectors transform themselves and new sectors emerge, this is such a massive opportunity.
00:21:20
Speaker
Absolutely.
00:21:21
Speaker
And really exciting for everyone.
00:21:24
Speaker
But thank you so much, Therath, for that, for bringing it to life, for all of our listeners and for all of your fabulous suggestions there.
00:21:32
Speaker
It's been really great to have you back with us and to hear all about the progress that's been made, but also those suggestions around preparing for the future, being ready for that transition.
00:21:43
Speaker
And I hope that we can tempt you back next year as well to see what the progress has been when we get to 2023.
00:21:50
Speaker
But thanks ever so much for joining us.
00:21:51
Speaker
Thank you, Eleanor.
00:21:52
Speaker
It's always a privilege and a pleasure speaking with you, especially on this topic.
00:21:57
Speaker
Excellent.
00:21:58
Speaker
Thank you so much.
00:21:59
Speaker
And big thanks also to everyone for listening.
00:22:02
Speaker
So this has been HSBC's Cyboss Spotlight, a podcast miniseries produced especially by TMI for HSBC Global Viewpoint.
00:22:10
Speaker
To discover other episodes in this series, search for HSBC Global Viewpoint on Apple and Spotify or head to gbm.hsbc.com forward slash siteboss, where you can also find out more about HSBC's transaction banking insights and presence at Siteboss.
00:22:40
Speaker
Thank you for joining us at HSBC Global Viewpoint.
00:22:44
Speaker
We hope you enjoyed the discussion.
00:22:46
Speaker
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