Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to TMI's TreasuryCast and HSBC's CYBOSS Spotlight.
Speaker: 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.
Speaker: So throughout this series, we'll explore the critical topics on the CYBOSS 2021 agenda, those which are shaping our industry in the next decade, including sustainability, digital acceleration, and technological innovation.
Speaker: We'll also examine the opportunities and challenges in the areas of payments, securities, cash management and trade.
Speaker: I'm delighted to be joined in the studio today by Surath Sengupta, Managing Director and Global Head of Portfolio, FIs and Sustainability for Trade Finance, HSBC.
Speaker: And he's going to share his insights around embedding ESG into trade and supply chains.
Speaker: So Surath, thank you so much for joining us.
Speaker: Absolutely great to have you here.
Speaker: put you in the hot seat a little bit.
Speaker: So obviously ESG is a central theme at Cybos this year, and we hear quite a bit about organisations that are working on strategies to improve their ESG metrics, they're heading towards net zero by 2050 and so on.
Speaker: But I'm just wondering, can everything be done within that organisation's own four walls or is external collaboration very much the secret to success?
Speaker: Firstly, Eleanor, thank you for having me and I'm absolutely delighted to be here speaking to you on this very important topic.
Speaker: If you just step back a little bit, you're absolutely right.
Speaker: ESG has become a central theme in most organizations.
Speaker: In fact, we recently did a Navigator survey that showed that 85% of businesses have put environmental sustainability as a key priority.
Speaker: and nine out of ten businesses are looking at COVID response as an opportunity to prioritize sustainability.
Speaker: So it's right up there.
Speaker: But we need to understand why is that the case.
Speaker: And I look at it from three separate sort of dimensions.
Speaker: The first is performance, right?
Speaker: So performance and the way the performance of corporates are evaluated is changing.
Speaker: So if you look at
Speaker: the middle of the last century, it was fully based on profits.
Speaker: But by the end of the last century, beginning of the century, it moved towards shareholder value, the total shareholder value.
Speaker: What's the shareholder value that a company is bringing?
Speaker: It is now changing and evolving into total societal return.
Speaker: So it's not anymore just about shareholder value and what shareholder value a company is sort of providing.
Speaker: It's about what's the societal return.
Speaker: So there is a bond with society that is
Speaker: that corporates have to now fulfill as well.
Speaker: So that's on performance of the first sort of dimension.
Speaker: The second dimension is opportunity, right?
Speaker: So ESG is not just a necessity.
Speaker: It is also a massive commercial opportunity for corporates to fulfill the needs of the future customers.
Speaker: I mean, the transformation that is happening
Speaker: will actually transform some of the old sectors, open up new sectors and create new customers as we go along, right?
Speaker: And the third one, which is also important is the policy momentum.
Speaker: So there is a huge momentum of policy behind this with the commitment of the leaders from the main trading blocks, whether it's China, whether it's the US, whether it's EU, et cetera.
Speaker: And this is then providing a platform for this accelerated transformation.
Speaker: Yeah.
Speaker: But you're right.
Speaker: This cannot be done within the four walls of a corporate.
Speaker: I mean, let's let's look at the E and the S. Right.
Speaker: 80 percent, up to 80 percent of a corporate carbon footprint is in its supply chains.
Speaker: Mm hmm.
Speaker: So it can't do it alone.
Speaker: And also consider the wider impact that companies have and their operations have on society, right?
Speaker: So the E and the S. It has to be done in a collaborative manner across all levels.
Speaker: Now, let's sort of bring that to light as an example.
Speaker: Let's use international trade as an example, right?
Speaker: Because international trade sits at the heart of
Speaker: global, industrial and human activity.
Speaker: And if you look at it, if global trade and the carbon footprint in global trade, the societal impact in global trade has to change, right from the SMEs, the deep tier suppliers, to the large corporates, the logistics providers, the banks,
Speaker: the multilaterals, policymakers, etc.
Speaker: So it's across the entire ecosystem, everyone's got to come together to really deliver this change.
Speaker: Yeah, absolutely.
Speaker: But it's exciting to hear you talk about those opportunities there and the transformation that can happen.
Speaker: But also to hear that 80% stat is quite shocking, really.
Speaker: And
Speaker: Sarah Robinson, makes me think about how corporate treasurer's can assist so i'm wondering so rath if you could give us an idea for our listeners or treasurer's out there, how can they encourage more esg friendly behavior in the supply chain and how effective our solutions that we hear about like sustainable supply chain finance, for example.
Speaker: Well, Eleanor, I mean, this 80% carbon footprint in the supply chains is a very important thing.
Speaker: And there is not always a recognition of how large this is, right?
Speaker: So it is something that we need to consciously think about as
Speaker: there is a transition that is happening across sectors.
Speaker: And when we look at supply chains, it's physical and financial supply chains and the two sort of work together.
Speaker: So one cannot change in isolation of the other.
Speaker: And here is where finance can actually be used as a very important lever to drive change across both E and S.
Speaker: So I think that is where corporate treasurers can play a very, very significant role.
Speaker: So from a supply chain perspective, I mean, everybody is now very conscious of the frequency of disruption that can occur, the increased costs that can occur, etc.
Speaker: So there is therefore a need to look at the supply chains very closely.
Speaker: and collaborate just as we were speaking of the collaboration earlier and collaborate across the ecosystem to develop of just inclusive and holistic ESG strategy, which creates more resilience in the supply chains because that is the most important thing.
Speaker: How do we create resilience in supply chains and that resilience cannot be created in isolation of ESG strategy.
Speaker: Now, how does one go ahead doing that, right?
Speaker: There is a lot of innovative technology that is coming through as we speak, right?
Speaker: So there are things like Internet of Things, blockchains, tokenizations, etc.
Speaker: Now, this can be used to really create transparency across the supply chain.
Speaker: So where is this being sourced from?
Speaker: How is it being sourced, etc?
Speaker: You can create a very massive transparency into this.
Speaker: You can go significantly deeper into the supply chains.
Speaker: that needs to be financed using these technologies and you can create incentivization.
Speaker: So to your point, sustainable supply chains, it's about incentivizing suppliers and incentivizing them to have the right behavior, the right productivity, the right sourcing, etc.
Speaker: to make sure that the corporate can fulfill its ultimate goal towards their sustainability commitments.
Speaker: And
Speaker: We've had really good success there.
Speaker: So we've worked with some large retailers and their supply chains to create incentivization.
Speaker: And that's working because you can see suppliers using that financial incentive as a step to move to the next level of their own commitment.
Speaker: There's always the carrot and stick scenario, but you do need a little bit of both to make progress, I think.
Speaker: But Seref, the one thing, the things I liked that you've mentioned a couple of times is both the E and the S of ESG, because quite often when we're having conversations in this space, particularly around trade and supply chain finance,
Speaker: We hear more about the green than anything else.
Speaker: So I wanted to ask you maybe a little bit more about that social aspect and how can companies support their supplier ecosystems to promote things like diversity, for example?
Speaker: That's a very, very important point.
Speaker: I mean, E and S to my mind are intertwined.
Speaker: I mean, tackling the climate crisis is an emergency.
Speaker: And we cannot walk away from that.
Speaker: It is an absolute emergency.
Speaker: But this has to be done in a fair and just manner.
Speaker: Otherwise, we will not be successful.
Speaker: You cannot leave out parts of society and just go on a transformation for the rest of the society.
Speaker: We will never be successful if we do this transition in this manner.
Speaker: This is a huge opportunity for us across the world to really do this transition properly once and for all.
Speaker: And right now, there is a greater expectation for corporates to play a role in society to address inequality, social justice, and to your point, diversity.
Speaker: So that expectation has increased many fold.
Speaker: That's something that we have to be aware of.
Speaker: And trade finance actually can be a great enabler here.
Speaker: as it connects SMEs on one side to large businesses on the other side.
Speaker: And it has the power, it has the power to reduce inequality.
Speaker: So that's why I'm so fond of trade finance, right?
Speaker: It's such an enabler.
Speaker: And if you look at innovative solutions have to be put in place, as I said, technology, transparency, et cetera, to look at things.
Speaker: If you look at it, we did...
Speaker: another transaction where we looked at how do we support a minority and ethnically diverse SME suppliers, right?
Speaker: How do we support them?
Speaker: So we looked at that.
Speaker: So we have to create these programs, these solutions to enable these just transition.
Speaker: And another example, for example, we worked with Asian Development Bank during the height of the COVID crisis.
Speaker: to provide targeted financing for SME suppliers for supplying PPE equipment when it was most needed.
Speaker: So those are things that we have to work with across the ecosystem, collaborate and work with to create a society which enables this transition and which enables us to deal with this climate emergency in a holistic manner.
Speaker: Yeah, absolutely.
Speaker: It's great to hear about those examples and
Speaker: I'm sure we'll be reading of more in the future, but, Sarath, it's very easy for you and I to sit here and be enthusiastic about this topic, and I think it's a passion for both of us, but what about the wider trade finance community?
Speaker: How do we kind of help that community to move and to accelerate the transition towards ESG-led solutions?
Speaker: Are there any particular barriers that you think need to be overcome?
Speaker: Yeah, I mean, trade finance is the lifeblood of global trade, right?
Speaker: Well, there are barriers of plenty, but I don't look at them as barriers.
Speaker: I actually am looking at the opportunity for us to do something which is going to be so significant for everything going forward, right?
Speaker: And again, I have this, you will hear me keep on saying this about these three sort of spheres to look at things.
Speaker: And I like to look at things from different angles.
Speaker: And again, out here, if you look at the three angles, right?
Speaker: The first angle is innovation.
Speaker: The second is collaboration.
Speaker: And the third is standardization.
Speaker: What do I mean by that?
Speaker: Innovation.
Speaker: I mean, we have been doing trade financing in a similar manner over so many years, right?
Speaker: I mean, it's evolved a little bit here and there.
Speaker: It's evolved from LC trade and documentary trade into open account trade a little more, et cetera, et cetera.
Speaker: But what will happen now is a steep jump in innovation across trade finance to cater to the ESG transition needs.
Speaker: Mm-hmm.
Speaker: And this will some of this will be very sector specific.
Speaker: So as sectors transition, their needs will have to be catered to very differently.
Speaker: And the journey that trade finance has been on technology will actually enable this innovation to happen very, very quickly.
Speaker: So this innovation is where there is a collaboration that is required as well.
Speaker: So what do I mean by collaboration?
Speaker: So let's take an example, right?
Speaker: So if a buyer in the US wants to provide financing deep into their Asia-based supply chain, for example, right, to support ESG transition, it will require a multidisciplinary expertise in areas of ESG measurement, risk mitigation, financing, ongoing monitoring, transparency, etc.,
Speaker: And this cannot happen in isolation.
Speaker: So there is a collaboration that is required across rating agencies, banks, multilaterals, investors.
Speaker: There is so much investor interest in this space, regulators and fintechs.
Speaker: Some of the fintechs are coming with such novel ideas and technologies.
Speaker: Again, that's something to be leveraged upon as well.
Speaker: And this collaboration holistically can deliver those innovative solutions.
Speaker: And the last one is standardization.
Speaker: Why standardization?
Speaker: Because there is so much to be done at such scale.
Speaker: This cannot be done in pockets of isolation, right?
Speaker: So we need to harmonize and standardize.
Speaker: What is standardization?
Speaker: sustainable, what is not sustainable, how do we define something, how do we rate something as one, two or three, those definitions, all of them have to be standardized.
Speaker: Otherwise, we are going to just fall over each other in trying to sort of solve this problem.
Speaker: Again, there are industry bodies that we need to collaborate and like ICC, etc, to really bring this to life.
Speaker: Yeah, that's it.
Speaker: So definitely one of the missing pieces at the moment, that standardization side of things, but hopefully in time that will come.
Speaker: And coming back to the collaboration point that you raised there, Sarah, what do you feel HSBC's role is within this transition period and how, as you are a bank, are you working towards sustainable goals, helping your customers to do the same and working within that kind of ecosystem that you outlined?
Speaker: Firstly, HSBC is massively committed to this.
Speaker: I mean, our CEO is personally and as an organization has committed HSBC into the sustainable space.
Speaker: And there's an ambitious plan to support sustainable financing and investments.
Speaker: We are a global bank and we recognize that with that, there is a responsibility and an opportunity to influence change.
Speaker: And we are looking at this across three pillars.
Speaker: Number one, supporting customers transition to low carbon.
Speaker: So we are actually helping customers, working with them and planning with them to help them transition to low carbon.
Speaker: And we have said that we will provide 750 billion to 1 trillion in financing and investment over the next few years.
Speaker: That's the first pillar.
Speaker: The second pillar is make our own operations net zero by 2030.
Speaker: And the third one, which is to my heart, I'm very close to it, is unlock new climate solutions.
Speaker: because this cannot happen with the way we have worked over the years because if it had happened we wouldn't have reached the state yeah so so we have to unlock new climate solutions to enable this so that's at the overall hsbc perspective and then if you bring it down to trade finance again as the world's largest trade finance bank in hsbc we have a responsibility to really lead this change so we are continuously actually innovating in this space so i and
Speaker: We are trying to deliver new solutions, some of which I just spoke about.
Speaker: We are forging new partnerships because they, as I said, collaboration is very important so that we can really scale this up.
Speaker: And lastly, we are influencing policy in this space as well, whether it's through ICC, B20, et cetera, to really create the right momentum and platform for this change itself.
Speaker: exciting times ahead and it's a it's very much a hugely important task and wishing you the best of luck in all of that and your team but sir i thank you so much for joining us today sharing your insights giving us plenty of food for thought i wondered if we could maybe just finish up with a quick takeaway for our listeners because we've covered quite a lot of ground so
Speaker: What would you say would be the key thing for corporate treasurers wanting to make a success of embedding ESG in their trade and supply chain finance activities?
Speaker: What's your
Speaker: Quick little summary for them to take away from this.
Speaker: Well, I think corporate treasurers will play a very key role in driving this change, right?
Speaker: They will have to look at what I call the three R strategy, the first being re-evaluation.
Speaker: So there is a re-evaluation of supply chains.
Speaker: I mean, supply chains have become long and complex and driving it, squeezing it to the last penny to deliver just-in-time strategies, right?
Speaker: But there's a re-evaluation required to get supply chains to deliver resilience and sustainability.
Speaker: The second is reconfigurations.
Speaker: So as consumer behavior and demand is changing, whether because of their own tastes and needs or driven by regulation, there is a need to reconfigure supply chains and the corporate sort of ecosystem to cater to that consumer behavior.
Speaker: So with this...
Speaker: reevaluation and reconfiguration comes refinancing.
Speaker: So what do I mean by that?
Speaker: Financial supply chains also will shift along with these change in physical supply chains.
Speaker: And corporate treasurers will need to embed ESG early into these new reconfigured financial supply chains.
Speaker: And I believe
Speaker: that the success of their companies will be directly proportional to how successful they are in embedding the ESG strategy into this and how quickly they are able to embed the ESG strategy into their new configured supply chains.
Speaker: So it's very, very critical.
Speaker: Well, so Raf, thank you so much for joining us today.
Speaker: It's been an absolute, genuine pleasure having you here, hearing your insights and your enthusiasm, and great to hear about the opportunities that lie ahead for corporate treasurers in ESG.
Speaker: Elinor, thank you once again for having me and allowing me to speak on a topic which not only am I responsible for, but I'm really passionate about.
Speaker: And I think this is a huge opportunity and a responsibility that all of us have to really drive this change.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
