Lenders are being asked to allocate more capital than ever to manage risks and seize opportunities, as the world strives to achieve net zero carbon emissions by 2050.
In the next eight years alone, investment related to the transition to net zero will need to top $4 trillion annually, up from $1 trillion now.
And over the next 30 years, it will take roughly $150 trillion to reach the target.
The net zero challenge
Net zero is the state at which carbon dioxide emissions are either balanced by their removal from the atmosphere, or simply not produced at all.
To wisely deploy this capital requires a hard look at just how effectively businesses that rely on the financial sector manage their supply chains.
It’s a collaborative process, as the lender helps both the buyer and supplier.
But supply chains have long been an achilles heel in the corporate fight for the environment: they can be complicated and stretched across multiple countries and dozens of third parties.
The greenhouse gas emissions that are embedded in every commodity and product are currently almost impossible to fully measure, and as a result they are extremely difficult to reduce.
Nevertheless, supply chain diligence and transparency are crucial.
As Sean Birrell, our chief technology officer at Veridapt, says: “A focus on emissions emanating along the supply chain is emerging, but solutions are not yet mature.”
Solutions from Veridapt
At Veridapt, we are an Australia-based fintech and internet of things (IoT) company that monitors commodities in real-time.
We manage over 5 billion litres of fuel annually for corporates, and we calculate their emissions.
Our platform measures emissions across an entire supply chain, be it at the point of production, storage, or transport by road, rail, or sea.
As Sean says: “We provide certainty through real-time data, and our accurate reporting allows our customers to know their total emissions and offset this as part of offering a net zero product.”
The fintech revolution in supply chain financing dates back to the 2008 financial crisis, which created an opportunity for fintechs to help banks comply with new regulations and compliance mandates.
Companies such as Veridapt and others are forming alliances and partnerships with lenders to double down on emissions reporting and transparency through innovative technology, recognising the growing demands being placed on the financial sector to play an active, if not leading role in addressing global warming.
These demands include a push that would see businesses publish emissions data not just about themselves, but from within their supply chains as well.
UK in focus
Despite the rise in climate finance, companies are still not disclosing enough data, with less than 20% of listed companies worldwide reporting CO2 emissions.
At the recent COP26 United Nations Climate Change Conference in Glasgow, the UK unveiled plans to become the world’s first net zero-aligned financial centre and “welcome” climate commitments from private companies.
These commitments are designed to create a pool of cash that could help fund a move away from coal and other fossil fuels in favour of renewable, energy-reliant industries and products.
The aim, according to British Chancellor Rishi Sunak, is to “rewire the entire global financial system for net zero.”
Sunak told COP26 that over $130 trillion – around 40% of the world’s financial assets – is now being aligned with the climate goals in the 2016 Paris Agreement, including limiting global warming to 1.5°C.
“This will spur demand for green finance and accelerate decarbonisation, not just in the UK, but wherever UK firms do business,” says Ben Caldecott, director of the UK Centre for Greening Finance and Investment.
ANZ, one of Australia’s biggest banks, believes the transformation in how we produce, distribute, and consume energy is one of the “biggest shifts in banking in a generation.”
Still, the difficulty in producing and sourcing sustainability data means that verification and standardisation remain a big challenge for many banks, and prevent many smaller, less mature companies in emerging markets from participating, according to Deloitte Financial Services.
So, as Veridapt’s very own Sean Birrell reminds us again: “It’s good to remember that only what gets measured gets managed.”
Read our latest issue of Trade Finance Talks, Spring 2022
