Singapore is a global trading hub, located at the beating heart of many global supply chains that provide both regional and national drivers of growth. In the global race towards decarbonisation, there is growing pressure to recognise and address the carbon emissions burden of supply chains. Singapore could become a valuable regional leader on this journey.
Recent research published by the World Economic Forum (WEF) and Boston Consulting Group (BCG) reveals how tackling supply-chain emissions can transform the global fight against climate change. The WEF-BCG report, “Net-Zero Challenge: The Supply Chain Opportunity”, analyses the top eight global supply chains, which together account for more than 50% of global greenhouse gas (GHG) emissions. The report shows that end-to-end decarbonisation of these supply chains would add as little as 1% to 4% to end-consumer costs in the medium term by introducing key levers that can be easily and affordably deployed today.
Taking a lead on net-zero supply chain transformation could be a valuable opportunity for Singapore in attracting global businesses and trade partnerships. For example, Sony recently suggested it would move factories abroad if the Japanese government did not lower barriers for renewable energy adoption. This reflects a growing global push by corporations and consumers for more low-carbon ecosystems. The market for sustainable products demonstrates this journey, growing seven times faster than contemporary counterparts over the last five years. Now is the time to embrace change and double down on Singapore’s low-carbon credentials.
A future of net-zero trade
2021 represents a global turning point, as the world strives to emerge from the Covid-19 pandemic. It is also the year of the 2021 UN Climate Change Conference (COP26), representing a pivotal moment in our attempt to steer below a 2°C global warming pathway, and the negative impacts it would trigger.
We have seen net-zero momentum grow in 2020. The UK and EU are committed to net-zero by 2050. South Korea and Japan both recently pledged to achieve net-zero emissions by 2050, while China and the US are targeting 2060 and 2050 respectively. With Australia slowly edging towards a similar promise, nations that account for a combined amount of over $135 billion of Singapore’s exports will soon be looking to net-zero futures.
2020 also accelerated existing supply-chain shifts, with Covid-19 highlighting the risks of single-supplier business models. These disruptions, combined with escalating costs in major manufacturing markets like China, has seen expanding manufacturing interest in Southeast Asia. The role of customer-facing companies is particularly important in this transition. Tackling company supply chains will reduce emissions by a magnitude far greater than direct operational impacts. Nestle’s direct operations account for just 5% of its total emissions for example. Supply chain mitigation is a critical pathway to reduce end-to-end GHG emissions with limited additional costs.
Transforming supply chains
Eight supply chains — food, construction, fast-moving consumer goods (FMCG), electronics, automotive, professional services, fashion, and freight — account for more than half of global GHG emissions. Southeast Asia represents a significant participant in global supply chains for all eight.
Analysis shows that China, the EU, and US together account for almost three-quarters of Southeast Asia’s global CO2 export flows. The evidence reveals mature and maturing markets are increasingly outsourcing their carbon burden to production hubs such as Southeast Asia.
Singapore has the opportunity to be a regional exemplar in decarbonised supply chains. The nation’s carbon tax already offers a leading example of carbon pricing initiatives. With its pivotal role in global shipping, Singapore could be a leader in decarbonisation of seaborne freight — something the Maritime Singapore Green Initiative is already looking to encourage.
Singapore plays other vital parts in global supply chains. The nation’s pioneering semiconductor and materials industry has an annual export value of US$84.26 billion ($112.5 billion) and forms a key link in electronics. Chemicals account for US$42.93 billion in exports and are a major contribution to supply-chain emissions in areas such as FMCG.
More than 80% of end-product emissions for customer-facing companies in construction, food, automotive and fashion, and 77% in electronics, are attributable to supply-chain emissions, known as Scope 3 emissions.
The WEF-BCG report estimates 40% of all emissions in these supply chains could be abated with readily available and affordable levers at a cost of just US$10 per ton of CO2 equivalent, using mechanisms such as circularity and increased use of recyclable materials, material and process efficiency improvements, and increased adoption of renewable power and heat. Interventions that reduced supply-chain emissions to zero would result in just 1% to 4% increase in end-consumer costs in the medium term.
This transformation is understandably complex, with even the most experienced companies facing challenges in accessing the data or oversight to deliver end-to-end change.
Circular processes that eliminate waste are an important step and could reduce up to 5% of supply-chain emissions in major industry electronics. Government initiatives like “Closing the Waste Loop” offer a valuable step towards this circular economy approach. Material and process improvements could reduce another 20% of supply-chain emissions in electronics, while renewable energy and renewable heat combined could tackle 65% of electronics supply-chain emissions.
While 20% of supply-chain emissions in freight can be delivered with low-cost levers, more comprehensive transformation will require innovation, with new designs and emerging battery technologies fundamental to key areas of the national economy like aviation and shipping.
Companies looking to tackle end-to-end emissions must recognise and adopt the right measures to reduce supply-chain impacts. The report sets out nine major actions CEOs can address:
- Build a comprehensive emissions baseline, gradually filled with actual supplier data,
- Set ambitious and holistic reduction targets, and publicly report progress,
- Revisit product design choices for sustainability,
- Design a sustainable value chain and geographic sourcing strategy,
- Set and track ambitious procurement standards,
- Work jointly with suppliers to address their emissions,
- Engage in sector-specific initiatives with peers to maximise impact and level the playing field,
- Leverage scale through “buying groups” to lower the cost of green solutions,
- Develop internal governance mechanisms to align the incentives of decision-makers with emission targets.
Singapore could position itself as an engine of change, with corporations embracing a detailed end-to-end approach of emissions mitigation in supply chains.
Decarbonisation of the supply chain will be a game-changer for the impact of corporate climate action. Addressing supply-chain emissions is fundamental for companies to realise credible climate change commitments. Singapore should leverage its early moves towards decarbonisation and encourage an informed and collaborative approach to net-zero supply chains for the future.
Dave Sivaprasad is managing director & partner, SEA Leader for Climate Action, while Alex Dolya is managing director & partner, at Boston Consulting Group