Global shipping is one of the most challenging sectors to decarbonise. The International Maritime Organization (IMO) has set out an ambitious goal to reduce the industry’s greenhouse gas emissions by 50% from 2008 levels by 2050, a target that will require the swift development of zero or low-emission fuels, new ship designs using cleaner technology, and climate-proof operations such as carbon efficiency optimisation initiatives.
For the global supply chain to meet this target we need all industry participants, from customers to financial institutions, to act.
Promoting environmental stewardship through finance
While the roll-out of green finance is still nascent, with no well-recognised market standards, momentum is visibly growing.
Take shipping finance as an example; last year, a group of leading banks signed up to environmental commitments known as the Poseidon Principles, which provides a framework for integrating climate considerations into lending decisions to promote international shipping’s decarbonisation.
Businesses looking to implement sustainable procurement practices across their supply chain are also driving the demand for green trade finance.
Concept product like the sustainable shipment letter of credit (LC) was launched in 2014 by the International Finance Corporation (IFC) and the Banking Environment Initiative (BEI) to expand the global trade of sustainably-sourced commodities.
The IFC also launched the Climate Smart Trade (CST) initiative to provide price incentives or longer tenors for projects that have clear climate change benefits.
However, many issues remain to be solved to drive wider adoption and implementation of green trade finance.
The trade finance industry is mostly paper-based, which leaves documentation vulnerable to tampering or fraud.
Additionally, the global supply chain involves many participants, making climate credentials, like carbon emissions, hard to track and measure, let alone sharing the data to enable end-to-end visibility and transparency to inform green finance decisions accurately.
Such visibility is also valuable to businesses, as it empowers them to take informed action to change the way they source, trade and distribute goods––for example, optimise their shipment routes and schedules or shift to a lower-carbon mode of logistics.
Digitalisation is the key to bridging finance with climate change commitments, to truly harnessing financial influence to drive the decarbonisation of global trade.
Enabling data transparency and collaboration through blockchain
In fact, the digitalisation of the global supply chain still has a long way to go.
Although the International Maritime Organization (IMO) has made it mandatory for all its member countries to exchange electronic key data according to the FAL Convention, a recent survey by the International Association of Ports and Harbours (IAPH) reveals that one main barrier to digitalisation was persuading multiple private-public stakeholders to collaborate and revamp established practices and cultures, thereby enabling the sharing and reusing of data.
GSBN is an independent non-profit consortium that aims to enable and accelerate the digital transformation of the shipping industry.
GSBN sees the potential in facilitating collaboration and enabling better carbon emission tracking across the supply chain using blockchain.
Blockchain is a powerful tool that can significantly improve the transparency, accountability, and traceability of greenhouse gas emissions, and provides instant authentication and verification of real-time data.
International bodies such as the joint US-EU Trade and Technology Council have recognised technology’s potential and recently announced a partnership to improve the process of tracking carbon emissions using blockchain.
Vision for an impartial carbon footprint data platform for global trade
As a neutral technology consortium for the shipping industry, GSBN can source data from carriers, terminals, and other logistics service providers.
This enables members to collect key factors in carbon footprint calculation for transportation, including routing (place of receipt, place of destination, and transhipment port), trade lanes (shipper and consignee), transport companies (shipping line or trucker), commodities product type, transport mode (vessel or vehicle), vessel type in shipment, utilisation (overload or underload), and more.
With traceable and immutable source data from shipping lines and terminals, as well as truck data visibility inputs for carbon emission calculations, businesses can gain more transparency to improve their carbon footprint within the supply chain.
Financial institutions are facing growing pressure to better manage the carbon footprint of their portfolio from regulations to voluntary frameworks like the Poseidon Principles, which require signatories to calculate the climate alignment of their shipping portfolio relative to established decarbonisation trajectories.
Better visibility and transparency of carbon emission tracking is instrumental in helping financial institutions meet such expectations, and ultimately improve the accuracy of financial institutions’ assessment of whether their lending portfolios are in line or behind the climate goals set by the IMO.
Ultimately, this will drive meaningful actions toward the decarbonisation of the global supply chain.