As the world moves towards a low-carbon future, businesses in the metals and energy sectors are under increasing pressure to adapt. Carbon transparency is critical in this transition as it allows companies to track and report their carbon emissions across the entire supply chain. 

Beyond compliance, carbon transparency presents opportunities to gain a competitive edge. 

With regulatory demands and commercial expectations constantly changing, companies which act now to decarbonise their operations will be better positioned for future success. 

Trade Finance Global (TFG) spoke with Adam Hearne, CEO of CarbonChain, to learn more about how businesses can use carbon transparency to meet compliance requirements, decarbonise their supply chains, and capitalise on emerging commercial opportunities.

Carbon transparency and its growing importance

Carbon transparency refers to a business’s ability to track and understand its carbon emissions comprehensively, not just within its own operations but throughout the supply chain.

Hearne said, “Data is critical for decarbonisation and the macroeconomic opportunity that is the green transition. Companies that don’t have the right data risk non-compliance, huge fines, and also missing out on commercial opportunities.” 

In sectors like metals and energy, where the production process is resource-intensive and emissions-heavy, this is particularly crucial. Having access to accurate, shareable carbon data is no longer optional. It is becoming a necessity driven by regulators, investors, banks, and customers alike.

At the heart of carbon transparency is the ability to report emissions in a verifiable and standardised way. As carbon taxes and regulatory frameworks, such as the European Carbon Border Adjustment Mechanism (CBAM), come into full force, companies that fail to provide accurate carbon information risk hefty fines. 

But companies are starting to recognise that providing carbon data is not a cumbersome regulatory requirement, but rather opens the door to new commercial opportunities. For example, banks are now offering better credit terms, such as interest rate discounts, to businesses that can demonstrate lower carbon intensity in their supply chains. 

Challenges for traders in decarbonising supply chains

Despite the clear advantages of carbon transparency, many businesses, especially traders, face significant challenges when trying to decarbonise their supply chains. 

One of the most pressing issues is traceability. Supply chains in the metals and energy sectors are often multiple layers of suppliers, each with varying degrees of environmental oversight. Obtaining accurate carbon data from these suppliers is complicated.

Hearne said, “That makes your decarbonisation journey hard if you’re trying to look at where your supply chains are coming from. Now, imagine trying to get carbon information on top of that, and you’re facing an uphill battle. If you don’t have the right tools and experts around you, it’s actually really hard to get started.”

Another challenge is the hesitancy, especially among smaller companies, to ask their suppliers for carbon data. Larger companies with more influence in the market tend to make these requests early in their decarbonisation journey, using their buying power to enforce compliance. 

Hearne said, “Smaller companies delay the ask for fear of upsetting the status quo, not realising how rapidly the regulatory landscape is evolving and the significant fines that are getting imposed this year.”

However, this hesitancy can be detrimental. The regulatory landscape is evolving quickly, and companies that fail to act could be left behind as the market shifts toward low-carbon products.

Hearne added, “Carbon reporting is here to stay. It’s not just a fashion trend. So companies need to invest time and money, whether they like it or not. Starting now on your carbon footprint is the best way to overcome all of these challenges.” 

Commercial opportunities through carbon data

In addition to meeting compliance standards and avoiding regulatory penalties, carbon transparency offers businesses in the metals and energy sectors clear commercial benefits. 

One such opportunity is the ability to secure better terms on sustainability-linked loans. Financial institutions are increasingly offering lower interest rates to businesses that can provide verified carbon data and commit to reducing their emissions, which provides a tangible financial incentive for companies to invest in carbon reporting and emission reductions.

Hearne said, “Over 80% of your emissions are going to be in the supply chains of your business, so you need to tackle this bigger opportunity first.”

Moreover, as consumers become more environmentally conscious, there is a growing market for low-carbon products. In some cases, businesses are able to charge a green premium for products with a lower carbon footprint: buyers are willing to pay more for sustainability. 

Companies that can provide emissions data upfront, particularly at the quoting stage, stand to gain a competitive advantage by appealing to customers who prioritise sustainability in their purchasing decisions.

The supply chain itself presents another significant opportunity. By actively seeking suppliers with lower carbon intensity, businesses can reduce their own emissions while future-proofing themselves against the rising costs of carbon taxes. 

Companies that act early and lock in long-term agreements with low-carbon suppliers will be better positioned to capitalise on the economic benefits of decarbonisation, including cost savings and enhanced market competitiveness.

Case study: Fusina Rolled Products

Fusina Rolled Products, a market leader in aluminium rolling, is one example of a company actively

reducing its carbon footprint with CarbonChain’s solution by implementing sustainable practices throughout its production process. The company produces rolled aluminium with an impressively low carbon intensity.

Hearne said, “They’re able to offer products that are as low as three to four tons of carbon per ton of aluminium, which is impressive compared to the industry average of 16 tons per ton. 

By offering aluminium with a lower carbon intensity, the company can secure a green premium. As Hearne summarised, “They can get commercial benefits for acting early in markets that are showing demand for carbon transparency.”

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Carbon transparency is no longer just about meeting regulatory obligations—it is a strategic imperative. Companies that invest in tracking and reducing their carbon emissions today will stay compliant with ever-tightening regulations and unlock valuable commercial opportunities. 

The challenges of decarbonising supply chains are real, but they are surmountable with the right tools and a proactive approach. As the global economy shifts towards a low-carbon future, businesses that prioritise carbon transparency will be best positioned to thrive.

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The reality is that our Earth is in trouble. 

We’ve known it for quite some time now – Swedish scientist Svante Arrhenius theorised about the impact of increased carbon levels back in 1896 – but only in the last few years has the urgency of the situation and the need for immediate change become more mainstream.

Every company must now prepare for regulation whiplash in the coming years, as new climate warming data released this month paints a bleak outlook for a warming world, going beyond 2.5 degrees Celsius to previous estimates.

According to data from NASA, human activities have raised the atmosphere’s carbon dioxide content by 50% since the 1800s. This excess carbon dioxide changes the climate of our planet – increasing global temperatures, causing ocean acidification, and disrupting the planet’s ecosystems – and if left unchecked could lead to irreversible changes.

These environmental shifts also come with significant economic impacts, including increased costs in agriculture, infrastructure, and healthcare, further emphasising the urgent need for sustainable practices. According to a World Economic Forum report, climate change is likely to cause up to $12.5 trillion in economic losses by 2050.

Thankfully, governments and industries around the world are beginning to take action.

Emissions disclosures: Necessary, but a nightmare

Ecological needs and increased public attention have put pressure on regulators, consumers, and financial institutions to demand more transparency in terms of the environmental impact of global supply chains.

These stakeholders want assurances that commodities traders and financiers throughout the distribution network are compliant with current regulations and prepared to adapt to future standards.

While this is a step in the right direction for the health of our planet in the long term, it has led to a labyrinth of varied reporting frameworks that often require different types of mandatory emission information. Layer on the many voluntary disclosures expected by financial institutions and customers, and the reporting burden on firms can seem overwhelming. 

For instance, the European Union’s Corporate Sustainability Reporting Directive (CSRD) demands comprehensive Scope 1-3 emissions disclosures from corporations, while banks and trading partners might also require specific product carbon footprints or detailed trade portfolio emissions. 

Each of these frameworks may dictate different data types, ranging from estimated emissions to detailed supplier-specific data, further complicating the reporting process. 

And that doesn’t even begin to cover the technical challenges businesses face when confronted with carbon accounting. There is further difficulty in aggregating and analysing emissions data across complex supply chains, which requires systems to gather and normalise data from varied sources while ensuring information remains consistent and comparable. 

Robust carbon reporting relies on robust data

Needless to say, carbon reporting is a complex process. 

To get a semblance of accurate information, companies must source high-quality, primary data that is robust enough to withstand scrutiny from these various stakeholders while also providing meaningful, actionable insights to help the business navigate its way to net-zero emissions.

Ideally, this data would encompass both absolute emissions metrics (which measure the total amount of carbon an entity emits over a specific period) and carbon intensity metrics (which measure the amount of carbon emissions per unit of some physical or economic activity such as production output, revenue, or employee).

Acquiring intensity metrics from companies directly enables asset- or product-specific mapping, which dramatically enhances the precision of emissions reporting.

Metrics this precise have been difficult to gather in the past since supply chains can be long and complex and many firms have lacked visibility of their upstream suppliers and downstream customers beyond a certain tier.

As technology has improved, however, acquiring a degree of data granularity that can capture the nuances of specific operations is increasingly feasible. Today, tools such as big data or artificial intelligence (AI) can enable companies to quickly and accurately track asset-specific emissions metrics across the supply chain.

This is particularly important for firms in the energy and metals sectors as their emissions are embodied in the products they trade. Understanding carbon intensity and where the hotspots lie within the product life cycle or supply chain can provide valuable insights for these firms to make decarbonisation decisions. 

Carbon intensity reporting, however, will only be truly credible if it can impact absolute global emissions in a positive way. This makes the way that intensity-based metrics are used along supply chains and interpreted by stakeholders even more critical. 

For it to work, firms will need to engage more closely with suppliers to share consistent and comparable emissions data. Inconsistent or non-comparable data will make it difficult – if not impossible – to understand the actual impact that any decisions will have on emissions.

Embracing a future where robust carbon reporting becomes the norm rather than the exception requires a shift towards greater data transparency and collaboration.

Data transparency begets more data transparency

Improving trade data on product sources will provide a solid information base, but in the real world, there are going to be some gaps. When this happens it becomes critical to actively engage with suppliers to collect primary data to fill the gaps and enhance the accuracy of the carbon reports. 

We can take this a step further by encouraging data sharing across all levels to achieve greater transparency and foster accountability throughout the supply chain. 

As each participant begins to share data and align with broader environmental sustainability goals, more and more will feel pressured to follow suit, creating an environmentally virtuous domino effect down the supply chain. 

As more dominos fall, more data will become available.

Transforming that data into actionable insights requires a data management system equipped with advanced automation capabilities that are fine-tuned to handle asset-level, activity-based emissions factors. 

That’s where CarbonChain comes in.

CarbonChain Comply, simplifying a complex process

CarbonChain provides carbon accounting software for manufacturers, commodity traders, and their banks, with a primary focus on scope 3 supply chain emissions.

Unlike ‘one size fits all’ platforms, CarbonChain is purpose-built for energy and metals supply chains and builds up a complete picture of emissions from the transaction level using activity-based emission factors. We create a record of carbon in supply chains so that reporting and monitoring are easy. Other companies don’t need to waste time and money doing it themselves. That’s why we built CarbonChain, in concept, and as a company.

Our latest solution – “CarbonChain Comply” – acts as a source of truth for carbon data for commodity traders and manufacturers and allows users to create corporate emissions reports that comply with the Greenhouse Gas Protocol.

CarbonChain is purpose-built for complex global supply chains and big complex data sets with an AI-powered platform capable of handling data-intensive calculations, providing an interface for consistency for different actors across the supply chain. 

How complex is this data? CarbonChain modelled thousands of supply chains and used independent databases of emissions factors with 80% of global emissions coverage. We did this to ensure CarbonChain Comply is an accurate tool for companies to use for their carbon accounting needs.

In 2021, CarbonChain helped Gunvor Group meet customer demands by conducting a carbon accounting pilot.

Our team exported all the relevant data, using our automated carbon accounting software to calculate Gunvor’s carbon emissions, and providing a per-cargo analysis of each trade’s emissions, along with auditable reports for verification purposes. Since then, many more of the biggest commodity traders and trade finance providers have relied on CarbonChain’s software to take control of their carbon reporting and explore the development of sustainability-linked loans.

Carbon accounting seems like an overwhelming task, and it can be a confusing process but that’s why we’ve built CarbonChain Comply: so it doesn’t have to be difficult for you. 

We want to help our customers mitigate their future climate risks and communicate it to their stakeholders – through any credible reporting scheme. Without following new regulations like CBAM, companies risk being subjected to heavy fines, and potentially losing their license to import steel, aluminium, iron, electricity, hydrogen or fertiliser products.

At the end of the day, emissions reporting and transparency aren’t just necessary to avoid penalties, they are simply good for business!

The post Corporate accountability in a warming world: CarbonChain’s role in effective carbon reporting appeared first on Trade Finance Global.

Trade finance providers have a critical role to play in the low-carbon transition. Through their lending decisions, they hold massive influence in some of the most carbon-intensive companies and supply chains, and they can use this leverage to push for much-needed progress on climate. 

The industry also has a role – outside of the high-emitting sectors it finances – to provide support and investment for climate technologies, as well as new energy and commodity markets that will be critical for reaching our global climate goals.  

Currently, carbon regulations are hitting supply chains, and global temperature records are repeatedly being broken. At the COP28 climate conference later this month, commodities, the main perpetrator of the majority of the world’s emissions, will be under the spotlight.

Now more than ever, trade finance providers must acknowledge their significant role in solving the climate crisis and take action to guide global trade towards low carbon targets.

This COP marks the end of the first global stocktake, whereby progress against the terms of the Paris Agreement is assessed. It is already clear that the world is nowhere near where it needs to be, but there is hope that COP28 will provide an opportunity to accelerate climate action. 

This means pressure will be on countries to demonstrate progress and take urgent action to move the dial. We can expect more ambitious regulation on the cards, bolstered off the back of the recent launch of the world’s first carbon border tax in the EU as well as more collaboration on climate disclosure through the ISSB. 

Phasing out fossil fuels will also be high on the agenda, as will climate finance. These outcomes could have significant impacts on the shape of trade finance. 

What are the next steps for net zero?

So what should trade finance providers actually be doing to ‘take action’ at this time? 

The first step, as boring as it sounds, is carbon data and accounting. 

In order to have any impact, it is vital to work out the total carbon footprint associated with your financing practices, as these will be significantly higher than operational emissions for financial institutions. And you need to get granular – understanding the carbon emissions associated with each commodity trade finance is key.

However, the difficulty and expense of measuring these emissions have forced many to delay the effort, especially for those with relatively new sustainability departments. 

It is hard enough to track the production, processing and transportation of these commodities, let alone the emissions associated with each step. It is even harder to do so one step removed from the source. 

However, whatever the challenge, whatever the excuse, this data needs to be collected, and shortcuts don’t work. We know that many companies that lack the supply chain data they need to properly calculate their emissions end up using broad-based estimates and assumptions. 

But this won’t do – not only does this open them up to accusations of greenwashing and potential regulatory penalties, but it also puts their whole business at risk. 

In a rapidly decarbonising world, you need to be able to compare performance between similar trades and traders and identify even the smallest changes in performance over time. Imprecise estimates can also hide carbon hotspots, masking the most significant risks. 

Increasingly, voluntary disclosure is transitioning to mandatory disclosure and with 23% of global emissions now covered by carbon pricing schemes, the costs and risks of carbon are increasing. 

More and more regulation is coming in – from the ISSB to the SEC reporting rules, to the EU’s Carbon Border Adjustment Mechanism, and much of this regulation is turning its attention to supply chain emissions. This means trade finance providers are coming into the spotlight, and their portfolios are under increasing scrutiny. 

However, there are some bright spots for companies that are struggling with carbon measurement and management. 

Big data, AI and machine learning are enabling companies to fill in the gaps in supply chain tracing speed up the process of tracking emissions over time and identify solutions. Using tech in this way is a no-brainer. 

Not only does it take the pressure off internal teams in responding to the plethora of external data requests they receive, but it also saves time versus working with consultancies – in our estimation, approximately 8 months’ time.

Of course, getting the data and ensuring regulatory compliance on climate is just the first step. Once companies know where they stand and where the hotspots and risks are in their portfolio, they can use this knowledge to push for change and actually reduce emissions.

Sustainable loans: A bank’s way to leverage green finance and climate action

One way we are seeing banks use their leverage here is through green finance schemes such as sustainability-linked loans. Banks can offer interest rate discounts for lower carbon supply chains and put penalties in place for higher-emitting trades. 

For example, at CarbonChain, we have worked with Société Générale, to offer sustainability-linked loans to commodity trading partners, help to support them on the development of climate KPIs, provide emissions dashboards and allow them to monitor the climate impact of each financed trade, and track progress. 

This innovative approach demonstrates how – enabled by tech and transparent data sharing – producers, suppliers, traders and banks can work together to tackle emissions, manage risks and future-proof their businesses. 

These types of sustainability-linked incentives could have a real impact. As traders start to compete for this green finance, they will need their suppliers to offer better and more competitive low-carbon solutions, driving progress up and down the value chain and triggering system-wide change. 

And given green trade finance is still relatively young, there is a significant opportunity for early movers to get ahead of the game here and lead. 

On the eve of COP28, there is no time to waste. Early action brings rewards, but this window of opportunity is narrowing.

The post Seizing the COP28 moment: Top strategies for trade finance’s path to net zero appeared first on Trade Finance Global.

While a growing portion of the industry starts to seize the opportunities of measuring and managing emissions, many commodity traders still hesitate. Why undertake the complex process of carbon accounting, if it’s hard, if it’s not a legal requirement, and if it only draws attention to their high-carbon products rather than their competitors? 

There are five common reasons for why some perceive carbon accounting as not worth the effort. 

But if we address them one by one, it becomes clear that carbon accounting is crucial for future-proofing supply chains and unlocking rewards from customers and banks. Moreover, today’s technology can make the complex parts of measuring emissions surprisingly easy. 

Myth 1: There’s no mandate, so let’s just wait

“We don’t have to report emissions, so let’s not waste time or money measuring them. Until regulators and legislators force us with incentives or penalties, carbon accounting is a bad investment.”

The reality: Carbon regulation is already here and spreading. Companies in a number of jurisdictions are (or will soon be) legally required to report their emissions, including Canada, Chile, New Zealand, Japan, the UK, Australia, US, Singapore, China, France and Switzerland. 

On top of that, the new EU Corporate Sustainability Reporting Directive (CSRD) is set to quadruple the number of companies subject to mandatory carbon disclosure.

Some 60% of the world’s emissions come from global trade supply chains. So, commodity traders who haven’t yet felt the shocks of carbon pricing and reporting rules will soon be unable to escape them. 

Ships are now subject to International Maritime Organization carbon reporting and rating rules, while the upcoming EU Carbon Border Adjustment Mechanism will force importers to report and pay a price on high-polluting imports. Biden recently announced that the US will require all major Federal suppliers to disclose greenhouse gas (GHG) emissions and set science-based targets. 

There will be winners and losers. Companies that get their house in order now can ensure proper and smooth compliance when new regulations hit. Carbon accounting not only enables traders to measure the impact of carbon pricing schemes, but can help lower costs, by identifying and modelling how to reduce priced emissions. 

The time to start is now. Over half of the world’s companies by market cap are already getting ahead and voluntarily measuring and reporting their emissions through CDP. 

Myth 2: Too long to complete; too hard to get right

“Carbon data is in short supply. Sometimes, we can’t even trace all our suppliers and product origins. We’ve heard there’s huge room for error when following average-based methods, so what’s the point?”

The reality: Carbon accounting is indeed a challenge for unprepared businesses, especially for calculating supply chain or Scope 3 emissions, which are the most significant source of a typical business’s emissions and carbon risks — sometimes as much as 90%. 

Suppliers often don’t measure or disclose their carbon information, and the scant information reported can be incomplete, unverified and hard to compare. 

However, businesses don’t need to look far for the right tools. Carbon accounting can be completed accurately and on time using the GHG Protocol’s globally accepted methods for various carbon footprints, including supply chain emissions estimation when primary data is missing. They can also utilise CDP’s proven mechanism for requesting supplier disclosure.

Many commodity traders and producers are turning to specialist software and machine learning to fill asset-level carbon data gaps, all the way from source to shipment. For example, thyssenkrupp Materials Services Eastern Europe has adopted a digital carbon tracking solution to measure emissions across its metals supply chains and create standards for supplier transparency.

The process of getting carbon accounting right is an investment, but one to start as soon as possible and to keep improving. The new ISSB Sustainability Disclosure Standards provide companies with a grace period of one year to start reporting their Scope 3 emissions, acknowledging that these are the hardest to account for. 

Myth 3: We focus on stakeholders, not nice-to-haves

“We need to focus on serving our customers, generating value for stakeholders, and accessing trade finance, not on optional add-ons. Especially not in a time of supply chain disruption” 

The reality: Business expectations are changing. More and more customers are requesting the carbon intensity of their purchases, and are finding ways to source lower-carbon products in order to meet their own net-zero targets and regulatory requirements. 

81% of financial institutions assess their portfolio’s exposure to climate-related risks, and 77% are requesting climate-related information from their clients. 

Building trust in business has never been more important. It means being able to share the carbon footprint of the products you trade and sourcing lower-carbon options to support customers’ sustainability goals, like in the case of metals trader Concord Resources Limited and leading aluminium rolling mill Niche Fusina Rolled Products (Fusina).

When it comes to trade finance, building strong partnerships with banks involves responding to, or preempting, requests for carbon reporting. This can unlock immediate benefits like interest rate discounts and sustainability-linked loans (SLLs). 

For example, Societe Generale has signed major deals with two leading metals commodity merchants, to pilot access to SLLs tied to emissions-reduction KPIs.

Myth 4: There’s no single standard: it’s an alphabet soup! 

“The prevailing standards aren’t decided yet. We don’t have time to navigate the myriad of reporting standards with all their acronyms. If they’re not uniform, then we’ll be duplicating work, and customers won’t be able to easily compare our data with competitors”

The reality: Until recently, the existence of multiple carbon reporting standards and frameworks has been blamed for some industry inertia. 

However, there has long been one main go-to global standard for carbon accounting (the GHG Protocol) which is the key reporting frameworks (TCFD, CDP, SASB, GRI) align with, even if companies vary in which frameworks they follow and how comprehensively they report. 

The reality is that a future update to a reporting standard isn’t going to materially change what is required when it comes to reporting. All the data collection, verification, baseline setting and target setting will all be very similar, so don’t use that as an excuse to get started. 

Efforts now to move early will not be in vain. 

That’s why the recent publication of the ISSB standards, which aim to unify all others, is a big step towards a global baseline for sustainability- and climate-related financial disclosure

Myth 5: We already know our high-carbon goods 

“We know oil contributes more to global warming than aluminium, but we’re not responsible for what happens after we sell it, or for our customers’ choices. Diving deeper into the exact emissions will just expose us to reputational risk, and most of our portfolio is metals anyway.”

The reality: Unless they quantify their trade emissions from end to end, commodity traders (and their financiers) don’t truly know their high-carbon goods. 

There can be huge variations in so-called ‘high’ carbon product emissions; a tonne of aluminium can be between 3-20 tonnes of carbon dioxide equivalent per tonne of aluminium in carbon intensity. Or one copper refinery might emit less than another, but it might source from a significantly more carbon-intensive mine. 

Some traders fear that opting for the most robust methodology out of the recommended options will only make a competitor’s product look unfairly lower-carbon if that competitor takes a weaker approach. 

However, reputational concerns about carbon disclosure pale in significance next to the danger of failing to identify carbon-related risks ahead of time. Environmental risks could cost supply chains $120 billion by 2026, and sharing your product or corporate carbon footprint, even if it is high, is better than it being exposed. 

The carbon footprinting process allows traders to find ways to lower emissions and manage the impacts of carbon pricing (for example by screening suppliers and rating assets against industry benchmarks like the IMO Carbon Intensity Indicator and the Poseidon Principles). 

It’s also the most fundamental tool for avoiding the kind of greenwashing that’s caused by making low-carbon claims without verifiable data. 

Counting carbon puts you in control 

To tweak an old proverb, the best time to start measuring emissions was 20 years ago. The second best time is now, as regulation tightens and more opportunities in trade finance and product differentiation emerge. 

Today, tools are available that make it possible to accurately and painlessly account for and report trade emissions, while pinpointing carbon risks. 

Put it this way: for every business that delays, another competitor is ready to seize the emerging financial incentives and meet customer demand for low-carbon products. 

The post 5 common myths about carbon accounting: Is it really worth it? appeared first on Trade Finance Global.