Large corporations in Thailand have made clear progress towards reducing their carbon footprint in support of the nation's efforts towards a low carbon economy.
Most of their efforts have been focused on reducing the carbon emissions produced directly in their operations by burning fossil fuels as well as the carbon emissions produced through the energy they purchase. These are known as scope 1 and scope 2 emissions respectively.
Collective action is the key to sustainable supply chains
But the carbon footprint of each company extends beyond their own energy use. In fact, more large global companies today are being held accountable by consumers, investors and regulators for the emissions of their suppliers and end-use of their products.
These supply chain emissions, known as scope 3 emissions, are challenging to reduce, particularly because many suppliers, especially small and medium-sized enterprises (SMEs), are unable to account for and fulfil their own scope 1 and scope 2 obligations.
UOB Thailand recently organised a roundtable with chief sustainability officers (CSOs) from leading companies in the country that have made significant progress in their decarbonisation plans. Together, we identified some common challenges and solutions that can be resolved to tackle scope 3 emissions. These are some of our findings.
Challenge 1: Fragmentation and complexity of supply chains
One of the primary difficulties in supply chain decarbonisation lies in the fragmented and mobile nature of smaller upstream suppliers. This makes it difficult for companies to collect data on their scope 3 emissions. That in turn is an impediment to creating a workable strategy to decarbonise their supply chain.
Further, these suppliers, which include farmers, parts manufacturers and construction contractors, do not prioritise carbon emissions management due to a lack of knowledge, resources and expertise. In some cases, the cost of decarbonisation may even be partially absorbed by or passed down to customers.
The diverse economic models across sectors also present an additional layer of complexity, making it challenging to pinpoint where support is most needed for decarbonisation efforts. For example, a supplier that provides sustainable materials for construction may not adhere to the best sustainable practices in its logistics.
The absence of common industry standards, more critically those pertaining to environmental, social and governance (ESG) compliance, exacerbates the issue.
Challenge 2: Infrastructure unprepared for the low carbon economy
Upgrading the existing infrastructure to cater for renewable energy, more circularity and the electrification of transport, is another formidable challenge. Not only is it costly in terms of the government budget required, it may be politically costly as it is ultimately bankrolled by taxpayers.
Retrofitting the public energy grid to integrate sustainable sources provided by independent power producers, for example, will not happen overnight. This necessitates education on how fossil fuels can be part of the energy mix during this transition period even if they are ultimately to be phased out.
Infrastructure deficiencies in waste management are also preventing deeper circularity from taking hold. Thailand produces 9.7 million tonnes of food waste per year, or 146 kilogrammes per resident. Food waste generated in Bangkok alone comprises about half of the total waste generated in the city.
Much of that is unsold fresh food that is still fit for consumption or potential feedstock for processed food with a longer shelf life. Food-grade logistics, storage, and sorting is critical to prevent contamination.
Lastly, Thailand's public infrastructure for electric vehicles (EVs) caters more to passenger EVs rather than commercial EVs at the moment, creating obstacles towards complete electrification of the transportation sector.
Unlike passenger EVs, commercial EVs are built with larger batteries that enable greater driving ranges and have to be charged quickly to minimise downtime. This requires depot-based charging which places a heavy load on a specific section of the energy grid and, in turn, raises load management concerns.
Proposed solution 1: Company-led approach
Companies can incentivise their suppliers to decarbonise by offering longer-term contracts in exchange for quantifiable emissions reduction efforts, or by partially sponsoring greener equipment and fuels for integrated or critical suppliers.
Another potential initiative is to conduct pre-bidding workshops for eligible suppliers or contractors based on the company's criteria for sustainability processes and products. This can collectively enhance their sustainable practices and create a more competitive pool of vendors for the company.
It may also be beneficial for companies to consider partnerships with universities to develop training programmes and upskill their staff or critical suppliers.
At UOB Thailand, we offer both financial and non-financial support to facilitate the adoption of ESG solutions by SMEs. One such example is the UOB FinLab's Sustainability Innovation Programme, designed to help Thai SMEs incorporate sustainability practices into their business as they digitalise. This year's programme, which ended in May, featured workshops and master classes tailored to 300 Thai SMEs.
Proposed solution 2: Industry alliances
To scale up the company-led approach, another compelling solution mooted by participants in our CSO roundtable was collective action to address decarbonisation within specific industries.
Industry alliances can consider offering businesses education on decarbonisation, data management and reporting, and verification within specific value chains. And rather than tailoring the programme to individual suppliers, the alliances can glean efficiencies by providing training for different sets of suppliers based on archetype.
Suppliers involved in design may be trained in biophilic design, for example, while those involved in building engineering can develop their skills in using emerging construction materials such as bricks that incorporate incineration ash.
Upon understanding the specific industry requirements, each alliance could even form a credible body to audit emissions data with specific accounting standards and develop localised, sector-specific decarbonisation roadmaps.
Efforts to build the capacity of suppliers can benefit the overall industry by improving the competitive landscape between the smaller and large suppliers.
Industry alliances can also help set guidelines for suppliers' procurement and sustainability teams, identifying areas in the ecosystem that require financial support, and collaborating with a banking partner to develop the relevant financing solutions.
Lastly, industry alliances are in a good position to facilitate an aggregation of total demand for renewables and the financial requirements involved. An industry-led approach, rather than efforts led by individual companies, can showcase the financial benefits, emissions reductions, and job creation opportunities across entire sectors, and is critical to justify changes in public infrastructure or regulations.
Building a depot for a commercial EV fleet, for example, is an effort that will cut across several government agencies in Thailand.
Success Case: Sustainable Apparel Coalition
One of the participants in our CSO Roundtable shared the exemplary case of an industry coalition and its efforts. The Sustainable Apparel Coalition, now known as Cascale, was initiated in 2009 by Patagonia and Walmart, two retailers from opposite sides of the sustainability spectrum. The coalition developed the Higg Index, an environmental self-assessment tool for apparel companies, as part of its aim to create a common approach for sustainability measurement and metrics across the value chain.
This standardisation of impact metrics through the Higg Index helped to increase access to financing for the apparel industry. The coalition has also now expanded to encompass more than 300 members across various brands, representing more than 40% of the global textile industry.
Supply chain decarbonisation is challenging, but not insurmountable
The journey towards supply chain decarbonisation in Thailand is fraught with challenges, but it is not insurmountable. By adopting a collaborative approach, aggregating demand for renewables, incentivising individual efforts, and forming industry coalitions, significant progress can be made. Together, we can build a greener and more sustainable Thailand.
UOB Thailand is committed to helping industries transition to the low carbon economy. By partnering with companies across the supply chain, we aim to accelerate their decarbonisation strategies and collectively hit net zero.
By Vira-Anong Chiranakhorn Phutrakul, Deputy CEO and Head of Wholesale Banking, UOB Thailand. For more information about UOB's sustainability initiatives and sustainable finance offerings, please visit UOB Thailand's sustainability website at https://www.uob.co.th/sustainability-en/index.page.