Det Norske Veritas: At present, data is the foundation of a sustainable supply chain under pressure from the "carbon tariff".

IN RESPONSE TO THE CHALLENGES POSED BY THE CARBON BORDER ADJUSTMENT MECHANISM (CCAM), DNV (DET NORSKE VERITAS) HAS PROPOSED A SERIES OF STRATEGIES TO HELP COMPANIES ADAPT TO THE NEW INTERNATIONAL RULES.

"First of all, it is recommended that companies reduce their product carbon footprint by using recycled materials and low-emission materials, and increase their market pricing power by increasing product differentiation. Secondly, it advocates increasing the complexity of products, transforming products from simple processed products to complex processed products, and avoiding carbon tariffs in a reasonable way without violating the original intention of the EU CBAM regulations. Li Guangyu, manager of sustainable business solutions for DNV Supply Chain and Product Certification Greater China, told reporters in a recent interview.

From October 1, 2023, the CBAM officially entered a transition period, requiring companies exporting to the EU to submit carbon emission reports based on actual data, which may increase costs for non-EU producers, especially for those who have difficulty reducing their emissions. The CBAM mainly affects companies that produce and import specific products, such as cement, steel, aluminum, chemicals and electricity.

The CBAM, commonly known as the "carbon tariff", was originally established to eliminate the competitive advantage in international trade caused by the difference in carbon emission costs by requiring producers of imported goods to pay a fee equivalent to the price of carbon emissions required for production within the EU, and to avoid the increase in global carbon emissions caused by industrial relocation.

DNV is one of the international authoritative certification bodies along with TUV Rheinland and SGS of Switzerland, and the Greater China region is its largest operation area outside Norway. "As carbon tariffs will be shared between producers and consumers, both producers and consumers will need to assess the impact of carbon tariffs and take steps to adapt to this new cost structure. Li Guangyu commented.

He pointed out that "the EU's CBAM Carbon Border Adjustment Mechanism, CSRD Sustainability Reporting Directive, EU Batteries and Waste Batteries Act, Norway Transparency Act, etc., all put forward stricter requirements for enterprises in terms of environmental protection, social responsibility, and corporate governance (ESG), and extend to the upstream and downstream of the value chain." ”

The lack of data will be a major challenge for enterprises to face new international trade regulations such as CBAM. DNV believes that the biggest difficulty in understanding the regulatory requirements is how to communicate and manage suppliers.

"For example, the CBAM requires that 80% of emissions calculations should be based on actual data. For the majority of export enterprises, steel mills and electrolytic aluminum plants may be their own secondary and above suppliers. "We encourage enterprises, especially those that export to the outside world or are part of the supply chain of foreign-funded enterprises and top brands, to take a 'comprehensive and multi-stage' approach to achieve sustainability within the organization and even in the entire product supply chain." ”

DNV's recent Lean & Green Industry report, building sustainable & cost-efficient supply chains found that 40% of companies have achieved revenue growth by investing in supply chain sustainability, and 34% have achieved revenue growth by investing in supply chain sustainability of companies have realized cost savings.

Investments in the supply chain include empowering suppliers, which are currently focused on product carbon calculations, product carbon reductions, organizational carbon calculations, and organizational carbon reductions, improving the timeliness, reliability, and labor costs through the use of supplier digital information collection tools, conducting supplier audits on energy efficiency, ESG, and other aspects and making recommendations for improvement, and encouraging suppliers to provide carbon reduction roadmaps and obtain external carbon verification certificates and ESG ratings.

Cost savings come from improving energy efficiency in the supply chain and reducing waste, such as reducing energy consumption and reducing material waste. "In terms of energy efficiency improvement, supply chain audits will find that suppliers have a large number of economically feasible technical transformation projects, which can achieve cost savings by helping suppliers introduce eco-design concepts in the design process and improve the yield rate in the production process. Yu Jie, director of digital transformation of DNV's supply chain and product certification, told Jiemian News.

The foundation of building a sustainable supply chain is accurate, timely, and verifiable supply chain data. But data security is also a major challenge for all businesses.

DNV believes that in the coming years, more advanced technologies are expected to be integrated into supply chain management, such as artificial intelligence (AI) and blockchain. By applying these technologies to aggregate and process data, companies can improve efficiency, reduce costs, increase transparency, and make supply chains more sustainable and responsive, and as data collection and analysis capabilities improve, companies will rely more on data-driven decision-making to optimize supply chain operations.

"One of the market trends we have observed is that more and more companies will use more recycled materials on the supply side to produce new products, and digital traceability platforms can more transparently display and communicate the proportion of recycled materials used to customers and society, and also make the data chain of third-party audits of recycled materials in the supply chain more efficient and transparent. Yu Jie replied.

Supply chain sustainability is critical to improving a company's ESG performance. Taking CBAM as an example, the CBAM carbon emissions of most aluminum processing enterprises are mainly concentrated in precursor raw materials, accounting for more than 90%, and less than 10% of the emissions occur in the subsequent processing process. "Only by reducing carbon emissions in the supply chain can we achieve low-carbon or zero-carbon products or value chains, thereby reducing carbon tariffs and improving the competitiveness of CBAM products. Li Guangyu, Sustainable Business Solutions Manager of DNV Supply Chain & Product Certification Greater China, said.

Enterprises have a large number of suppliers, which involves multi-level management, which can select important suppliers for targeted management and improve the emission reduction performance of unit input. For suppliers who are risky and difficult to manage in a short period of time, enterprises can consider expanding their supplier base and seeking supplier substitutions to avoid supply chain risks.

DNV points out that the lack of awareness of external needs and pressures, the lack of suitable talent, the lack of experience in value chain management, and the lack of digital tools are common challenges faced by enterprises. Therefore, it is recommended that enterprises use digital technology to monitor and reduce carbon emissions in the supply chain, and it is recommended that the industry provide enterprises with advice on organizing seminars, training courses, industry regulatory updates, risk assessment and compliance assessments, identifying green and sustainable raw materials and product procurement, and implementing supply chain traceability systems.

"Since sustainability involves a wide range of content, enterprises can consider starting with carbon peaking and carbon neutrality and gradually transitioning to ESG management. Li Guangyu said.