When people talk about climate action, they often imagine solar panels, electric vehicles or the phasing out of coal. But for most businesses, the real battleground for reducing emissions lies in a less visible place – the supply chain.
From the coffee beans we import to the building materials used in construction, almost every product Australians buy or sell relies on a web of suppliers, transport links and manufacturers that stretch across continents. Each step in that network releases carbon dioxide. In many industries, supply chain emissions outweigh direct factory emissions.
That's where the idea of a low-carbon supply chain comes in. It is a network designed to measure, reduce and finance its emissions while keeping goods moving and businesses profitable.
Supply chains and the race to net zero
The global push for carbon neutrality has shifted from focusing solely on production sites to examining every tier of supply and logistics. Australia is no exception. As the Australian government strengthens the Safeguard Mechanism and major trading partners such as the European Union introduce carbon border taxes, Australian companies are being asked not only to report their emissions, but also to prove that their suppliers are cutting theirs too.
This creates both a challenge and an opportunity. Many firms understand the need to decarbonise but struggle with the cost and complexity of doing so across multiple partners and countries. That's where finance and technology intersect in powerful ways.
Introducing carbon trade finance
In my recent editorial for the International Journal of Production Research, I examined how the worlds of carbon markets, finance and supply-chain management are converging. We call this emerging field carbon trade finance – the use of financial instruments, such as carbon credits, green bonds and emissions-linked loans, to help companies fund their low-carbon transition.
The logic is simple: firms that can prove they are reducing emissions gain access to cheaper or more flexible finance. This makes sustainability not just a moral goal but also a competitive advantage.
Across 20 papers included in this special issue, researchers show how different financial mechanisms can strengthen the resilience and agility of supply chains. Bank-led green loans, carbon-quota lending and carbon-option contracts all provide incentives for suppliers to cut emissions without crippling cash flow. Instead of treating carbon regulation as a burden, these tools turn it into an engine for innovation and growth.
The digital edge
Technology plays a crucial role. Blockchain and smart-contract systems are transforming the way emissions data and carbon credits are recorded and verified.
In the past, one of the biggest criticisms of carbon trading was the lack of transparency – who genuinely reduced emissions, and by how much?
Digital ledgers now allow every tonne of carbon saved to be traced from source to sale, giving buyers, regulators and investors greater confidence. For example, a manufacturer could automatically trigger a financing discount once its suppliers' verified emissions meet a target.
This kind of automation not only reduces administrative overheads, but also builds trust across the entire chain.
Collaboration and policy go hand in hand
Another consistent finding from the research is that cooperation beats isolation. When retailers and suppliers share both carbon targets and financing, they tend to achieve deeper cuts in emissions and better financial performance. Joint investments – in energy-efficient logistics or waste reduction – amplify the impact of each dollar spent.
Governments also have a key role. Policies that support carbon-credit trading, subsidise emission-reduction technology or reward cross-industry partnerships can make the difference between symbolic change and systemic transformation.
In Australia, this might mean expanding access to green finance products for small and medium-sized enterprises or creating clearer links between domestic carbon markets and international schemes.
Many exporters already face the prospect of carbon-based tariffs when selling to Europe and Asia. For instance, the carbon prices in Finland include emissions trading system (ETS) permit prices and carbon taxes, covering the primary portions of greenhouse gas (GHG) emissions. Developing transparent, finance-enabled, low-carbon supply chains would help keep them globally competitive.
When firms build low-carbon supply chains, they don't just reduce emissions; they gain flexibility, attract investors and strengthen their long-term resilience.
The road ahead
The move to low-carbon supply chains will not happen overnight. It requires transparency, new financial thinking and a willingness to share both risks and rewards across the network. But the direction is clear.
When we combine the tools of carbon finance with the innovations of digital technology and the discipline of supply-chain management, we open the door to an economy that is not only cleaner but stronger.
That's the promise – and the challenge – of building a low-carbon supply chain.
Dr Peter Shi (pictured above) is a Senior Lecturer in Operations and Supply Chain Management at Macquarie Business School.
