BSR logo

Win-Win-Win: The Sustainable Supply Chain Finance Opportunity

Tuesday Jun 12, 2018

Download Report

 




#Financial Services, #Supply Chain,



Why Read This?

Leveraging supply chain finance mechanisms to incentivize sustainable behaviors in global supply chains is an opportunity for businesses and for sustainability. Embedding sustainability factors into the widespread and growing practice of supply chain finance assigns value to supply chain sustainability programs, provides tangible incentives to suppliers and their buyers, and has the potential to open new markets to banks and transform supply chains.

Companies around the world have recognized that the sustainability challenges within their supply chains are a risk and an opportunity to be managed. As such, it has become normal practice for companies to have programs in place to manage the environmental, social, and governance (ESG) risks in their supply chains. Most reputable global companies have supply chain sustainability programs in place to assess and manage the human rights, labor, governance, environmental, and other risks of their suppliers. These programs are largely based on risk management activities such as supplier assessments and audits.

However, after more than 25 years of corporate supply chain sustainability programs in action, environmental, human rights, and governance issues are still pervasive in global supply chains. There is an opportunity to do more to drive better performance among suppliers, not only at the first tier, but also at tiers deeper in the supply chain.

Why Now?

Sustainable supply chain finance is defined as supply chain finance practices and techniques that support trade transactions, in a manner that minimizes negative impacts and creates environmental, social, and economic benefits for all stakeholders involved in bringing products and services to markets.

There are five main reasons why sustainable supply chain finance is a strong opportunity today:

  1. Supply chain finance is a fast-growing market, with about 20 percent expansion annually.
  2. Supply chain finance is becoming digital; moving away from a traditionally paper-based process offers potential for innovation.
  3. Companies need working capital, and cash optimization is a tangible incentive for both buyers and suppliers.
  4. While supplier sustainability performance data is still not perfect, it is getting more and more quantifiable and readily available.
  5. Financial service providers offer solutions that can integrate sustainability data.

The Opportunity

Most companies are not yet putting in place sustainable supply chain finance programs, and banks are not yet readily offering these services. However, buying companies, supplying companies, and financial services can explore and maximize this opportunity in different ways.

Animation showing sustainability integration into supply chain finance.


 

There are US$2 trillion in financeable highly secure payables globally,* and an estimated trade finance gap of US$1.5 trillion.** We estimate that in time the sustainable supply finance market will reach one third of the market, or US$660 billion, representing a US$6 billion opportunity in sustainable supply chain revenue for financial service providers.

The emergence of a new competitive landscape graphic

* McKinsey. 2015. “Supply-chain finance: The emergence of a new competitive landscape.”
**ADB. 2017. “Trade Finance Gaps, Growth, and Jobs Survey.”

US$2 trillion

in financeable highly secure payables globally

US$660 billion

potential sustainable supply chain finance market

US$6 billion

revenue opportunity for financial service providers


Sustainable Supply Chain Finance Solutions in Detail

This report highlights three promising supply chain finance mechanisms to reward, incentivize, and fund sustainable supply chains: payables finance, sustainable trade loans, and smart contract solutions. These mechanisms have the potential to offer tangible commercial and sustainability benefits to global buyers, finance providers, and suppliers. Today there are only a handful of public examples of global buyers and finance providers that have implemented these solutions, and there are untapped opportunities to explore them further and scale successful models.

Sustainable payables finance solutions involve integrating ESG performance criteria into buyer-led supply chain finance programs, allowing global buyers to reward and provide tangible benefits (e.g., better discount rates) to select suppliers (e.g., those with strong sustainability performance). This solution applies to global companies that have or are setting up supply chain finance programs and want to offer a direct incentive to their own suppliers.

Sustainable trade loans are loans provided to a supplier or seller of goods or services for the trade of goods, which have proven sustainability attributes or environmental or social benefits. This solution applies when a supplier needs financing for sustainable goods and projects.

Smart contract solutions are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code, including a distributed, decentralized blockchain network. Smart contracts make transactions traceable, transparent, and irreversible, the tenets of a sustainable supply chain. This solution would be best applied when multiple actors in a vertical supply chain want to create sustainable change.

Key Steps for Setting up a Sustainable SCF Program at Your Company

Shared goals icon

1. Develop shared goals between the sustainability/ procurement/finance departments and define the spirit of the program.

Fair deal icon

2. Define what a “fair deal” for suppliers looks like. Incentives need to be large enough for them to join the program—especially if they have been part of a conventional SCF scheme already.

Service providers icon

3. Identify a financial service provider or set of financing partners (e.g., banks, investment funds, buyers’ own capital) willing to provide services in the targeted geographies and sectors.


Rating icon

4. Decide which sustainability aspects to include for supplier rating, e.g. health and safety, social, human rights, environment. Ideally, they would be aligned with your company’s sustainability goals and targets.

Data icon

5. Select a source for supplier sustainability performance data that provides comparable data across the targeted supplier base for the SCF program.

Technology platform icon

6. If not brought forward by the potential financial service provider(s), find a suitable technology platform that allows for the integration of sustainability data. Make sure it is close to a one-click solution to make it efficient to use for all parties involved.


Communicate icon

7. Clearly communicate to suppliers the advantages of the program and how to access it.


 

Call to Action

Sustainable supply chain finance is an unrealized opportunity to improve supply chains while also achieving sustainability goals. We encourage buyers, suppliers, and finance providers to leverage supply chain finance in support of responsible and sustainable supply chains.

Please contact us if you’re interested in learning more about this.


You Might Also Like

So, Your Sourcing and Manufacturing Footprint Is Changing: Six Sustainability Considerations

Blog

So, Your Sourcing and Manufacturing Footprint Is Changing: Six Sustainability Considerations

As the exodus of manufacturing in China continued and accelerated, both manufacturing groups and global buyers sought opportunities to re-globalize their value chains. Here are six sustainability considerations to help your company create Globalization 2.0 plans which can help achieve long-term success.

Read More 


The Shift to Digital Wages: Making Sure It Works for Women and Business

Blog

The Shift to Digital Wages: Making Sure It Works for Women and Business

In the HERfinance Digital Wages program in Bangladesh, designed to support garment factories making the transition from cash to digital payrolls, we found a tangible connection between tailoring programs to women’s needs and an increase in women’s financial inclusion and empowerment.

Read More 


The Impact of Coronavirus on Workers, Business Operations, and Supply Chains in China

Blog

The Impact of Coronavirus on Workers, Business Operations, and Supply Chains in China

The coronavirus (COVID-19) outbreak has had an obvious and immediate impact on China’s economy. Here's how it has impacted workers' travel, supply chains, and the economy on local and global levels.

Read More 


Beyond Women on Boards: How Gender Lens Investing Can Transform Your Impact Strategy

Blog

Beyond Women on Boards: How Gender Lens Investing Can Transform Your Impact Strategy

More impact investors are slowly aligning their strategies to the push for greater gender equality and women’s empowerment. However, understanding on how to unlock the power of capital to support these commitments remains limited. Gender lens investing is a powerful new approach with the potential to change that.

Read More 


Gender Equality and Social Audits e-Learning

Reports

Gender Equality and Social Audits e-Learning

To support social auditors, companies and a broader spectrum of social compliance regulatory organizations, BSR has developed a Gender Equality and Social Audits e-Learning course. The interactive course, consisting of three parts, covers key gender concepts, the business case for addressing gender in social audits, and considerations for tips for ensuring a gender-sensitive approach throughout an audit process.

Read More 


Sustainable Business in Asia: Five Trends That Will Impact the Decisive Decade

Blog

Sustainable Business in Asia: Five Trends That Will Impact the Decisive Decade

Through BSR’s work across Asia, including significant stakeholder engagement across the region, we have identified the following five sustainability trends for business in Asia in the 2020s that will impact sourcing strategies and supply chains, access to finance, employee engagement, sustainability leadership, and increasingly market and consumer engagement.

Read More 


Kering: Italian Women in Luxury Supply Chains

Case Studies

Kering: Italian Women in Luxury Supply Chains

Despite the importance of Italy in luxury supply chains and the high prevalence of women in the workforce, little is known about gender inequalities faced by women working behind the prized “Made in Italy” label. Kering and its family of Italian brands—Bottega Veneta, Gucci, Kering Eyewear, and Pomellato—partnered with BSR to understand the status of women working in their Italian luxury supply chain and identify opportunities to support gender equality in the country.

Read More 


Purchasing Power: The Opportunity for Women’s Advancement in Procurement and Global Supply Chains

Blog

Purchasing Power: The Opportunity for Women’s Advancement in Procurement and Global Supply Chains

This year marks the tenth anniversary of the Women's Empowerment Principles (WEPs), a framework guiding business on how to promote gender equality and women’s empowerment in the workplace, marketplace, and community. However, despite considerable advancements, we are still decades away from achieving gender parity.

Read More 


Back to Reports List