Bridgestone Deploys Sustainable Supply Chain Finance with External Ratings

By linking pricing to independently verified sustainability criteria, treasurers can use supply chain finance (SCF) as a way to promote environmental, social and governance goals both internally and throughout their supplier networks. Here, Julle Pedersen, Treasury Director for Europe, the Middle East, India and Africa (EMIA), Bridgestone, shares the inside track on achieving precisely this sustainable SCF arrangement.

With sustainability-linked funding and investment options becoming increasingly familiar tools for corporate treasurers, SCF stands out as an obvious area where sustainability and finance can meet. This approach made complete sense for Pedersen, since Bridgestone considers sustainability to be part of its DNA.

As a global leader in advanced solutions and sustainable mobility, Bridgestone sees environmental, social and governance (ESG) as “core in our strategy and  culture,” Pedersen explains. The company’s sustainability strategy is driven by its framework ‘Our Way to Serve’. It aims to improve the way people live, work, move and play by focusing on mobility, people and environment. 

Sustainable SCF reinforces these aims and was a natural fit for Bridgestone. But finding the right way to implement such a solution took a little research on Pedersen’s behalf. He comments: “We started thinking about implementing SCF around two years ago. During that exploratory phase, I could not find a case study from a company that had leveraged external ratings as part of their sustainable SCF programme. Up until that point, most leading initiatives I’d heard of were internally rated and somewhat subjective. We already had our global sustainable procurement policy endorsed by business sustainability ratings firm EcoVadis, and I realised we could link the two together so everything began to take shape from there.”

A blockbuster Request for Proposal

With the concept of sustainable SCF now tangible and credible, Pedersen set about connecting a coalition of stakeholders within Bridgestone to be part of the project. Pedersen notes: “Even back at the initiation phase, when we were running the RFP, we had IT, procurement, the back-office service centre, and myself involved – making sure that we had full buy-in from all stakeholders. RFPs in this space can be quite treasury-centric, but bringing everybody together enabled us to improve the solution and achieve full buy-in from across the company.”

The initial RFP went out to around 12 financial partners. Some RFP participants were coalitions between fintechs and banks, others were pure bank propositions, and there were also some lone fintech participants. The latter dropped out fairly quickly, though, Pedersen notes and in the final reckoning, all the shortlisted contenders had a bank and a fintech or simply a bank behind them. After detailed scrutiny of the proposals, Pedersen opted to go with the partnership of J.P. Morgan and Taulia for the sustainable SCF programme, which uses a pricing matrix linked to EcoVadis data.

“We operate in an SAP environment, and we believe that Taulia’s integration towards SAP is the best in the marketplace,” Pedersen explains. “This integrated approach meant that we could eliminate the need for any file transfer testing. An additional benefit was the value delivered through Taulia’s supplier portal –  suppliers can use the platform to have full visibility of their invoices and the status of individual invoices in our process. Once onboarded, they can simply click if they want to have the early payment. It’s as easy as that.”

On the sustainability side, Pedersen says treasurers should now expect most of their banking partners to be able to deliver financial products that have an ESG link. He notes: “While we were driving the discussion on sustainability, I felt that all of the big banks were, in fact, capable of delivering what we required on the sustainability side. Even though none of them had done something quite like this before they all were more than keen to do it, given the obvious scalability of the approach.” So, while sustainability was a key factor in the RFP, it did not actually end up differentiating proposed solutions. Indeed, the final solution pitched by the short-listed candidates was largely designed by Bridgestone.

Implementing and onboarding

With the J.P. Morgan and Taulia partnership selected, Bridgestone went live with the sustainable SCF programme in December 2020. While it is still early days, a great deal of positive progress has already been made.

“The good news is that the suppliers are truly engaged with the sustainability element, I haven't heard a single negative pushback on the sustainability side,” Pedersen reports. “Of course, the implementation approach is designed in such a way that we’re talking to the bigger suppliers right now, and the smaller suppliers will be engaged slightly further down the line. But it’s all been very positive so far.”

One of the benefits of the Taulia and J.P. Morgan partnership is the easy, digitised onboarding process. “Taulia has entirely digitised onboarding to the platform and is completely aligned with J.P. Morgan processes. As with any supply chain financing solution, you need to make sure that the bank[s] backing the solution are comfortable with the documentation that is in place in the front end. Having J.P. Morgan joined up with Taulia at the back end, and comfortable with the documentation, is a significant additional benefit.”

Linking pricing to sustainability

A critical feature of the sustainable SCF programme is the direct link between pricing and sustainability. J.P. Morgan has set up a pricing matrix that works in both directions, providing more favourable pricing for suppliers that are verified as hitting certain sustainability goals.

“We have set up the pricing matrix in a way that it incentivises suppliers to improve their EcoVadis rating – the higher the rating, the higher the sustainability discount. If a supplier initially doesn’t have the EcoVadis rating they pay the base rate on temporary basis. All participating entities are expected to achieve a rating within reasonable time as we consider belonging to the programme a privilege offered to our partners” says Pedersen. 

The biggest positive step in terms of the pricing happens when the EcoVadis rating is achieved. This is to promote transparency. “We consider transparency to be one of the most important elements of the programme as the external EcoVadis rating process unearths any issues – with visibility to all necessary stakeholders – and enables us to work together on the challenges with our supplier.”

Beyond a supplier obtaining a rating from EcoVadis, there is another big step in financial benefits available if/when a supplier achieves a ‘good’ level of EcoVadis categorisation. Supplier data is reviewed twice a year by the ratings firm, and J.P. Morgan has established a data link with EcoVadis whereby they can both read the findings directly from the database. “We want to drive everybody to that ‘good’ level at a minimum, and if suppliers go up a level they will achieve further improvements in terms of the financing rate,” Pedersen says.

Everybody wins

As well as providing pricing incentives and encouraging suppliers to improve their own EcoVadis ratings, the sustainable SCF programme brings benefits for other stakeholders. For Bridgestone itself, there is the working capital benefit as it generates funds to spend on sustainable projects. J.P. Morgan also gets a win, in terms of the new business that the programme brings. The bank is also furthering the reach of Bridgestone’s ESG efforts by donating to an ESG organisation as part of its commitment to the programme. “Last but not least, there is the sustainability aspect, which is a win for us all – for future generations and for the planet,” Pedersen concludes.