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Breaking Boundaries: Smart and Sustainable Supply Chain Finance Increased pressure from investors and consumers is driving corporates to hold their suppliers increasingly accountable to sustainable and ethical standards. However, technological innovations are making sustainable SCF more of a tangible reality for treasury professionals in all areas of the industry.

Breaking Boundaries: Smart and Sustainable Supply Chain Finance

Breaking Boundaries: Smart and Sustainable Supply Chain Finance

By Eleanor Hill, Editor


In an increasingly accountable business environment, corporates are looking for new ways to support their suppliers to adhere to sustainable and ethical standards. Alongside creative supply chain finance (SCF) solutions, treasurers are analysing how emerging technologies can assist them in making their supply chains more sustainable – in every sense.


Ignoring sustainability is no longer an option. Although treasurers may not be the traditional figureheads in this space, they are increasingly expected to play a more active role in ensuring the organisation’s sustainability goals are met – especially across the supply chain. 

Geoff Brady

Geoff Brady
Head of Trade & Supply Chain, Bank of America Merrill Lynch

But let’s be clear upfront about what we mean by ‘sustainability’, and what’s driving it. In its broadest sense, sustainability is defined as an organisation’s ability to conduct business in a manner that is beneficial (or not harmful) for people, the planet, and profits. This is often referred to as the ‘triple bottom line’.

Deniz Harut, Executive Director, Sustainable Finance, Standard Chartered, builds on this definition, explaining that corporates’ current sustainability focus falls primarily into four broad categories:

1. Environment, health and safety (EHS)
2. Climate change
3. Social
4. Business ethics and governance.

As for the drivers leading to increased interest in sustainable supply chains, Harut says: “Widespread recognition that risks from direct and indirect supply chains need to be better understood and managed; increased pressure from investors, shareholders and consumers to focus on the wider ESG agenda; and increased demands for sustainability reporting and transparency, have all encouraged this discussion.”

Traditionally, supply chain risk management has focused on areas such as environmental compliance, workplace health and safety and waste. “However, often driven by a shift in generational expectations, risks are now arising from new areas, such as gender equality and modern slavery,” notes Harut. “Corporates recognise that previous sustainability commitments did not go far enough and are increasingly aware of the reputational risk as well as the threat of litigation from not meeting acceptable standards,” she adds.

Geoff Brady, Head of Trade & Supply Chain, Bank of America Merrill Lynch, echoes this. “Sustainability is on almost every client’s radar today. Corporates are keen to address customer demands around environmental and ethical standards, especially when it comes to sourcing of materials and services. Building and maintaining a sustainable supply chain is also a proactive way of supporting additional sales – and treasurers are becoming increasingly aware of the potential business benefits of embracing sustainability.”

 

Why treasurers should pay attention to sustainable SCF

“Embedding sustainability into global supply chains is not only beneficial for the environment and society, but also for companies’ bottom lines. Nearly one-third (31%) of businesses surveyed in our recent HSBC Navigator survey plan to make sustainability-related changes to their supply chains within the next three years,” says Burcu Senel, Global Head of Trade Finance Propositions, HSBC. Treasurers should therefore expect this topic to rise up their strategic agenda in the coming months to years.

There are numerous potential pluses for treasury in getting involved. In addition to the obvious working capital benefits for the buyer, James Binns, Global Head of Trade and Working Capital, Barclays, notes that corporates are adopting SCF to develop a cheaper cost of funding, and more available funding, for their supply chain as a whole. “If properly positioned, it’s a fairer and more equitable way of doing business, because it’s transparent to everybody concerned – making SCF far more ‘sustainable’ in a longevity sense,” he says.

And Harut adds: “Monitoring the sustainability of supply chains provides an extra layer of assurance, helping to reduce the risk of unexpected supply disruption since greater knowledge of the supply chain is required. It is also probable that more sustainable suppliers will have greater knowledge and control of their own supply chains, allowing treasury departments to have greater comfort when offering more flexible terms to them.”


It’s important to realise, though, that sustainability in the supply chain is not a fad. Sriram Muthukrishnan, Group Head of Trade Product Management, Global Transaction Services, DBS notes: “There’s a tendency to think that sustainability is a relatively new trend. While it has grown significantly in popularity over the past few years, especially since the UN set out its 17 Sustainable Development Goals (SDGs) in 2015, some clients have been looking at this for almost a decade.”

Regardless of the timeframe of commitment, Jacques Levet, Head of Transaction Banking EMEA, BNP Paribas CIB, says that developing a sustainable supply chain can lead to:

  • Reduced costs - Reducing resource consumption (materials, energy, water etc.) leads to savings in transportation, disposal costs and increases efficiency
  • Improved brand image - Consumers are more and more sensitive to sustainable products that can help grow market share and increase brand loyalty. This is also true for B2B business
  • Motivated staff - Just like consumers, both employees and candidates are extremely sensitive to their employer (or future employer) being engaged in value creation beyond mere profit. A sustainable workplace is a competitive advantage when recruiting talent
  • Secured strategic supplies - Adopting sustainable production methods can help secure the continuity of strategic supplies
  • Innovation - Including social and environmental considerations in decision-making naturally necessitates innovation. This innovation creates positive spillovers into products and technologies.

 

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