Sustainable supply chain finance

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The Sustainable Supply Chain Finance  (German about: sustainable financing supply chains) is a special type of supply chain finance , in which the financing terms of the sustainability of suppliers, for example, be eco-rating , are coupled. This allows customers, e.g. B. Customers from industry, give their suppliers financial incentives to act in a more ecological and socially responsible manner. Since a large part of one's own sustainability or social balance is dependent on one's own supply chain, this control instrument is becoming increasingly important for companies. Financial institutions such as banks can also grant special conditions to suppliers with a good ecological and social balance sheet. There is already initial experience with sustainable supply chain finance, but the development is only just beginning.

Motifs

According to studies, between 50 and 70 percent of a company's ecological and social balance sheet depends on its supply chain. A changed awareness among consumers as well as recent and expected tightening of regulations mean that companies have invested more in sustainability in recent years. In the area of ​​corporate finance, too, developments such as green bonds and green loans show that companies with higher sustainability ratings receive cheaper financing options because investors explicitly ask for investments in such companies. Sustainable Supply Chain Finance promises a relatively easy-to-implement control option for buyers / customers to optimize their supply chain through financial incentives for sustainable suppliers according to social and ecological aspects. At the same time, reputational and liability risks are to be reduced and costs saved. The World Economic Forum sees the potential of sustainable supply chains to reduce supply chain costs by 9–16 percent and to increase sales by 5–20 percent.

to form

In principle, the same supply chain finance instruments are used. These instruments can provide suppliers with liquidity and offer customers the opportunity to use their own liquidity profitably. Typical instruments are:

  • Dynamic Discounting : Suppliers grant their customers discounts if they pay before the end of the payment period. The earlier the supplier requests the payment of an invoice for such a program, the higher the discount amount to be paid. The corresponding conditions can be negotiated individually for each invoice.
  • Reverse factoring : An external financial service provider pre-finances the invoice by paying the supplier earlier. The original invoice amount will only be claimed by the customer on the original payment term. Other forms of supply chain finance include bridging finance from a financial service provider, buyer loans, classic factoring and invoice auctions.

Specialized SCF platforms allow the automation of supply chain finance processes and conditions on the basis of individually definable specifications. In contrast to “classic” supply chain finance, with sustainable supply chain finance the conditions are influenced not only by financial considerations but also by sustainability criteria. For example, buyers can grant preferential conditions to suppliers with a higher sustainability rating. The suppliers prove the fulfillment of the sustainability and social requirements by means of deposited certificates or similar. This gives these suppliers a cheaper and better financing base.

Sustainable supply chain finance in practice

In practice, sustainable supply chain finance solutions are still at the beginning of their development. So far, only a few companies are aware of the possibilities. In addition, the lack of widely recognized standards for assessing sustainability and social behavior makes development difficult. Prominent use cases are an SCF program launched in 2014 between the clothing manufacturer Levi Strauss and the development bank International Finance Corporation, the cooperation in 2016 between the sporting goods manufacturer Puma, BNP Paribas and the International Finance Corporation on the GT Nexus platform and, since 2019, the program by Walmart and the HSBC. One of the first platform providers in Germany that can take sustainability criteria into account is the SCF company Traxpay. It is nonetheless expected that Sustainable Supply Chain Finance will account for a third - around US $ 660 billion - of the entire SCF market in the coming years.

Individual evidence

  1. ↑ Building a Business Case for Sustainable Procurement: A 5-Step Guide. In: EcoVadis. Retrieved December 8, 2019 (UK English).
  2. ↑ Beyond Supply Chains - Empowering Responsible Value Chains. World Economic Forum, January 31, 2015, accessed December 8, 2019 .
  3. ↑ Drawing better straws? Pricing sustainability into supply chains_FV. Retrieved December 8, 2019 .
  4. ^ Austin Clark: Predicting the rise of sustainable supply chain finance. The Global Treasurer, April 29, 2019, accessed December 8, 2019 (American English).
  5. ^ Sustainable Supply Chain Finance [White Paper]. Traxpay, November 26, 2019, accessed December 8, 2019 .
  6. ↑ Win-Win-Win: The Sustainable Supply Chain Finance Opportunity. BSR, accessed December 8, 2019 .