SCF Programs help create a sustainable & resilient supply chain
The sustainability of supply chains has become increasingly important to businesses in recent years, as consumers become more concerned with the environmental and social impact of their buying choices. In other words, supply chain finance is no longer just about freeing up working capital – environmental, social, and governance (ESG) factors are just as important to consider.
Applying ESG principles in ethical supply chain finance doesn’t merely benefit the wider world or appease consumers, it promotes other tangible benefits, such as improving your bottom line and reinforcing your supply chain’s resilience.
Having a supply chain program, which augments early payments to ones’ suppliers is the key to implement and imbed sustainability in an organization’s supply chain. At first glance, it’s hard to draw a direct line between a company’s ESG initiatives and sustainability and an early-payment program. But digging deeper, there are a number of ways a well-implemented and executed supply chain finance (SCF) program can help buyers and suppliers further their corporate responsibility initiatives.
The first way is simple: a supplier that is financially healthy is more likely to be able to take on environmental or social initiatives within their operations. With improved liquidity, there is capital to invest in things like new, more efficient equipment, more employee training programs, or diversity recruiting opportunities. Second, a supply chain finance can be used to create a financial incentive for a supplier to commit to a sustainability policy. The adoption of ESG goals brings an increasing demand for accountability and transparency.
Typically, SCF programs which are driven by ESG goals, lead to improved buyer- supplier relationships, with buyers and SCF providers incentivising the suppliers with better rates who meet certain ESG goals, qualifying for a lower fee early payment. This was the tact taken by German athletic clothing and shoe manufacturer PUMA. Within the first year of starting a sustainable SCF program, it provided $100 million in lower financing costs to 15 % of its sellers who achieved high ESG scores. For PUMA it paid high dividends as the company estimated 94% of its environmental impact could be found in the supply chain.
The key here is that ESG is important to every company – regardless of size or industry. Customers, investors, and governments expect businesses to play their part and be good global citizens and societal partners. That means lessening their impact on the environment, supporting human rights, and providing safe environments for their employees. Those values must be demonstrated in all aspects of the business – internally and externally – including the supply chain. While there are no easy answers to ensuring your suppliers are responsible corporate partners, there are steps you can take.
We at Alpha Bridge can help you with solutions that support your ESG initiatives across your organization and supply chain. We work with focused set of lenders, who are purely committed to impact investing goals. If your business is looking to create a sustainable supply chain, and if you are looking to incentivize your suppliers to be committed and integrated in your ESG vision, then get in touch with us for more.
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