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

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BSR

BSR published a new report, “Win-Win-Win: The Sustainable Supply Chain Finance Opportunity,” showing how supply chain and trade finance mechanisms can be leveraged to create tangible cash incentives for suppliers, drive sustainable behaviors and transform global supply chains. This is a significant opportunity for buyers, suppliers and financial service providers.

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.

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