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How to drive sustainability with supply chain financing

Sustainability is becoming a major priority for corporates. As consumers become more environmentally aware, businesses are striving to reduce their impact on the world around them. We discuss why the supply chain plays such a crucial role in sustainability.

Why corporate sustainability matters

Across the Nordics and around the world, sustainability is growing in importance. Most people, especially younger generations, are increasingly concerned about issues like climate change, emissions and pollution.

“The views of society are changing,” says Richard Hayes, Global Head of Working Capital Advisory and Working Capital Sales, Nordea. “I think most consumers are becoming more aware of how their day-to-day purchasing habits impact the environment. They’re thinking about food waste, micro-plastics and the plight of the world’s oceans.”

As consumers become more aware of these issues, businesses are under growing pressure to adapt and demonstrate environmental responsibility. “Businesses are trying to align themselves with these changing societal views,” Hayes explains. “Many of them now have a sharp focus on sustainability. They’re striving to reduce their direct and indirect impact on the environment.”

Businesses are trying to align themselves with these changing societal views. Many of them now have a sharp focus on sustainability. They’re striving to reduce their direct and indirect impact on the environment.

Richard Hayes, Global Head of Working Capital Advisory and Working Capital Sales, Nordea

Sustainability isn’t just about improving a company’s reputation and appealing to consumers, it’s also important for business longevity and growth. “When you begin taking steps to improve sustainability, you often reap additional benefits from optimisation,” adds Hayes. “Many sustainability initiatives can help to reduce waste, improve productivity, and ensure the reliability of future resources that are critical to business operations.”

How to improve supply chain sustainability

For businesses, there are a number of ways to improve sustainability. While many companies are looking inward and reviewing their own operations, some are also taking a closer look at the actions of their suppliers.

“Large buyers have expansive global supply chains, and the impact of their operations across this chain on the environment and society can be far-reaching,” says Hayes. “For this reason, I think trade can be a powerful tool for positive change and growth. By incorporating sustainability targets into your entire operational ecosystem and supply chain you can have a much bigger impact.”

There are new tools emerging to help business achieve this. With a sustainable supply chain finance solution, buyers offer tangible benefits — such as discounted finance rates — to suppliers for meeting or committing to sustainability targets. “By linking supply chain finance and sustainability, you can incentivise your suppliers to meet specific sustainability targets. This encourages suppliers to transform their business models and align their values with yours, driving your own sustainability agenda,” Hayes says.

By linking supply chain finance and sustainability, you can incentivise your suppliers to meet specific sustainability targets.

Richard Hayes, Global Head of Working Capital Advisory and Working Capital Sales, Nordea

It’s a win-win for buyers and suppliers

This approach has benefits for both buyers and suppliers. The suppliers will benefit directly, as by committing to the buyers’ sustainability targets they’re able to take advantage of financing discounts. And working with environmentally-minded buyers will give them exposure to the best sustainability tools and practices, helping them work more efficiently towards shared goals. This can also improve the long-term relationship between buyers and suppliers.

For the buyer, a sustainability supply chain finance solution can provide greater insights into their extended supply chain and the wider impact it’s having on the environment and society. Hayes says this can have a profound impact. “Sustainable supply chain finance helps businesses to work more closely with their supplier to mitigate their business impact and meet environmental targets. Together, this helps them build a more sustainable future, appeal to consumers and drive business growth.”

Which businesses are leading the way?

While sustainable supply chain finance mechanisms are relatively new, the early adopters have been large retailers, consumer goods companies and garment manufacturers. These companies have been working on environmental issues and sustainability for many years; largely because they’re consumer-focused and under greater pressure to adapt. Incorporating sustainability initiatives into their global supply chains is a logical step.

“These companies now see the merits of amalgamating their sustainability agenda with their desire to support their suppliers from a finance and working capital perspective,” explains Hayes. But concerns about sustainability are no longer confined to consumer-facing sectors. Now, even if you’re a B2B company, you could be under pressure from other businesses, government or local authorities to improve your sustainability targets.

Hayes says that Nordic companies are often at the forefront of environmental change, and many of the customers they speak to are looking at sustainable supply chain finance. “Leading Nordic corporates are seeking to implement and extend their supply chain financing programmes,” says Hayes. “They often ask us how their sustainability agenda can be interlocked with this process.”

Leading Nordic corporates are seeking to implement and extend their supply chain financing programmes. They often ask us how their sustainability agenda can be interlocked with this process.

Richard Hayes, Global Head of Working Capital Advisory and Working Capital Sales, Nordea

The future of sustainability

Sustainability is only going to grow in importance. And soon, new technologies could make it much easier to set up and manage dedicated supply chain finance mechanisms.

“Blockchain-driven smart contracts provide numerous opportunities to improve the digitization of trade in general,” says Hayes. “Smart contracts can self-execute, as the terms of the agreement between buyers and sellers is written directly into lines of code. In the near future, this could pave the way for more effective, secure and sustainable supply chain finance solutions — and help to drive uptake and expansion.”

Of course, there are actions businesses can take now to improve their supply chain sustainability. Hayes suggests that companies review their operational ecosystem, and engage with both their suppliers and their bank to align sustainability goals.

“Focusing on sustainability generates numerous opportunities, including increased business growth, innovation and value,” he adds. “At Nordea, sustainability is part of everything we do. We’re delighted to work in partnership with our clients as they seek new ways to improve their sustainability and look after the environment.”

Further reading

For more information, please write to Richard Hayes

Find out more by reading the Nordea Sustainability Report 2018.

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Further reading