Develop Financing Programs for Suppliers
Environmental Defense Fund
A successful financing program can help businesses and suppliers collaborate towards achieving sustainability goals while creating a positive environmental impact.
Creating financial programs for suppliers can help them accelerate their emissions reduction journeys. To ensure that any such financing program is aligned with your suppliers’ needs, it is important to collaborate with your suppliers to identify an approach that will work for them. Before developing financing programs, you should assess the emissions of your suppliers to prioritize supplier categories for emissions reduction efforts.
Financing programs for your suppliers can take many forms. Financing vehicles such as loans can be structured based on your supplier’s unique needs. For example, you can customize the rate and repayment terms to align with your payments to the supplier. You could also use your leverage to support suppliers in getting better terms with financial institutions. Alternatively, your company could make equity investments or grants to suppliers to help them get the cash they need to implement sustainability projects in their operations.
|International Finance Corporation – The World Bank Group’s private investment arm – will work with designated Microsoft suppliers in emerging markets, primarily in Asia, to identify technical solutions and financing opportunities that can reduce greenhouse gas emissions in the production process. Microsoft suppliers draw on IFC’s experience in working with complex international supply chains and its commitment to helping emerging market manufacturers achieve more efficient and environmentally friendly practices.1|
Establish a Supplier Financing Program
As you consider creating a financing program to support your suppliers in implementing sustainability measures, there are a number of important decisions you will need to make about the program’s structure. As you make these decisions, keep in mind your company’s goals in such a program, and look for ways to maximize your sustainability returns.
- Eligibility criteria: Establish eligibility criteria that suppliers must meet to participate in the financing program. This may include minimum emissions reduction targets or a certain level of emissions reduction potential.
- Project scope: Define the scope of the emissions reduction project that the financing will support. This could include the types of emissions reduction activities that are eligible for financing, such as energy efficiency upgrades or renewable energy projects.
- Financing amount: Specify the maximum amount of financing that suppliers can receive that can be based on the size of the emissions reduction project, the supplier’s creditworthiness, and other factors.
- Repayment terms: Work with suppliers to establish repayment terms that are feasible and aligned with their cash flow. This can include interest rates, repayment periods, and any other conditions.
- Reporting requirements: The reporting requirements that suppliers must meet to receive financing can include regular emissions reporting and progress updates on the emissions reduction project.
- Performance metrics: You can also require that suppliers meet certain performance metrics to receive financing. This may include emissions reduction targets, delivery consistency, and other metrics.
- Governance: A governance structure that defines the roles and responsibilities of all parties involved in the financing program. This may include creating a steering committee, designating a project manager, and other governance measures.
|HSBC and Walmart partnered to roll-out a finance program that pegs a supplier’s financing rate to its sustainability standards. Under this scheme, Walmart’s suppliers who demonstrate progress in their sustainability credentials have access to improved financing from HSBC. Suppliers’ progress is measured against Walmart’s Project Gigaton and Walmart Sustainability Index Program, developed by The Sustainability Consortium (TSC). Project Gigaton is an initiative Walmart launched to rid one billion metric tons (a gigaton) of greenhouse gases from their global value chain by 2035.2|
Communicate and Monitor
Once a financing program is established, it is important to clearly communicate the program’s goals, eligibility criteria, and funding options to suppliers. You may also offer support to suppliers in developing project proposals. To ensure the program’s effectiveness over time, it’s necessary to monitor emissions reduction progress by requiring suppliers to report regularly. You should also evaluate the overall success of the program by measuring the emissions reductions achieved.