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Citi has launched a sustainability-linked supply chain finance (SCF) programme in the Asia Pacific region, offering cheaper financing to suppliers that hit sustainability indicators.

The first Citi client to use the programme is German chemicals and consumer goods company Henkel and its suppliers in Australia. The programme will be extended to further markets over coming weeks, Citi says.

“Qualifying suppliers can access Citi’s supply chain financing at preferential rates on a tiered basis with rates improving as a supplier’s sustainability score improves,” the US-headquartered lender says in a statement.

Henkel, with the help of a sustainability assessment agency, will assess the performance of its suppliers.

Kanika Thakur, Citi’s Asia Pacific head of trade, tells GTR that qualifying criteria for suppliers will generally be set in partnership with the bank’s clients before a sustainability-linked SCF programme begins.

“In finalising these criteria, several factors are taken into consideration including the client’s sustainability objectives and the mechanism behind the independent assessment, verification and tracking of suppliers’ sustainability performance,” Thakur says.

Once suppliers are accepted into the programme, they are responsible for “maintaining and improving their sustainability performance”, with periodic checks by the corporate’s independent assessor, according to Thakur.

“Citi’s sustainability-linked SCF programme is anchored around well-established corporates who have clearly defined sustainability objectives across their businesses, including their supply chains, and report their sustainability performance according to industry standards,” Thakur says.

“These corporates typically work with industry-certified third-party validators and rating agencies that independently audit, verify and track suppliers against a company’s defined sustainability targets and objectives.”

The bank said it was unable to provide examples of commitments made by Henkel’s Australian suppliers by press time.

Henkel’s head of finance for Asia Pacific, Christoph Wenner, says the company is “convinced that sustainability-linked supply chain financing can help improve sustainability across Henkel’s large supplier ecosystem in Asia Pacific.”

Banks and other financiers have from campaign groups and advocates over the impact of their credit facilities and trade finance products in greenhouse gas-intensive industries or sectors where supply chains can fuel deforestation or other environmental harm, such as palm oil, soya, rubber, timber and beef.

Citi joins a growing list of banks offering sustainability-linked SCF. In March, Standard Chartered launched a green trade finance offering for its clients, which includes SCF programmes.

HSBC also launched its first sustainability-linked SCF programme in 2019, with US retail giant Walmart, while ING also offers a similar product. In April this year supermarket chain Tesco began offering improved pricing to suppliers that meet targets on carbon data disclosure, emissions reduction and progress towards other sustainability goals through an SCF programme operated by Santander.