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HSBC and Walmart have introduced science-based emissions reduction targets into their sustainable supply chain finance (SSCF) programme, which sees suppliers who meet sustainability goals get cheaper financing.

Set up in 2019, the SSCF programme for Walmart suppliers was one of the first of its kind. It was developed as a means to support the US retail giant’s Project Gigaton, which was launched in 2017 with the aim of eliminating one gigaton of greenhouse gas emissions from Walmart’s global value chain of upstream suppliers and downstream consumers by 2030, focusing on areas such as manufacturing, materials and use of products.

The original programme allowed Walmart suppliers that demonstrated progress in The Sustainability Index, which is run by The Sustainability Consortium’s measurement and reporting system, or through Project Gigaton, to apply for improved financing from HSBC. The rate at which the bank discounted the suppliers’ invoices depended on Walmart’s supplier rating, which is applied after the retailer monitors a supplier’s adherence to various social and environmental standards.

Under the revamped programme, suppliers taking part in Project Gigaton now have the option for setting science-based targets and having their targets validated by the Science Based Targets Initiative (SBTi), or achieving certain score thresholds on their CDP climate change reports.

Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to well below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.

Suppliers setting the highest ambition would be able to take advantage of receiving the lowest pricing, HSBC says in a statement, adding that suppliers can also use the financing proceeds to manage their own working capital and their sustainability-linked improvements.

A report released last month by HSBC and Boston Consulting Group found that decarbonising global supply chains will require a colossal US$50tn investment into small and medium enterprises, and asserted that simply mandating new standards and demanding more of suppliers will lead to “limited progress and missed goals”.

Many suppliers are unlikely to have the knowhow and resources to make the transition, the report said, adding that most small businesses “don’t have the capacity or money” to focus on a net-zero strategy.

Other challenges holding them back include a lack of incentives, knowledge and resource gaps, and unclear and costly data gathering and reporting methods.

“Our recent research with Boston Consulting Group made it clear that delivering on scope 3 emissions targets won’t happen unless more is done to help small and medium-sized suppliers,” Surath Sengupta, global head of financial institutions, portfolio management and sustainability, global trade and receivables finance at HSBC, tells GTR. “This programme does just that and uses tools and capability building to accelerate the net-zero transition.”

“By co-creating such solutions with the likes of Walmart we’re using finance as a lever to drive change in supply chains and achieve not just environmental goals but also social and governance goals that make up ESG targets,” he adds.