HSBC and Walmart have developed a sustainable supply chain finance (SSCF) programme, which will see suppliers who meet sustainability goals get cheaper financing.
This comes two years after the US retail giant launched Project Gigaton, with the aim of eliminating one gigaton of greenhouse gas emissions from its global value chain of upstream suppliers and downstream consumers by 2030, focusing on areas such as manufacturing, materials and use of products.
The SSCF, which launched last week, allows Walmart suppliers that demonstrate progress in The Sustainability Index, powered by The Sustainability Consortium’s measurement and reporting system, or through Project Gigaton, to apply for improved financing from HSBC.
“There is a base pricing for the programme which is available for suppliers who may not yet be on the sustainability programme. That is the starting point. Eligible suppliers get preferential pricing on that base rate,” says Sanjay Tandon, Asia Pacific head of product and propositions, global trade and receivables finance at HSBC. While HSBC has not disclosed pricing or discount details, Tandon tells GTR that Walmart has set up multiple tiers for suppliers, with each tier having a different rate of pricing. “For each tier, we have worked out a mechanism that works best for both Walmart and us,” he says.
Companies are increasingly facing pressure from end consumers who now consider the social and environmental impact of the goods they buy as being more important than price alone. In a recent HSBC Navigator survey, almost a fifth of respondents said that they would select suppliers based on their sustainability practices. As a result, those who don’t adapt run the risk of losing buyers.
“Investing in sustainability can not only lead to higher productivity and cost savings for suppliers, but can also drive their business growth,” says Matthew Allen, vice-president of finance and assistant treasurer at Walmart.
Natalie Blyth, global head of trade and receivables finance at HSBC, comments: “In many industries it is a company’s supply chain – rather than the company itself – that is responsible for most of the environmental impact and therefore offers the greatest potential for sustainability improvements.”
What is unique about this sustainable supply chain finance programme is that the rate at which HSBC discounts the suppliers’ invoices depends not only on Walmart’s credit standing, but also on Walmart’s supplier rating, which is applied after the retailer has monitored a supplier’s adherence to various social and environmental standards.
“Walmart administers the entire programme. They are the ones who assess their suppliers on an ongoing basis, and they share their ratings with us on a periodic basis. Based on their ratings, we would set those up on our internal platform, and whatever is the applicable financing price would then get applied to the suppliers,” explains Tandon, who stresses that the additional administrative burden resulting from having a range of different pricing levels across a supply chain finance programme is negligible: “It is an added bit of processing which we need to do on a periodic basis, but not for every transaction, because once we’ve set up the supplier and the supplier ratings are on our system, the system will take care of applying the financing rate on an automated basis.”