The fast-growing sustainable supply chain finance (SCF) sector will, in time, make up one third of the $2 trillion in financeable highly secure payables globally, representing a potential $660 billion sustainable SCF market according to a report issued by global non-profit organisation BSR.
San Francisco-based BSR (Business for Social Responsibility), established in 1995, develops sustainable business strategies and solutions through consulting and research via a global network of more than 250 companies.
The report, ‘Win-Win-Win: The Sustainable Supply Chain Finance Opportunity’, notes that there are currently relatively few public examples of global buyers and finance providers that have implemented sustainable SCF programmes, with Puma and Levi Strauss among the companies that have made pioneering efforts.
However, the organisation says that its research and interviews demonstrate a strong will to do more and show that some key trends, such as the digitalisation of trade and the growing availability of supplier sustainability performance data, are converging to create an environment where sustainable SCF can thrive.
The report’s authors invite leading companies across sectors to explore this untapped opportunity to scale and advance successful models. They advocate three “promising mechanisms” for doing so:
- Through a sustainable payables finance programme, so buyers can provide fair payment terms to suppliers while rewarding and providing tangible benefits, such as better discount rates, to suppliers who demonstrate strong environmental, social, and governance (ESG) performance or commit to improve.
- Sustainable trade loans, which can be used to support and incentivise the trade of goods that have clear environmental and social benefits, such as Rainforest Alliance or Fairtrade- certified crops.
- Applying smart contract solutions, based on blockchain technology, which can make transactions traceable, transparent, and irreversible – key tenets of a sustainable supply chain.
BSR says its estimate that, in time, the sustainable SCF market will reach one third of the market, or US$660 billion, represents a US$6 billion revenue opportunity for banks and other financial service providers. The report also outlines a seven-step framework for companies and organisation seeking to develop a sustainable SCF programme.
“Today, businesses have an opportunity to shift how they are implementing their sustainability commitments in their supply chains,” add the report’s authors.
“Global buyers – major international companies – are increasingly looking for ways to not just to enforce compliance and punish poor performers, but to reward and incentivise their suppliers to adopt sustainable and responsible behaviours.”