Sustainability in supply chains is becoming a c-suite priority for global business, according to new HSBC research. SCF Briefing spoke to the bank’s Stuart Nivison to find out more.
Nothing new here, you might think – surely every global corporation in the 21st century has a Corporate Social Responsibility (CSR) function and talks about being a good global citizen.
Yet this is something different, according to one senior banker who spends his time discussing just these issues with the C-Suite of global corporations.
“One of the thing that has become very clear to me over the last couple of years – and has been echoed to me by NGOs and by other large corporates – is that sustainability is becoming more and more of a priority agenda item for the more forward-thinking companies,” says Stuart Nivison, Global Head, Client Network Banking at HSBC.
“I don’t mean the sort of sustainability head in the office on the fourth floor that gets asked a question every once in a while; this is more at the C-suite level. So, it’s becoming a much more executive discussion around sustainability. It’s about working conditions, labour, those issues, as much as it is about the environmental footprint.”
It was equally clear, he adds, that this is no longer a debate about the sustainability performance of a company, but about its entire supply chain. Investors and customers alike are asking pointed questions of CFOs and CEOs about the environmental impact of corporations and, as Nivison puts it, “You can only do so much by reducing the number of paper cups and the copier paper use in a company.”
The data backs up this view: the most cited reason for making sustainability changes to the supply chain was not PR or complying with legislation, but financial performance.
For HSBC, this means supporting companies who are looking to move their entire supply chains in a more sustainable direction, often requiring suppliers to invest in new technology or better working practices, which is where financing comes in.
In many cases, HSBC is working with the big buyers at the top of the supply chain to provide funding for the smaller companies who need to make those investments – and credit decisioning is made easier by access to data from the buyer as well as from non-governmental organisations (NGOs) monitoring sustainability investments.
“You’ve got the ability to provide finance on a programme basis in coordination with the buyer,” says Nivison, “and you’ve got the ability to use supply chain finance, where by working with the buyer ‒ particularly if there’s a measurement of the degree to which the supplier is meeting their sustainability objectives – we can alter the pricing on that supply chain finance scheme so that we provide incentives to actually help meet the objectives of the large buyer.”
In the longer term, those suppliers that do invest in sustainable production will make more attractive prospects for the bank, because they are likely to forge long-term relationships with their multinational customers. This may be why the Navigator study found that 21% of companies in developing economies plan to make sustainability improvements compared to just 15% in developed markets.
“Our inference from that was that you’ve probably got a bigger number of suppliers in the emerging markets, “ says Nivison. “It’s no longer a first-world issue; it’s spilling right through the supply chain.”
For banks like HSBC, this trend is already influencing the way credit decisions are being made – demonstrating that supply chain finance isn’t always about extending days payable outstanding (DPO). The modern CFO has to consider much more than simply driving down costs in the supply chain.
“They are taking a more holistic view, more of an ecosystem view rather than “me and you”, and I think this is the way forward,” concludes Nivison. “And that talks to so many aspects of life these days.”