The supply chain finance market needs to take action to fight climate change, urged panellists speaking at this year’s SCF Forum Global.
“There is nowhere more important when considering the challenges of climate change than supply chains,” said an environmental documentary filmmaker Huw Cordey, being interviewed by Thomas Dunn, chairman of tech firm Orbian.
He explained how a company’s carbon footprint multiplies as it goes through its supply chain, and how finance could be part of the answer in reducing the company’s impact.
“Just asking suppliers to make changes without capital and liquidity is a fool’s errand,” he said.
It is well-known that climate change is causing instability in the world’s weather systems, resulting in lasting damage to wildlife habitats and our own environment, with the increased likelihoods of hurricanes, flooding and other extreme weather events.
Nature does not like instability, explains Cordey, and neither does nor should global business, underling the importance of the financial world to play a part in tackling climate change.
Over the past decade, there has been a growing awareness about the role finance has to play in improving the environment, said Dunn.
“Before the global financial crisis, global banks – apart from niche areas – were too focused on making money for themselves out of what seemed to be a never-ending money tree of real estate lending,” he remarked.
Within supply chain finance markets, corporate buyers and their financing partners are recognising the need to encourage sustainable and environmental behaviours in their supply chains and are implementing sustainability-linked financing programmes.
Earlier in the forum, Spanish infrastructure and renewable energy firm Acciona presented their €15 million project with Spanish bank BBVA that aimed to streamlined payments to 25 European suppliers involved in the company’s Ness Energy Waste-to-power plant in Aberdeen in Scotland.
The project will see the construction of a power plant capable of processing 150,000 tons of waste per year. It will ensure the region of Scotland will be able to comply with a nationwide ban on biodegradable landfill waste that starts next year.
The project enabled the suppliers to benefit from early payment of receivables they issue for services related to the infrastructure project.
BBVA has a strategic goal to encourage sustainable practices and has two approaches to supporting sustainable initiatives through its supply chain finance techniques.
The Aberdeen project used ‘approach 1’ which requires that at least 80 percent of the use of proceeds or guarantees must be used in a green, social, or sustainable project to qualify for preferential financing. The “sustainability” of the project is measured against BBVA’s own framework which is directly linked to sustainability development goals (SDGs) set by the United Nations.
BBVA’s second approach – not used in this project – is supplier classification approach, where suppliers are individually ranked in terms of their sustainability level and given preferential financing rates which reflect their classification.
Though successful, the project has not been without its challenges, said Javier Rodriguez Anguita, financial manager at Acciona.
“You need to get the suppliers comfortable – which can be difficult,” he advises other companies looking to implement a similar project. “[It is about] having a good bank with a good record on sustainability.”