Winner: Henkel AG & Co. KGaA
Partner: Deutsche Bank AG
Highly Commended: Pran – RFL Group
Partner: Veefin Solutions
Germany’s Henkel took home two of the SCF Community’s Supply Chain Finance Awards for 2022. As well as topping the Fast Moving Consumer Goods category for the first ever conversion in Europe of an existing SCF programme to a sustainability-linked one, it won this year’s overall Gold award. Pran- RFL received a High Commendation for the Fast Moving Consumer Goods Category from the Jury.
Launched in 2022, Henkel’s revamped SCF programme was born out of a commitment to integrate sustainability throughout the company, according to Stefan Kolb, Henkel’s head of financial market risk and cash management.
Scope 3 emissions related to external value chains account for over 90% of Henkel’s carbon footprint, but it is far easier for the company to control upstream emissions from its procurement of goods and services than downstream emissions related to how its products are used, Kolb explained. For example, the carbon footprint of shampoo depends partly on how long and hot a consumer’s shower is while they use the product.
A partnership approach to procurement meant, however, that Henkel did not want to simply replace all those suppliers whose practices were less sustainable. Instead, it sought to create financial incentives for them to improve their practices and thereby strengthen the sustainability of the company’s overall supply chain.
Henkel therefore approached Deutsche Bank – which had already run the company’s SCF programmes in Europe, India and Mexico for over a decade – to develop a solution that used tiered pricing, linking the SCF margin paid by suppliers to ESG scores provided by rating agency EcoVadis.
In the programme, the bank accesses suppliers’ scores directly from the EcoVadis platform and automatically reduces the discount margin they pay for SCF as their score improves – or increases it if their score deteriorates. An automated message from the bank informs suppliers as they move into different tiers, with no intervention required from Henkel. The programme is open to all suppliers in the region and Deutsche believes it is replicable globally.
Because the programme’s sustainability classification depends on the ‘average’ ESG score of Henkel’s supplier portfolio improving over time, it needs to be proactive and dynamic, using a carrot and stick approach to encourage suppliers, according to Anil Walia, director of supply chain finance at Deutsche Bank. The bank will review the programme on a quarterly basis so it can adapt the incentive structure if the targeted improvements are not achieved.
Switching to the converted programme is intentionally easy, with suppliers needing simply to sign a short addendum to existing documentation that is accessed online through Deutsche’s supplier onboarding portal.
All the approximately 400 suppliers in Henkel’s original European SCF programme have been offered the benefits of the converted programme. Nearly 100% have already accepted, with those who had not yet opted to obtain an ESG rating starting the rating process. New suppliers have also asked to join, according to Henkel and Deutsche.
The programme’s success has depended on close cooperation between Henkel’s Treasury, Procurement and Sustainability teams, noted Kolb. It also relies on dedicated staff engaging deeply with suppliers, especially early on, to ensure they understand the programme’s incentives and benefits.
This focus on communication was one of the factors that stood out when Henkel’s award entry was evaluated, with judges noting it “shows the trust they share with their suppliers.” The company’s “clear vision” and “drive for innovation and improvement” were also evident in what was described as a “well-executed programme.”
- Bangladesh’s Pran-RFL group also stood out in the Fast Moving Consumer Goods category, being highly commended by judges for a “groundbreaking” SCF programme. Embedding the programme in the company’s own platform helped it integrate 4 banks and onboard both suppliers and distributors quickly and efficiently.