Category:  FMCG Food & Beverage

Winner: Nestlé

Partner: CRX Markets

Summing up:  A programme that expands the use of supply chain finance into environmental, social and corporate governance (ESG) financing by providing financial incentives to suppliers to meet certain criteria

What the judges said: The “add-on” environmental, social, and corporate governance (ESG) is an interesting and compelling story. Expanding ESG financing beyond capex helps to put a company into an excellent position given the growing attention around ESG.”

Key Facts:

• Participating suppliers saw financing costs reduce by roughly 25 to 30 percent
• A total of 84 suppliers eligible for ESG financing have been invited onto the programme by Nestlé
• $25-million equivalent in SCF notes backed by invoices compliant to ESG standards have been placed on the trading platform

Nestlé is a global food and beverage company that sets out to maintain clear environmental, social and corporate governance (ESG) standards within its relationships with its suppliers. For example, 65 percent of Nestlé’s global coffee supplies were sourced under ESG certified supplier agreements.

It has previously offered various supply chain finance programmes to support its suppliers with lower cost financing options. It is now looking to combine its efforts in the ESG space with its experience in supply chain finance to provide financial incentives to its suppliers to produce food stuffs and other products in an ESG-compliant manner.

Nestlé is working with CRX Markets, a trading platform for receivables and payables, on this ESG-based supply chain finance initiative. Over the past few years Nestlé has invited 84 suppliers eligible for ESG financing onto its global SCF programme, and CRX Markets have on boarded them as users of the programme.

The suppliers can immediately benefit from attractive terms offered by the platform with no additional work required by the suppliers as the financing process relies on existing certifications for the underlying goods.

The one major challenge of this project was to ensure that only ESG-certified invoices were uploaded to the programme. Traceability of each invoice was essential, and a special algorithm was used based on purchase orders to isolate ESG-eligible invoices together. These algorithms were able to track and extract relevant certificates for the ESG investors active on the platform to ensure their investments in the notes compiled to their internal ESG standards.

Nestlé has so far placed $25 million-equivalent in SCF notes backed by invoices for goods produced according to strict ESG criteria, on the CRX Markets platform.

This programme marks a shift in the usual methods of ESG-related financing which have often related to larger longer-dated capex financing initiatives. It paves the way for ESG financing principles to be applied to operational expenses (Opex) financing.

This structure allows the production cycle to match the funding tenor – rather than funding operational costs with longer term ESG-compliant debt such as green bonds.

Compared with standard pricing in the Nestlé-CRX SCF programme, ESG notes achieve a 25 to 30 percent lower financing spread – which in turn incentivises suppliers to work hard to maintain and improve their ESG standards.

The programme is one of the first of its kind, setting an example to other companies on how to extract more value from an SCF platform for all parties involved. The original SCF programme known as Nestrade and operated by CRX Markets has been in place since 2016.

The addition of the ESG arm of the platform will support Nestlé’s suppliers to drive their ESG strategy forward by gaining preferential funding options and yet avoiding the time and expense of setting up their own ESG funding platform.