Buyers helping drive sustainable supply chains

22 January 2018

SME suppliers are becoming more aware of the demand for sustainable and responsibly sourced goods, an industry survey has found.

A poll conducted by HSBC found half of firms globally now recognise the demand for products that have a positive environmental and social impact, and nearly a third of firms (30%) believe becoming more sustainable will increase their financial performance over the next three years.

The number of firms recognising the commercial benefits of sustainability increases to 72% in the manufacturing sector, while India (68%) Saudi Arabia (66%) and Canada (66%) are the countries where most firms recognise this. 

Although just 18% of smaller firms rated sustainability actions as important to their business today, 46% said it would be important to them over the next three years. “A huge difference”, said Stuart Nivison, global head of client network banking at HSBC, who told SM this was one of his favourite statistics from the research.

“[The supply chain] can see what the large buyers are saying, they can see that the large buyers quite often have got CSR programmes. It might not affect them yet, it might be a second tier supplier rather than a direct supplier, but they know it’s coming,” he said.

Working with buyers, Nivison and his team are exploring new ways to use supply chain financing to help suppliers meet ever higher sustainability standards – something that is becoming increasingly important for his clients.

Supply chain finance can give buyers two types of levers. Firstly, existing finance programmes can be enhanced to take into account sustainability metrics. If a supplier meets a buyer’s sustainability objectives, they receive cheaper financing, if not they get penalty financing. “The other [lever] which I find particularly interesting and we’re pushing hard is the desire to look at what the underlying investment need is to be able to achieve those goals,” said Nivison.

This means providing investment for water treatment, solar panels, or other capital projects that suppliers need to meet tougher standards. Nivison says the bank is more willing to finance these types of investment on preferential and longer terms because it makes the buyer-supplier relationship “stickier”.

“A: it achieves objectives that we and our clients want to achieve, B: it gets us a relationship with their strategic suppliers which we might not have had otherwise, and C: by nature of the fact that it’s the strategic suppliers meeting the objectives of the buyer, it brings them closer,” he said. 

While there are many thing that push companies to improve their sustainability, including investor pressure, customer demand or government initiatives – which is likely the case in high scoring Middle Eastern countries – pressure from buyers is undoubtedly contributing to a change in the supply chains, said Nivison.

“We’re seeing large buyers that are telling us they are willing to work with us to help to drive sustainability through the supply chain – finance the investment that’s needed – but the question was are were seeing this at the lower end? 

“[The research] says it is actually. For the small and medium sized companies across the world, to varying degrees, there is an awareness about this.”

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