How Tesco is rewarding suppliers for green performance

30 April 2021

Tesco has become the first UK retailer to offer sustainability-linked supply chain finance (SCF) to its suppliers to “encourage more suppliers to sign up to science-based emissions reduction targets”.

Under the voluntary programme, Tesco suppliers will be offered preferential financing rates through Santander’s supply chain finance platform as part of efforts to incentivise suppliers to “make positive changes to their business while tracking performance and creating a culture of continuous improvement”. 

The rates received by suppliers will be based on their carbon data disclosure, emissions reduction targets and progress against sustainability goals. 

Annual greenhouse gas emissions data provided by suppliers will be independently verified and assessed by sustainability consultancy Anthesis, and KPMG will carry out assurance of the programme.

The scope of the sustainability data requirements will be updated regularly by the retailer in line with market best practice and its own sustainability commitments, Tesco said. 

The scheme has been in development for 18 months and is due to launch in September.

Ashwin Prasad, chief product officer at Tesco, said: “In this critical year for climate action, we’re delighted to be able to offer thousands of suppliers access to market-leading supply chain finance linked to sustainability. 

“This programme not only provides suppliers with a real incentive to set science-based emissions reduction targets, it will help embed sustainability goals throughout our supply chain and support the UK in realising its climate change targets.”

Darren Jones, head of Santander Corporate and Investment Bank UK, added: “Supply chain finance can be an effective tool for influencing positive change by linking sustainability achievements with competitive financing… We are committed to supporting our clients in their transition to a low-carbon economy. We look forward to working in partnership with Tesco to provide this innovative solution.”

The move is expected to benefit Tesco’s small and medium-sized suppliers, who will be provided with online tools and support as they enrol in the scheme.

Dave Knibbs, director at The Tofoo Company, said: “As a business, we recognise the importance of doing what we can to protect our planet and the Tesco supply chain sustainability programme is strongly aligned with our company values and our aim to become BCorp certified in the next year. The supply chain finance programme offers a great incentive for us and similar suppliers to make a noticeable difference when it comes to sustainability.”

The retailer is also working with charity WWF to halve the environmental impact of food production.

Sarah Wakefield, WWF’s head of food transformation said: “We welcome this latest leadership by Tesco, to be a part of the solution by incentivising their suppliers to report on their emissions and take action to align with 1.5C climate targets. This takes us closer to achieving our shared goal of halving the environmental impact of the average shopping basket.”

SCF is a form of supplier finance in which suppliers can receive early payment on their invoices for a fee. The practice has come under scrutiny in recent weeks after the collapse of major supplier finance firm Greensill.

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