Photo of Julian Redhead and Nina Sengupta, Tesco plc.
Alex Ashby
Head of Treasury
Tesco is a FTSE 100 company headquartered in Welwyn Garden City, England.
Tesco’s ESG-linked supply chain finance (SCF) solution making a big environmental impact
The challenge
Tesco wanted to support its many suppliers in the UK and the Republic of Ireland (ROI) tackling climate change to access lower funding costs.
The solution
In 2021 Tesco became the first UK corporate and retailer to deliver a SCF solution with a sustainability-linked element focusing on the environmental pillar of ESG, targeting an ambitious emissions reduction strategy.
The overall project scope is international and will cover all of Tesco’s retail and sourcing markets.
“The UK and ROI was merely the first phase of our roll out plans and subsequent phases will cover non-food payables and wholesale and then transition to central Europe (Czech Republic, Slovakia and Hungary) followed by our Asia sourcing which is based in Hong Kong and sources from over 50 countries including Bangladesh, Sri Lanka, Vietnam, China and many others in the emerging markets,” explains Alex Ashby, Head of Treasury.
Best practice and innovation
Innovation was required to create a balanced ESG scorecard. As a brand-new concept, the teams had to create from first principles with leadership from the Tesco treasury and sustainability teams to find the balance of how strong a sustainability methodology to have against the complexity and overhead on Tesco suppliers. The ESG scorecard was a combined effort led by Tesco’s treasury and sustainability teams and, required a fine balance between a strong sustainability methodology and acceptance by the company’s suppliers.
The project team ran a request for proposal (RFP) covering all the leading ESG data providers and, having assessed the breadth of coverage against Tesco’s leading KPIs, decided to create an in-house solution. Technology elements of the programme were also innovative with the project team designing a middleware with secure file transfer protocol (SFTP) connectivity to the bank for the six interfaces required. The middleware enables central automatic reconciliation and posting to Tesco’s Oracle Fusion general ledger but also enables the roll-out to other Tesco payables platforms in further phases across central Europe and Asia.
Key benefits
- Process efficiencies.
- Return on investment.
- Increased automation.
- Risk mitigated.
- Improved visibility.
- Errors reduced.
- Manual intervention reduced.
- Increased system connectivity.
- Future proof solution.
- Exceptional implementation (budget/time).
The Tesco led project was a UK first and has already created £2bn of ESG linked financing for suppliers, with 83% supplier adoption at launch and with massive growth potential targeting £5bn p.a. in just the UK and ROI, with further markets planned.
The project has also delivered new functionality called dynamic discounting which enables Tesco to act as a funder to the programme, in essence purchasing its own invoices. The project has really captured the hearts and minds of suppliers and following launch all the third parties involved (Santander, KPMG and Anthesis) as well as Tesco have had significant interest from other large and listed companies hoping to follow this model with their supply chains.
The head of food transformation, Sarah Wakefield, at Tesco’s sustainability partner WWF 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 1.5°C climate targets. This takes us closer to achieving our shared goal of halving the environmental impact of the average shopping basket.”
By leading in the industry, Tesco hope to increase adoption of similar financing products and to further incentivise its supply chain to outperform the UK’s net zero targets.
“This solution has also seen reputational benefits with very supportive feedback from equity and debt investors to our Group CFO and Treasurer,” concludes Ashby.
