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The challenge

Although Avery Dennison has made steady progress on eight key sustainability goals including cutting carbon emissions and integrating ESG guidelines into its chemical procurement, the company was increasingly concerned about sustainability in its Asian supply chain. Avery’s treasury and procurement teams opened discussions with its bank, Bank of America, on ways to encourage suppliers in the region to improve their own ESG performance.

The solution

Avery Dennison worked with Bank of America to produce a sustainable supply chain finance (SCF) programme that was offered to the company’s suppliers in Asia Pacific, particularly in China, Hong Kong and India under a pilot programme. Under the programme, suppliers who met externally validated ESG criteria are offered more favourable interest rates on early payment of invoices.

Avery Dennison rolled out its pilot SCF programme over three months, despite the difficulties caused by the COVID-19 pandemic in a process characterised by aligned objectives, robust communication and the support of certification by an independent monitoring firm.

Best practice and innovation

A key element to the programme included the certification by Ecovadis. Suppliers which achieved high Ecovadis scores, got beneficial financing terms. Ecovadis rates companies’ ESG performance using a system based on international sustainability standards, including the Global Reporting Initiative and the United Nations Global Compact and its Sustainability Scorecard illustrates performance in four categories:

• Environment.
• Labour and human rights.
• Ethics.
• Sustainable Procurement.

Ecovadis certifies the suppliers in gold, silver and bronze categories based on their ESG footprint and processes. The interest rates are calculated based on the ratings which is assessed on an annual basis, thus encouraging the suppliers to improve their ratings by focusing more on ESG.

Additionally, the buyers transmit their invoice details electronically to the bank’s CashPro Trade platform, avoiding the need for paper submission and automating the SCF process.

Key benefits

• Avery Dennison’s ESG-focused SCF programme shows how treasury, procurement, and business can integrate hard ESG criteria into SCF programmes. This ensures treasury plays its full part in supporting its overall ESG goals while also providing a tangible incentive to suppliers across China, Hong Kong and India to improve their performance in critical areas.
• The speed with which the programme was launched – around 90 days from the first conversation to the first supplier coming on board – demonstrates the commitment of Avery Dennison to the ESG goals and the bank’s ability to align resources and rapidly innovate for the company.
• In the long term, Avery Dennison is helping drive change across its global supply chain, and by incentivising sustainable practices, it is helping its suppliers establish a business case for furthering their sustainability efforts, which in turn creates a positive impact to the environment and local communities.
• Following its initial success, the programme will be rolled-out more widely across Asia Pacific and in other regions – a testament to its success in encouraging better corporate citizenship.