Photo of Sophie Yang, APAC Regional Treasurer, Asia Pacific.

Sustainability-linked SCF programme is a big hit with suppliers

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The challenge

Henkel has set itself some aggressive sustainability targets, but it cannot achieve these objectives alone. Suppliers’ performance against environmental and social standards have at least as much impact on Henkel’s sustainability metrics as its own activities. Sophie Yang, Henkel’s APAC Regional Treasurer and her team recognised that a sustainability-linked supply chain finance (SCF) programme could help increase sustainability across the ecosystem by incentivising environmental and social improvement, whilst also enhancing supply chain resilience.

The solution

Henkel therefore decided to pioneer a sustainable SCF structure, leveraging its strong sustainable sourcing programme internally, and its relationship with its partner bank, Citi.

Best practice and innovation

Measuring suppliers’ sustainability performance

Henkel’s procurement team in Asia Pacific has led the industry in setting up a sustainable sourcing programme which focuses particularly on environmental, labour, and human rights, ethics, and sustainable procurement issues. One of the challenges that many companies encounter when setting up such a programme is the difficulty in measuring and monitoring supplier performance against independent sustainability metrics. To overcome this, Henkel partnered with Ecovadis to provide independent vendor assessments, which are reviewed every three years. Ecovadis’ assessment is based on 21 criteria which are linked to the United Nations Sustainable Development Goals, with varying measures according to supplier geography, industry, and scale.

Structuring a sustainability-linked SCF programme

Henkel already had a successful SCF programme in place, which suppliers could continue to access. The intention was to create an enhanced programme which would expand the number and breadth of participating suppliers. This programme operates in the same way as Henkel’s existing programme; however, suppliers that can demonstrate already strong or improving sustainability performance can access financing at a preferential rate. This incentivises investment in sustainability, but also encourages a closer relationship with Henkel through access to competitive financing and shared values.

Drivers of success

As an ‘industry first’, Henkel, its partner bank Citi and Henkel’s supplier community needed to become familiar with the additional requirements to operate and manage a sustainability-linked SCF programme. Henkel and Citi worked closely to map and digitise the data flows, such as Ecovadis’ supplier sustainability scores, to allow automated financing at the appropriate rate.

Henkel has seen a surge of interest in this industry-first, new sustainability-linked SCF offering, both from suppliers that were part of the existing programme, and those that were not. These include small and medium-sized enterprises (SMEs) that may not have previously qualified for SCF. The programme was first launched in Australia and New Zealand and of the first two suppliers to join, one is Henkel’s biggest supplier in the ANZ region. Together, these two suppliers represent €57m in annual spending. Based on the programme’s success, it is now being rolled out in China, which hosts Henkel’s biggest supplier base in Asia Pacific, with over 100 suppliers expected to eventually be included in this sustainability-linked SCF offering, to be followed by other countries.

Key benefits

• Secures Henkel’s reputation as a sustainability-led corporation.
• Positions Henkel’s treasury centre in Asia Pacific as an innovator and pioneer of sustainable financing in the region.
• Leverages Henkel’s financial strength to; provide cost-effective financing to suppliers, improving relationships and encouraging more business; boost supply chain resilience and effectively invest in improving sustainability performance across the supplier community.
• Harnesses digitisation to automate supplier communications, onboarding and financing linked to sustainability scores.

“Sustainability is at the heart of our corporate strategy. This new sustainability-linked SCF programme is completely aligned with, and an enabler of, this strategy,” says Sophie Yang, APAC Regional Treasurer.