Sustainability across the supply chain

Published: Sep 2023

Sustainability has become a business imperative. Bank of America believes that treasuries can help the world move toward a better future by supporting companies to embed sustainability throughout their supply chains.

As businesses are closely connected with both the environment and the communities where they operate, they can help policymakers to address the major environmental and social challenges we face as a planet.

Alongside the moral imperative to act on ESG issues, businesses recognize their own dependencies on the environment and society. They also understand that ignoring these dependencies exposes them to significant economic and reputational risks. Both the pandemic and the current geopolitical unrest have highlighted the vulnerability of global supply chains and emphasized the need for companies to prioritize sustainability as a means of building greater supply chain resilience. Furthermore, consumers are increasingly refusing to buy from businesses that neglect diversity and inclusion or are prepared to compromise the future of the planet in the sole pursuit of short-term profits.

Pressure around sustainability is also coming from institutional investors, who want to invest responsibly and believe that sustainable businesses will outperform their peers. This helps to explain why the total value of ESG assets is on track to exceed $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in global assets under management, according to research by Bloomberg Intelligence.

Companies know that if they want to meet the ESG expectations of their customers, investors and other stakeholders, they need to have sustainable supply chains. This can be a major challenge, however, since it’s not unusual for large businesses to have thousands of first- and second-tier suppliers, including SMEs. What’s more, these suppliers may be distributed in numerous markets around the world, including in markets where ESG is not well supported by legislative and regulatory frameworks.

When companies look to diversify their supply chains, they may onboard small, young suppliers that have a limited track record. It is harder to assess the sustainability of these startups compared with larger, more established suppliers. Furthermore, lower-tier suppliers often lack environmental management systems and have high staff turnover rates, making it difficult to implement viable environmental programs.

How can treasuries support their companies to build more sustainable supply chains going forward?

  1. Identify and encourage sustainable suppliers. A sustainable supply chain requires access to rich data from procurement and, where possible, outside assessments from third-party ESG audit services. Those suppliers that don’t reach the required standard can be encouraged to improve while those that do may be offered more favorable terms.
  2. Help sustainable suppliers to access finance, banking and advisory services. Through the relationships they have with their banks, treasurers are well placed to find out how their suppliers can access finance from banks, as well as banking and advisory services. Banks themselves may be able to provide financing to the suppliers or else they may be able to connect the suppliers with investors who can provide capital for investments in sustainability-related projects and infrastructure. As an example, Bank of America has deployed $250 billion in sustainable finance activity for 2021 as part of its $1.5 trillion by 2030 sustainable finance goal.6 Also, as banks are always looking for new clients, they may be able to offer banking and advisory services to a company’s suppliers.
  3. Implement a working capital management program, such as supply chain finance (SCF). Fortunately, SCF can be used to support suppliers with strong ESG credentials, by providing them with finance on favorable terms. Suppliers can then use this funding to invest in growing their business sustainably. A SCF program will also encourage suppliers to be more loyal to the company that provides it, helping to underpin the company’s sustainability.

Keep an eye out for next month’s Thought for the Month.

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