Tesco has become the first UK retailer to offer a sustainability linked supply chain finance scheme to its supplier base. Under the voluntary programme, suppliers will be able to tap preferential financing rates via a platform developed in partnership with Santander if they sign up to emission reduction targets.
Financing rates will be based on each supplier’s carbon data disclosure, emissions reduction targets and progress against sustainability goals, tracked and independently verified by sustainability consultancy Anthesis, tasked with supporting Tesco’s suppliers through the process.
Key challenges behind the initiative have included ensuring that the sustainability scoring balances are fair and credible externally, but not onerous for small suppliers, explains Alex Ashby, Head of Treasury – Markets for the retailer. This led to the project team tailoring the methodology for SMEs so that the data ask is less onerous and, where appropriate, to account for fast sales growth. Elsewhere, internal sponsorship within Tesco has also proved “incredibly important.” This ensured the IT spend and resourcing were “appropriately prioritised”, enabling the automation elements of the programme and ensuring it is scalable for Tesco’s large supplier base, said Ashby.
Under the programme, Tesco will regularly update the scope of the sustainability data requirements in line with market best practice and its own sustainability commitments. Last year, 70 of the retailer’s biggest suppliers reported a 12% reduction in manufacturing emissions, exceeding its science-based target of a 7% reduction.
Neither the base pricing for the SCF programme nor the discounts available have been disclosed but Ashby says that there are different sustainability tiers for Tesco’s suppliers which will be ranked as gold, silver and bronze. “Recognising” impact will unlock the first reward tier - bronze. He added the retailer tested the concept of a sustainability linked programme on a number of suppliers prior to launch with “very positive feedback”. Since launching last month to over 1,800 of the company’s UK & ROI suppliers, “a number of suppliers” have expressed interest in the programme.
Tesco’s treasury team is accountable for all financing initiatives at the company and came up with the concept in 2019 as part of the company’s internal Green Financing Framework. Under this initiative the company launched a revolving credit facility in October 2020 and a sustainability-linked bond in January 2021.
“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, but it will also help embed sustainability goals throughout our supply chain and support the UK in realising its climate change targets,” said Ashwin Prasad, Tesco’s Chief Product Officer.
“Supply chain finance can be an effective tool for influencing positive change by linking sustainability achievements with competitive financing. Santander recently announced its ambition to achieve net zero carbon emissions across the group by 2050, and 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,” said Darren Jones, Head of Santander Corporate and Investment Bank UK
Tesco’s and Santander’s scheme follows a similar 2019 initiative by US retailer Walmart and HSBC. The duo’s global programme allows Walmart’s suppliers who demonstrate progress in Walmart’s Project Gigaton or Sustainability Index Program to apply for improved financing from HSBC based on their sustainability ratings.
“We want to encourage companies throughout the supply chain to focus on sustainability, as we have seen first-hand how this sparks innovation and generates value. Investing in sustainability can not only lead to higher productivity and cost savings for suppliers but can also drive their business growth as they make a positive contribution to the world,” said Matthew Allen, VP Finance & Assistant Treasurer, Walmart speaking at the time.