Insight & Analysis

World’s largest company adopts sustainable supply chain finance

Business people putting their hands to the middle of the table to jointly hold a plant

Giving impetus to the movement towards sustainability, one American multinational retail corporation has adopted a supply chain finance programme based on the sustainability performance of its suppliers.

The world’s largest company by revenue, Walmart, has recently announced the roll-out of its sustainable supply chain finance programme.

The project, part of a wider programme of sustainable action by the retail giant, is enabling its suppliers to apply for improved financing from HSBC, based on their sustainability performance.

Walmart is currently ramping up the on-boarding phase and now has more than 170 suppliers participating, says Daria Johnen, Global Product Head, Supply Chain Finance at HSBC.

Through different tiers of pricing, HSBC can match the sustainability credentials of a supplier with the pricing of the supply chain finance offered.

Performance assessments of individual suppliers are made using Walmart’s Sustainability Index Program. This solution, developed in partnership with The Sustainability Consortium, gathers and analyses information across a product’s life cycle.

“The sustainable supply chain finance programme provides a positive incentive for Walmart’s suppliers to improve their sustainability ratings,” explains Johnen. “The higher the rating a supplier achieves, the more attractive the pricing offered through this programme will be. As a result, the targets by Walmart for its own sustainability agenda become more achievable.”

Scope

The new project is the latest part of Walmart’s already two-year old ‘Project Gigaton’. By 2030, the aim is to lower the amount of greenhouse gases created by its global value chain by one billion metric tons (a gigaton).

Walmart also aims to reduce its Scope 1 (direct emissions) and 2 (purchased energy) emissions by 18% by 2025 from 2015 levels. Project Gigaton falls within Scope 3 (supplier) emissions.

So far, three of Walmart’s international markets have signed up to work with their suppliers towards emissions reductions: the UK, China and, most recently, Canada.

It is now reaching over 1,000 suppliers in around 30 countries. More are anticipated as a specially created ‘Project Gigaton Calculator’ is adopted by suppliers. Developed with NGO, industry and government input, the online calculator is intended to further assist them to measure potential carbon savings associated with new projects.

According to GreenBizz.com, Walmart pledged at last month’s Sustainability Milestone Summit to source apparel and home textile products only from suppliers whose textile mills use the Sustainable Apparel Coalition’s Higg Index Facility Environmental Module, helping to measure and improve environmental performance by 2022.

Ambition

Project Gigaton is admirably ambitious. To keep pace with the commitment, Walmart’s suppliers need to be reducing their emissions by a minimum of 83 million metric tons annually.

In the first two years of the project, Walmart’s proprietary Accounting Methodology calculated that around 93 million metric tons of emissions were eliminated. The new supply chain finance arrangement is expected to help speed up progress.

Commenting on the arrangement with HSBC, Matthew Allen, VP Finance & Assistant Treasurer, Walmart, said the firm appreciates that “the only way to a sustainable future is through combined effort”. He added: “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”.

“We are encouraged by the engagement of our suppliers in Project Gigaton,” added Kathleen McLaughlin, SVP and Chief Sustainability Officer for Walmart. “The progress to date shows how companies can contribute to climate action through practical actions all along the product supply chain. Ultimately, building sustainable supply chains requires collective action from everyone – not only our associates and suppliers, but customers, business in general, and civil society.”

Planning

McKinsey research has shown that a typical consumer company’s supply chain creates far more social and environmental costs than its own operations, accounting for more than 80% of greenhouse-gas emissions and more than 90% of the impact on air, land, water, biodiversity, and geological resources.

A recent HSBC Navigator survey reported that 81% of global companies say ethical and environmental sustainability is important to them and 83% aspire to be a genuinely ethical or environmentally sustainable company.

Also, improving sustainability outcomes is among the top three objectives for making supply chain changes. Almost one-third of businesses surveyed by HSBC said they are planning to make sustainability-related changes to their supply chains within the next three years.

Johnen confirms that HSBC is currently working with other corporate clients on projects similar to that of Walmart. “We believe that there is a market for sustainable supply chain finance, providing a positive incentive for the whole supply chain to become more sustainable.”

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