The Association of Corporate Treasurers
As global economies continue to face a wide range of macroeconomic challenges, the risk of buyers and suppliers failing is increasing in many markets. As a result, organisations are increasingly aware of the importance of ensuring that their supply chains are as resilient as reasonably possible. This article explores some of the challenges from a finance perspective of embedding resilience.
The problem
The ACT’s qualifications help to train the treasury and wider finance community in identification and management of financial risks. These skills are being used by treasurers to undertake their own assessments of the robustness of their value chains. Whilst outsourcing credit assessments to credit agencies can be useful, treasurers can learn more from applying their own judgements. This can include understanding the source of funding and how diversified it may be. Although it can require time and effort, it can help the business build stronger ties – increasing trust and transparency across the value chain.
The impetus to build more resilient trading relationships can have a number of additional benefits for companies. And one area is Scope 3 greenhouse gas emissions. Whilst there has been a great deal of focus in 2023 on the importance of Scope 3 greenhouse gas emissions (GHG), the focus has been matched by the scale of the challenge. Collecting Scope 3 GHG data is not easy – the data can come in different formats, cover different entities and have varying degrees of accuracy. This has led to a number of organisations looking again at their supply chain and how to use the need for Scope 3 data to build closer relationships.
The solution – supply chain financing programmes
As the costs of transitioning to a low carbon economy become clearer, businesses are recognising the need to collaborate and innovate across their value chain to achieve a reduction in GHG emissions. And this is where treasurers are playing an increasingly important role.
Banks and other lenders have developed sustainable supply chain financing solutions which offer cheaper credit to suppliers that achieve a certain target linked to sustainability. For some treasurers, adoption of these solutions may simply be an extension of an existing programme. In other cases, the sustainability aspect, coupled with the opportunity to build more resilient supply chains makes this type of product a compelling addition to their portfolio.
By encouraging suppliers to become more sustainable in their activities, it is hoped that this will trickle down throughout the supply chain. And indeed there is anecdotal evidence that by offering cheaper financing to those that “qualify” this provides an added incentive to those smaller organisations considering how to implement some of the UN’s 17 Sustainable Development Goals. Furthermore, “qualification” does not need to focus purely on (GHG emissions but can include other goals such as poverty alleviation, education or gender equality. This can be helpful – especially for those organisations with low GHG footprints.
However, supply chain financing programmes are not without their limitations and treasurers can find the set-up costs expensive. In addition it may be hard to move all suppliers onto the programme.
Furthermore, reputational risk must always be a consideration. There have been examples of companies that have publicised their programmes as part of their overall sustainability efforts whilst not being transparent about the overall volume or value of suppliers that are included. Banks are also becoming more cautious about the effectiveness of these solutions – especially as concerns over greenwashing become more widespread.
Conclusion
Wherever these risks relating to sustainability arise, treasurers are ideally placed to read across the entire organisation and identify holistic solutions. As the market for sustainable financing matures, depending on the sector, treasurers are seeing the need to be more sustainable as simply the need to mitigate business risks better. Labelling a financing solution as sustainable is not the critical element – what is more important is building and financing relationships across the value chain with organisations that have similar values and clear commitments and where there is sufficient transparency on progress.
Over the last few years, the Association of Corporate Treasurers has covered the increasing popularity of sustainable supply chain financing programmes at conferences on webinars and through the Treasurer magazine (https://www.treasurers.org/hub/treasurer-magazine/joining-supply-chain-gang). The ACT has also recently launched a series of courses focused on sustainability on the FutureLearn platform including an introduction to ESG, the role of private sector finance and the importance of non-financial reporting.
