One of the UK supermarket groups, Asda, has collaborated with HSBC UK to launch a new kind of sustainability-linked enhancement to its SCF programme. Set to be launched in January 2025, the new enhancement will award them for driving the activity toward improvement in their ESG practices. Suppliers who demonstrate that they are moving closer toward the set sustainability goals will be rewarded with better financing rates.
Tiered Financing to Encourage Sustainability
The agreement from Asda with HSBC has constituted a strategic evolution of their SCF Programme as part of an effort to reach more than 250 suppliers more deeply embedded within ESG principles. In the programme, access to tiered financing rates will be available to suppliers, and those who meet or exceed sustainability targets will be at the most competitive terms.
The new system will apply a three-tiered structure and provide financing rates directly related to the suppliers’ success in ESG terms. Those suppliers that will best depict action, set challenging targets for ESG, and make progress towards it will benefit from the best rates. Such an approach reflects Asda’s intent to set sustainability in alignment with its financial mechanisms and compel its suppliers towards its wider vision of decarbonization and ESG.
Speaking of the strategic importance of this step, Michael Gleeson, CFO at Asda said:
As we continue to drive progress on our internal decarbonization and ESG goals, engaging and supporting suppliers is a critical part of this work. We’re working with HSBC: not only are we pushing our supply chain to be more transparent around its sustainability data, but we’re using competitive financing to incentivise an extremely large number of suppliers to be more sustainable.
The tiered financing system, therefore is designed not only to encourage sustainability but also to reward the suppliers who are proactive in improving their ESG performance. This shift accords with a broader trend across industries where companies are increasingly relying on financial incentives to spur ESG-related improvements in their operations.
EcoVadis Performance Score
To validate the authenticity and integrity of the performance evaluation of the supplier, Asda will rely on the leading platform for sustainability ratings, EcoVadis. As part of the screening process, it will evaluate suppliers according to ESG KPIs and concentrate on decarbonization with a broader range of sustainability practice. With reliance on the well-established experience of EcoVadis with the evaluation of ESG data, Asda ensures that its suppliers pass through a rigorous and transparent scrutiny process.
Suppliers therefore take significant strides on sustainability, in an area covering those carbon emissions that are switched off to be rewarded under the updated financing rates by this new partnership. The very message of decarbonisation really spotlights Asda’s aim towards aiding the UK at large in helping in reaching the net-zero emissions 2050 targets.
For Vivek Ramachandran, Global Head of GTS at HSBC, mutual benefits cut across for this new partnership as well for HSBC.
This funding solution motivates suppliers to disclose ESG data, thus enhancing their sustainable performance while encouraging more transparency and influencing better ESG practices within Asda’s global supply chain.”
Aligning Finance with Sustainability Goals
This sustainability-linked enhancement marks an important step for Asda in aligning its financial mechanisms with long-term sustainability goals. By partnering with HSBC, major retailers can grasp the financial leverage of their banks to drive ESG improvements across their supply chains while ensuring they meet their own decarbonisation targets.
Also reflects a growing recognition by retailers of the need to stitch sustainability into every part of their business, including sourcing and supply chains, financing, and risk management. Asda’s effort is an indication of how financial tools can be deployed to drive material, positive environmental and social outcomes.
Long-Term Commitments and Support for Suppliers
Most importantly, the program does not add more burden in the process of supplying to opted-out suppliers; the latter will continue running businesses using the set terms and conditions that applied to their systems before.
Funding partners for this Asda initiative include, for example, Rabobank, which reflects extensive financial support for the supermarket chain’s sustainability ambitions. The commitment, therefore, from the financial community to the collective aspiration endorses a growing role for sustainability in shaping the practice of an industry’s supply chain operations.
This improved SCF programme, while benefiting the suppliers, further strengthens Asda’s leadership role in mainstreaming sustainability within the retail industry. Incentives that will ensure an aggressive pursuit of absolute ESG targets communicate a statement of transparency and progress regarding environmental and social performance by Asda.
A Precedent for the Retail Industry
Asda’s sustainability-linked financing boost is the forward-thinking approach that is going to set the precedent of how the biggest retailers are going to make use of the supply chain in the fostering of further environmental responsibility. Asda has tied financial incentives to ESG performance, forcing an example that other retailers are likely to follow as consumer and regulatory pressure increases for businesses to be more sustainable.
The launch of this initiative marks a new era in the management of supply chains: one that speaks for itself as an exemplar of a synergy between sustainability and financial incentive. With HSBC and other funding partners, Asda is at the forefront in making sustainability core to business strategy and encouraging suppliers to do the same.
As pressure mounts on companies in the retail sector to decarbonize and improve their ESG performance, this Asda effort is clearly an innovative route for engendering sustainable change up the supply chain while providing other players a roadmap to follow.