Supply chain finance and sustainability

The theme of sustainability is one of the main drivers of the economic and political debate of recent years and is set to become the mantra of this second decade of the 21st century.

A broad and articulated theme, too important to be addressed in a post on social media, except for the purpose of a mere greenwashing. The objective of this article is therefore much more modest: discuss ways in which the set of financial techniques collectively referred as supply chain finance can help to improve the environmental sustainability profile of economic activities distributed along the supply chain.

Let’s start with a consideration: there is no financial technique suitable to, in itself, “clean up” the world.

However, it can be asked to finance to also incorporate in its own evaluation criterion the dimension of environmental and social sustainability of the financed activities, rewarding, on an equal risks basis, the comparatively more suitable ones or even exclude the eligibility for financing the initiatives with insufficient sustainability profiles.

The ecological transition, as is well known, has costs. Promoting environmental sustainability, reducing the environmental impact of economic activities, encouraging the reuse and recovery of resources means facing immediate costs in view of future benefits.

These operations therefore have an impact on the stability and economic results of supply chains and businesses which, especially in the case of smaller businesses, can lead to conditions of poor stability.

The duty of finance is to reduce this impact, by encouraging active behaviours of which all will benefit in the long term.

The role of the leading company of the supply chain

Production chains are important and efficient channels for transmitting evolutionary needs.

The large customers downstream of the supply chain is usually able to guide the policies and investments of its suppliers, even indirectly, through:

• the definition of formal and substantive requirements to be part of the supply chain;
• the ability to set up medium-long term purchasing policies and, consequently, to establish medium-long term supply relationships;
• the use of financial support in its various aspects: prices, payment conditions, pre-financing of orders, participation in productive investments, possibility to obtain liquidity in the short term by monetizing the supply credit.

It is a set of important levers, the use of which can contribute to the achievement of sustainability objectives extended to the entire ecosystem of the supply chain and which is already under implementation in some of the most important supply chains in the Italian economy (#ENEL Supplier Development Program, #ENI Open-es).

Sustainability criterion applied to the Supply chain finance

Bringing this approach into the world of supply chain finance isn't particularly difficult because the specific levers that can be used in the context of supply chain finance programs are completely analogous to those applicable to the overall supply chain relationship. To do so, it is possible:

• to use sustainability criterion to condition or calibrate the participation in supply chain finance programs;
• to calibrate pricing of programs in accordance with the degree of progress in sustainability process, involving in this initiative all financial partners who support the programs themselves;
• designing working capital financing products suitable for freeing up financial resources tied to the achievement of specific sustainability objectives, rather than dedicated financing products for broader investment programs.

A digital platform to support business sustainability

Whenever the supply chain finance programs are “supported” on market platforms, the involvement of the platform also becomes very important, since the latter must allow to easily manage the elements of flexibility necessary to calibrate an offer that incorporate sustainability parameters.

Polaris is a digital platform designed to dynamically and centrally manage supply chain finance programs, encouraging collaboration between the various players in the supply chain. A solution that can easily integrate this type of configuration, actively participating in the process of improving the environmental sustainability of economic activities.