A&M: Trends in Sustainable Supply Chain Finance

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Alvarez & Marsal explains how to unlock sustainable supply chain finance in a new report
Professional services giant Alvarez & Marsal has outlined why sustainable supply chain finance has become such a significant trend in global banking

Imagine a financial solution that not only boosts cash flow but also aligns with the growing demand for sustainability across the supply chain

That's exactly what supply chain finance (SCF) offers – a smarter way to handle finance that benefits both buyers and suppliers by leveraging buyers' creditworthiness.

As defined by professional services giant Alvarez & Marsal (A&M), SCF encompasses financing and risk management practices aimed at enhancing the management of working capital and liquidity. 

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It’s a win-win situation where buyers enjoy extended payment terms without compromising supplier relationships and suppliers gain quicker access to funds without the high costs.

The evolution of technology has revolutionised SCF platforms, making them more accessible and efficient, which translates to significant cost savings and better transparency.

Aligning supply chain sustainability and finance

A report from A&M focuses on the global momentum towards ESG compliance and the integration of green strategies into core business agendas. 

Companies are not only weaving sustainability into their financing but are also keen on choosing suppliers and distributors through a green lens. 

The shift towards sustainability is massively supported by financial institutions that funnel investments into sustainable projects, empowering both suppliers and buyers to improve their green credentials and stay competitive.

Banks have a golden opportunity when it comes to supply chain finance. Picture: rawpixel.com via Freepik

Sustainable SCF is thus emerging as a lucrative niche within global banking, presenting a ripe business opportunity for the financial sector to drive positive environmental change.

The opportunity for banks

A&M’s report outlines the unique position of banks to leverage sustainable SCF using technology platforms that can give a comprehensive view of trade flows in supply chains. 

Banks, along with a suite of other stakeholders like funders, technology providers and logistics companies, play a critical role in this ecosystem. 

With trade and SCF being instrumental in the global agenda for decarbonisation — considering that supply chains are responsible for a hefty slice of global carbon emissions — it’s clear that incorporating sustainability practices can make a substantial difference.

Sustainable SCF offers numerous benefits for banks. Picture: fanjianhua via Freepik

Banks are in a prime position to advocate for ESG compliance through ESG-linked SCF solutions, spurring sustainable practices across the corporate landscape. 

The market for sustainable SCF, already valued impressively, is expected to grow exponentially, marking an opportune moment for banks to step up their game in sustainable financing.

What the banks can gain

A&M’s report says banks that tap into sustainable SCF can enjoy a plethora of benefits. 

They can set themselves apart in the market, tap into the largely unexplored SME financing sector, mitigate credit risks through enhanced visibility and adherence to ESG principles and forge stronger corporate relationships. 

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Aligning with sustainable finance goals can improve their reputation while supporting clients in achieving their sustainability objectives through custom SCF solutions. 

These efforts are crucial in steering toward a low-carbon future and capitalising on sustainable business opportunities.

A&M’s recommendations for sustainable SCF

A&M’s report presents six building blocks for developing sustainable SCF:

  1. Business strategy and model: Develop programme objectives and a business plan, that align sustainable SCF with broader bank-wide sustainability strategies.
  2. Product: Design ESG-linked SCF products to support transitions towards sustainable activities that may include incentives.
  3. Client focus and ESG awareness: Introduce a client selection and onboarding approach with ESG rating methodologies, account planning and sales KPI monitoring. Additionally, advise and train corporates and SMEs on ESG integration within their supply chains.
  4. Risk management and operational processes: Integrate ESG factors in KYC due diligence, risk assessment and underwriting. 
  5. Technology: Automate onboarding and financing processes alongside ensuring visibility of trade and financing transactions through digital SCF platforms.
  6. Talent management: Recruit new talent that is passionate about sustainability and improve knowledge through training schemes.

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