Supplier finance linked to sustainability rating

29th April 2016


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Author

Shabir Ahmed Rana

Puma is partnering with the International Finance Corporation (IFC) to provide financial incentives to improve the environmental and social performance of suppliers in emerging markets.

The programme is the first of its kind to be signed by the IFC, which is part of the World Bank, and a European company. It is also the first time the German sportswear company has linked financial reward to suppliers’ performance against its social and environmental standards. The scheme will begin with suppliers in Bangladesh, Cambodia, China, Indonesia, Pakistan and Vietnam.

Puma already operates a system to rate suppliers on their compliance with its environmental and social standards, scoring them A, B+, B–, C or D. Suppliers rated A (95% or above) are audited once every two years, while those scoring below B– (85% or less) lose their contracts if they do not improve within two to six months.

Only suppliers scoring A, B+ or B– are eligible for the new financing programme, which is being channelled through the IFC’s Global Trade Supplier Finance programme. The higher a supplier’s rating, the lower the interest rate it pays. Suppliers can use the money to invest in measures to further improve their rating.

The initiative has been launched with GT Nexus, a cloud-based real-time information platform for global trade and supply chain management.

Sérgio Pimenta, IFC director of manufacturing, agribusiness and services, said: ‘This agreement advances IFC’s efforts to encourage small and medium-sized firms, such as Puma’s suppliers, to improve environmental and social sustainability while achieving strong financial results.’

Alan McGill, partner in the climate change and sustainability team at PwC, described the deal as an ‘excellent move’. ‘It helps to reinforces the behaviours around understanding how everyone can share in the value creation process and minimise environmental destruction in the supply chain,’ he said.

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