The world's largest company by revenue is partnering with Europe's largest bank, in order to provide financial incentives to suppliers working towards creating a more sustainable supply chain.
Walmart has joined forces with HSBC to allow its suppliers to apply for improved financing with the
London-based bank if they can show progress under the Arkansas-based retailer's Project Gigaton or Sustainability Index program initiatives.
The new global sustainable supply chain finance program directly links a supplier's financing rate to its sustainability performance, allowing a company with higher sustainability ratings to receive better loan terms.
Suppliers key to reducing Walmart's carbon footprintMost of the environmental impact that can be attributed to a company of Walmart's size is created by its suppliers, which explains why they have been the focus of the retailer's sustainability initiatives in recent years.
In 2012, the company pledged that by 2017, it would buy 70% of the goods sold in its U.S. stores and clubs from suppliers participating in the Walmart Sustainability Index program, which was developed by The Sustainability Consortium to help Walmart benchmark suppliers and encourage continuous improvement.
In March of 2018, Walmart announced Project Gigaton, its commitment to cut 50 million metric tons of greenhouse gas emissions from its China value chain by 2030, and one billion metric tons of greenhouse gas emissions from its global value chain of upstream suppliers and downstream consumers over the same time period. A little more than a year later, Walmart has revealed that its suppliers have thus far successfully avoided 3.46 million metric tons of emissions in the Chinese value chain, which is equivalent to the amount of CO2e associated with the average annual electricity consumption of over 3 million Chinese households.
"The procurement standards of a buyer are a huge driver for sustainability," Natalie Blyth, HSBC's Global Head of Trade and Receivables Finance, said in a press release announcing the new financing incentive for Walmart suppliers. "In many industries it is a company's supply chain - rather than the company itself - that is responsible for most of the environmental impact and therefore offers the greatest potential for sustainability improvements."
Effects of climate change a practical concern for many suppliersWhile the perception of environmental friendliness is no doubt a public relations win for corporations, for many companies, climate change presents a genuine threat to revenue, as certain environmental changes can seriously disrupt operations.
"Embedding sustainability in global supply chains is not only beneficial for the environment and society, but also for companies' bottom lines," Blyth noted.
The Carbon Disclosure Project's 2019 supply chain questionnaire found that only 57% of suppliers report emissions reductions activities and just 35% having a structured carbon reduction target, concluding that those suppliers who fail to act sustainably may pay a significant price.
The CDP believes that incentives like the improved loan terms being offered by HSBC and Walmart are a good way for companies to encourage emissions reductions, as opposed to only threatening suppliers who fail to reduce their carbon footprint with financial consequences.
"Alongside the stick, purchasers can offer carrots: members of the CDP supply chain program recognize that supplier incentives, reward and recognition can go a long way to instill sustainable change," the global organization said.