Supply chain finance can be a useful tool in encouraging sustainability throughout your supply chain, says Anthony Breach, head of procurement at Coca-Cola EuroPacific Partners (CCEP).
By Rebecca Spong
The company behind one of the best-known soft drink brands has turned to supply chain finance (SCF) as one way to help hit its carbon emission reduction targets.
Coca-Cola EuroPacific Partners (CCEP) teamed up with Dutch bank Rabobank this year to create a supply chain finance programme that not only aims to offer its suppliers a cheaper source of funding, but also encourages suppliers to reduce their environmental impact.
Targeting Net Zero by 2040
The soft drinks company has a target to hit net zero carbon emissions by 2040 and reduce greenhouse-gas emissions across its value chain by 30 per cent by 2030. Creating an SCF programme that incentivises suppliers to behave in a more sustainable way is just one tactic Coca-Cola has implemented, says Anthony Breach, director of procurement at CCEP, speaking ahead of his presentation at the Working Capital Forum in Amsterdam in December.
“We are one of the most recognised brands on the planet and have a responsibility to act as a corporate citizen. We’ve set out a clear ambition to reach net zero by 2040… we cannot do that without our suppliers. We have to have our suppliers on the journey. We’re already asking them to switch to renewable electricity and set science-based emissions reduction targets and this is another way for them to join us by encouraging and recognising their efforts,” says Breach. According to CCEP, more than 90 per cent of its carbon emissions can be attributed to its supply chains.
“I am not going to pretend it is the panacea that fixes everything - it is just one small additional tool in our toolbox to help suppliers to start that carbon journey – some are well on the way, and some aren’t,” he adds.
Under the programme, suppliers can access preferential financing rates depending on to what degree they reach certain environmental targets. Coca-Cola is benchmarking its suppliers against ratings created by the independent sustainability ratings agency EcoVadis.
Suppliers can choose to set their carbon reduction initiatives by 2023 in line with the Science Based Targets Initiative (SBTi) - a global coalition of agencies that shows companies and banks how much they need to reduce their carbon emissions to minimise the worst impact of climate change and align with the goals of the 2016 Paris Agreement signed.
Or they can commit to ensuring they use 100 percent renewable electricity across their operations by 2023. Committing to both action plans would unlock even better financing rates, says Breach.
Some targets will be easier to reach according to the industry the supplier is operating in, he explains. Having a range of different KPIs ensures the programme attracts a wider range of suppliers.
Rabobank will also donate part of the commercial margin to a project run by Rabo Foundation, the bank’s social impact fund.
Coca-Cola is far from a newcomer to supply chain finance with existing programmes already in place, however, Breach explains how the company wanted to upgrade some of its previous offerings to create something easier to use, accessible to more suppliers and with the added benefit of improving Coca-Cola’s environmental credentials.
Suppliers at the heart of the programme
What was imperative to the process was ensuring that suppliers were “at the heart of the programme,” says Breach. “Every supplier had to benefit. Why would they transfer if they were going to be worse off?”
The rates offered to suppliers had to be better than the rates they were currently on, Breach explains.
It also had to be a simple process to join, noting that Rabobank had a “very light touch KYC process” making it straightforward to onboard suppliers.
All suppliers – regardless of size – are invited to join the new SCF programme in contrast to previous models, which placed a financial limit on participants. Equally, suppliers on any type of payment terms – whether they are on 30-day or 100-day terms – are welcome to join, Breach adds.
“There are no working capital targets set as part of this programme,” he emphasises, explaining that suppliers did not face any extension in payment terms directly related to the new programme.
“It is purely about how we can improve the service offering we already have with suppliers,” he says.
“It is difficult out there for suppliers and consumers, so if we can reduce our environmental impact and reduce the cost of financing for our supplier base by leveraging our credit rating then let’s do it.”
To date, the new programme is progressing well, says Breach. “Onboarding has been straightforward, and suppliers have come to us asking to actively join the programme,” he says.
The process has been aided by underlying technology in place that allows Breach to have instant access to the latest up-take figures. “I couldn’t do that with previous programmes. I was in the dark about how it was performing until I got the results every month. It was very static data,” he says.
The new programme was initiated in Germany in June this year, and CCEP has now begun its rollout in the Iberia region. The company is planning to launch the programme in Asia-Pacific this November, replacing an existing under-utilised programme in Australia.
The expansion into Asia-Pacific follows CCEP’s acquisition of the Australia-headquartered Coca-Cola Amatil last May which brought together the European and Asia-Pacific bottling companies together under one entity.
Anthony Breach, director of procurement at CCEP, will discuss the company's ESG supplier finance programme at the Working Capital Forum in Amsterdam in December. Places are free of charge for corporate treasurers and procurement directors. To reserve your place, Click here.