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Appliance of science to Walmart’s supply chain finance

US retail giant Walmart says it is creating what it calls an “industry first” by introducing science-based targets into its sustainable supply chain finance (SSCF) programme.

The company says that it has “raised the bar” on climate action by creating an SSCF programme that not only enables greenhouse gas (GHG) emissions reductions, but for the first time, uses science-based targets to do so in a way that aims for a 1.5-degree Celsius ceiling.

Working alongside HSBC and non-profit environmental charity CDP, the revamped programme will “help Walmart’s private brand suppliers – particularly small and medium-sized businesses – by introducing enhanced standards, tools and capacity building to help them upskill and in turn align their operations with transparent sustainability objectives”.

Walmart and HSBC originally announced the SSCF programme for the retailer’s suppliers in April 2019, with the aim of supporting the company’s Project Gigaton. Launched two years earlier, Gigaton set a target to eliminate one gigaton (one billion metric tons) of greenhouse gas emissions from Walmart’s global supply chain by 2030, focusing on areas such as manufacturing, materials and use of products.

Next step of a journey

The latest announcement “marks a key next phase in Walmart’s journey” towards the 2030 target, with HSBC supporting the programme by encouraging the company’s suppliers through improved financing access and terms if they reduce GHG emissions in at least one of Project Gigaton’s six central pillars.

Under the original programme, Walmart suppliers who could demonstrate progress in The Sustainability Index – run by The Sustainability Consortium’s measurement and reporting system – or via Project Gigaton, to apply for improved financing from HSBC. The rate at which the bank discounted suppliers’ invoices depended on what rating Walmart afforded them, which is applied once the company monitors the supplier’s adherence to various social and environmental standards.

“Our work with Project Gigaton is purposefully meant to encourage all Walmart suppliers to pursue emission reduction goals across six pillars: energy, nature, waste, packaging, transportation and product use and design,” says Jane Ewing, Walmart’s senior vice president for sustainability. “That includes creating programmes such as the SSCF programme with HSBC so that smaller and medium-sized businesses can also take advantage of special financing to make the necessary investments in their sustainability journeys.

“Now with CDP scoring added to the mix, the programme provides suppliers with one more way to take advantage of improved financing through progress and disclosure – and exemplifies how we approach sustainability through a shared value lens.”

Surath Sengupta, HSBC’s global head of financial institutions, portfolio management and sustainability, global trade and receivables finance adds: “On average, 80% of a company’s carbon footprint resides in its supply chain, which means delivering on Scope 3 emissions won’t happen unless more is done to help small- and medium-sized suppliers. This programme does just that and accelerates net zero transition.”

Science-based targets

Suppliers participating in Project Gigaton can now opt to set science-based targets and have their targets validated by the Science Based Targets Initiative (SBTI) or achieve certain score thresholds on their CDP climate change reports.

Eligible suppliers can approach HSBC for early payment on their invoices approved by Walmart with pricing on the financing linked to the supplier’s CDP scores, targets set and impact reported. Suppliers setting the highest ambition can benefit from the lowest pricing.

The partnership with HSBC helps Walmart address its Scope 3 emissions and supports its suppliers to reduce their Scope 1 & 2 emissions. Suppliers can also use the financing proceeds to manage their own working capital and their sustainability-linked improvements, such as making their operations energy efficient to deliver against Project Gigaton’s goals.

Under the revamped programme, suppliers taking part in Project Gigaton now have the option for setting science-based targets and having their targets validated by the Science Based Targets Initiative (SBTi) or achieving certain score thresholds on their CDP climate change reports.

A recently released joint report by HSBC and Boston Consulting Group estimated that decarbonising global supply chains will require investment of no less than US$50 trillion into small and medium enterprises, and that simply mandating new standards and demanding more of suppliers will only mean “limited progress and missed goals”.

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