Sustainable Development, Finance and Innovation

With Lee Dinsdale, Managing Director of Logros Advisory Partners

A review of news in relation to sustainable development, finance and innovation and how this can relate to SMEs 

How does supply chain affect sustainability?

This week Coca-Cola announced a sustainability-linked supply chain finance program. The programme will be structured and operated by Rabobank.  Why have they done this? Because, 90% of Coca-Cola’s emissions are being attributed to its supply chain and therefore it is hoped they will be able to drive collective action as it is designed to incentivise and reward suppliers to make sustainability improvements to their business. This programme will provide financing which is linked to a number of sustainability KPIs for its suppliers.  When the sustainability KPIs are met this unlocks financing discounts against the initial funding rate. Coca Cola is aiming to reach net zero across their entire value chain by 2040, which means suppliers will need to follow suit.

Carlsberg Group also launched its ESG program which includes a target to achieve zero waste packaging, improving its processing of raw materials and regenerative agriculture as it moves towards more sustainable business practices.

Large companies leading the way in identifying and minimizing scope 3 emissions

Carbon emissions are broken down into 3 categories by the Greenhouse Gas Protocol, the world’s most widely used greenhouse gas accounting standard. Currently most larger companies are focused on scope 1 and scope 2 emissions where they have more direct  control. Scope 3 emissions data covers a company’s supply chain, represents the largest share of its carbon footprint and is also the hardest to reduce.

For large enterprises such as Coca-Cola, by becoming more aware of their scope 3 emissions it helps to understand where to focus its efforts to reduce and comply with future reporting requirements. This means sooner rather than later more larger enterprises will turn their attention to their value chain. This will identify the leading sustainably focused suppliers in their value chain, improve the energy usage of its products and services and provide opportunities to encourage innovation, all of which will increase the ability of suppliers to retain profitable customer relationships. 

Why is sustainability important for SMEs

SMEs who are in supply chains and know who their end customer is have to take note of this and treat sustainability as an opportunity to grow, if they do not, this is likely to represent a long term threat to their business. SMEs with resources and the capability may be more inclined to act now especially if it has multiple larger enterprises in its value chain who are ultimately are demanding clear sustainability linked KPIs in the manufacture and supply of their products and services.The green agenda will continue to dominate with the UK Government’s ambitious targets to reduce carbon emissions by 100% by 2050. SMEs can contribute to achieving this, particularly as larger enterprises have scope 3 emissions now in sight.

Failure to act could result in the loss of contracts as reporting on scope 3 emissions could become the future reality very soon. Research suggests SMEs have the will, but often lack the knowledge, time and support to focus on sustainable development within their business.  This poses its own sustainability conundrum, the owner of an SME who is constantly faced with meeting its own short term needs and challenged with ‘working in the business rather than on it’  will soon be under more pressure to focus on activity that threatens its long term survival. 

However, that said, depending on the mindset of the business owner this also represents a real opportunity to gain a competitive advantage, demonstrate innovation  and align more closely with the ambitions of larger organizations. Take note of examples like Carlsberg who are making announcements in the news driving brand reputation. If your business is innovating new products and services in areas such as waste packaging, this could give rise to winning new contracts or if the business is already in the value chain it’s an opportunity to review processes to ensure the future business is retained.