2022 Perspectives for the Public Sector

Citi Perspectives for the Public Sector 17 incentives designed to promote cleaner production, a focus on goods and services that are climate-smart, and support from both the public and private sectors, are enabling trade to become part of the solution. As more public and private sector organizations commit to reaching net zero by 2050, the focus is shifting from Scope 1 (direct emissions from owned or controlled sources) and Scope 2 emissions (indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company respectively) to Scope 3 emissions, which includes all other indirect emissions that occur in a company’s value chain. This is because organizations’ supply chains often account for more than 90% of their greenhouse gas emissions, when taking into account their overall climate impacts. 6 Therefore, implementing changes within the supply chain will have the greatest impact. However, this puts pressure on suppliers to comply, which requires significant investment. The added financial strain for suppliers can be compounded during macroeconomic downturns. As developing countries play a bigger role in global trade and the importance of integrating ESG into supply chains gains wider recognition, strategic partnerships have become critical to achieve shared sustainability goals for all. Strong partnerships between multilateral development banks, as well as the private and public sectors, are essential for transitioning to more sustainable supply chains across both developed and developing nations. It is through these partnerships and implementing sustainable supply chain programs that suppliers will gain access to the support they need to make the changes required to align with their primary buyer’s environmental and social sustainability goals. 6 https://www.epa.gov/climateleadership/supply-chain-guidance 7 https://www.businesswire.com/news/home/20210802005669/en/IFC-McCormick-Company-and-Citi-Establish-Sustainability- Linked-Financing-Partnership Case study: Embedding ESG in McCormick & Company’s supply chain McCormick & Company, an American multinational food company, wanted to provide suppliers of its herbs and spices with financial incentives linked to improvements in measures of social and environmental sustainability. The program was created in partnership with Citi and IFC and launched with suppliers in Indonesia and Vietnam; it will be expanded to other countries worldwide in the coming months and years. 7 Under the program, which leverages Citi’s global supplier finance offering, suppliers can qualify for discounted rates on short-term working capital financing when they meet sustainability standards set by McCormick. These standards include performance relating to labor conditions, health and safety practices, crop management, environmental impact, farmer resilience, and women’s empowerment. The higher the supplier’s performance level in relation to pre-agreed standards, the greater the discount they receive on their cost of financing. The financial partnership also includes an advisory component in Vietnam. IFC is helping McCormick build a more sustainable, traceable, certified, and quality- compliant pepper supply chain through capacity development and the empowerment of women farmers, aimed at helping to achieve environmental and social advancement for pepper suppliers and producers.