China
Balancing economic success, environmental sustainability and social responsibility has been a priority for Henkel throughout its history. The company has produced annual Sustainability Reports for the past 30 years. Today, its aims are to become climate-positive by 2040 and create a positive impact on communities. By 2030, Henkel aims to become three times more efficient compared with 2010, tripling the value it creates across its environmental footprint. But the company cannot do this alone: establishing – and financing – common environmental and social standards across its supply chain is essential to achieving these ambitions.
Henkel’s regional treasury team in Asia Pacific recognized that a sustainability-linked supply chain finance (SCF) program could help increase sustainability across Henkel’s large supplier ecosystem in the region. The program would have two key aims:
There was little precedent for this type of structure, either in Asia Pacific or globally. One typical challenge is to measure and monitor supplier performance against independent sustainability metrics. Henkel therefore decided to work with Citi to pioneer a sustainable SCF structure, leveraging its expertise in sustainable sourcing and the bank’s innovative approach to financing.
Henkel already had a successful SCF program in place, which continues to operate. Treasury’s intention was to convert it into an enhanced program to attract a wider spectrum of suppliers that shared Henkel’s sustainability commitments. Suppliers that demonstrate strong or improving sustainability performance in line with independent vendor assessments can access financing at a preferential rate. Henkel has partnered with a leading global provider of sustainability assessments to evaluate performance. Sustainability is measured according to 21 criteria which are linked to the United Nations Sustainable Development Goals, with varying measures according to supplier geography, industry and scale.
As an ‘industry first’, Henkel, Citi and Henkel’s supplier community needed to become familiar with the additional requirements to operate and manage a sustainability-linked SCF program. Henkel and Citi worked closely to map and digitize the data flows, such as supplier sustainability scores, to allow automated financing at the appropriate rate. To maximize the success of the program, Citi also supported Henkel with supplier communication, digital supplier onboarding and constructing a pricing scheme that is attractive to suppliers.
Henkel has seen a surge of interest in this industry-first, sustainability-linked SCF offering, including from small and medium-sized enterprises (SMEs) that had not qualified for SCF previously. The program was first launched in Australia and New Zealand with active participation from major suppliers. Based on the program’s success, it is now being rolled out in China, which hosts Henkel’s biggest supplier base in Asia Pacific, to be followed by other countries.
The new program incentivizes investment in sustainability, but also encourages a closer relationship with Henkel through shared values and access to competitive financing. The program achieves a variety of benefits:
The program, based on the combined efforts of Henkel and Citi, provides a model for other corporations in the region, and demonstrates how to create a virtuous cycle of economic, environmental and social value.