Asda announced last week it will expand its existing supply chain finance fund to take sustainability into account, giving more sustainable suppliers preferential rates. 

Suppliers will be able to share their sustainability data through Ecovadis, a platform that rates supply chains on a range of environmental, social, and governance (ESG) criteria. 

If they who choose to share this data and demonstrate they have a strong environmental performance, these suppliers will be able to access more favourable supply chain finance terms in their contracts with Asda. 

Asda had been working with Lloyds on supply chain finance since 2023, when it set up a trade finance scheme to give its suppliers early payments on invoices. The scheme leveraged Asda’s credit rating to give UK suppliers, often SMEs, access to invoice financing. Invoices were paid as soon as they were approved by the supermarket chain, giving suppliers access to working capital and avoiding cashflow struggles.

A previous scheme with HSBC also linked financial support with ESG performance; the new scheme will see a renewed focus on decarbonisation and social initiatives and expand eligibility. 

Using supply chain finance to encourage sustainability is an increasingly popular way for major companies to monitor and steer suppliers’ ESG performance. Monitoring supply chains and ensuring sustainability is inherently hard because of the complexity of supply chains – which, especially in food production, can involve multiple tiers and a range of producers in many different countries. 

Using voluntary reporting and tying performance to payment terms is an innovative way to both offer suppliers sources of working capital – which is increasingly important, especially for SMEs, in the current volatile economic climate – and encourage concrete sustainability commitments. 

A similar scheme by Tesco and Santander ties supply chain financing terms to greenhouse gas emissions, while clothing giant H&M has been giving suppliers favourable financing terms for investments in making production more sustainable. 

Banks themselves, by far the biggest source of trade and supply chain finance, have started to tie financing terms to sustainable indicators: for example, HSBC links interest rates for some SME loans to the firm’s Ecovadis sustainability rating. 

Food production is a major source of carbon emissions, responsible for nearly 20% of emissions globally. Fresh produce, for example, is often flown across the world if it is not in season, and suppliers who themselves import raw ingredients from outside the UK sometimes lack visibility on the sustainability of their supply chains. 

On the governance side, food production has been at the centre of scandals on unethical production, like a range of leading chocolate brands being accused of using child labour downstream in their supply chains.