Tesco to launch sustainability linked finance scheme for suppliers

By Jane Byrne

- Last updated on GMT

© GettyImages/howtogoto
© GettyImages/howtogoto

Related tags Tesco Soy deforestation

Tesco is set to become the first UK retailer to offer its supply base sustainability-linked supply chain finance, in a move it hopes will encourage more suppliers to sign up to science-based emissions reduction targets.

The supermarket giant will provide preferential financing rates for suppliers that address their environmental impacts, under a new initiative that is supported by Anthesis, KPMG and Santander.

The voluntary program, which has been in development for 18 months, is due to launch in September.

Suppliers enrolled in the program will provide annual greenhouse gas emissions data which will be verified by sustainability consultants Anthesis. KPMG will carry out assurance of the initiative.

Those that lead on decarbonization will be offered preferential financing rates via Santander.

When asked why suppliers would seek out this kind of financing arrangement to begin with, a spokesperson for the retailer told us: "Supply chain finance is common in the food sector and can allow SMEs in particular the opportunity to invest in developing their businesses."

In terms of the typical product supplier Tesco envisages being interested in this scheme, the representative said it would likely be of particular interest to SMEs in the food manufacturing sector.

"The program not only offers preferential financing rates but also provides the opportunity for smaller businesses to gain support in reporting their GHG emissions and setting GHG emission reduction targets."

How broad is the understanding of sustainability here? "We’re focusing on emission reduction targets initially but our aim is to regularly update the scope of the sustainability data requirements in line with market best practice and our own sustainability commitments,​" continued the spokesperson. 

Would this program likely have impact on the global beef and soy value chain or is it seen as being more local in terms of sustainability impacts? "The scope is mostly UK and Republic of Ireland based suppliers with some international suppliers included. Our aim is to roll this out across our other business areas in due course."

Tesco’s chief product officer Ashwin Prasad said: “In this critical year for climate action, we’re delighted to be able to offer thousands of suppliers access to market-leading supply chain finance linked to sustainability. This program not only provides suppliers with a real incentive to set science-based emissions reduction targets, it will help embed sustainability goals throughout our supply chain and support the UK in realizing its climate change targets.”

The retailer is working in partnership with WWF to halve the environmental impact of food production, including supporting its suppliers in setting sustainability targets, and Sarah Wakefield, WWF’s head of food transformation, also commented on the financing scheme: “We’re working with Tesco to address one of the biggest environmental challenges facing our planet: how we produce and consume food. We welcome this latest leadership by Tesco, to be a part of the solution by incentivizing their suppliers to report on their emissions and take action to align with 1.5°C climate targets. This takes us closer to achieving our shared goal of halving the environmental impact of the average shopping basket.”

NGO campaign 

The program was announced in the same week that NGOs, Mighty Earth, and Greenpeace UK, launched a campaign against Tesco, calling on the supermarket chain to cut ties with supplier companies that, they claim, are driving the destruction of Brazil’s Amazon and Cerrado.

A survey of Tesco customers undertaken by the two NGOs found that 88% believe supermarkets should do more to combat deforestation. 

Tesco has long flagged its commitment to zero-net deforestation in its sourcing of soy, however. It signed the industry statement of support for the Cerrado Manifesto in 2017, with it pledging to work in partnership with local stakeholders and other international supporters to help halt deforestation in the Cerrado and promote soy expansion only on existing agricultural land.

The retailer, in 2019, along with Dutch feed group Nutreco, and Norwegian company, Grieg Seafood, backed the Cerrado Funding Coalition, a scheme to reward farmers who can preserve native vegetation on their soy farms in the Cerrado region. Tesco announced a contribution of £10m (US$13.8) over five years for that funding initiative.  

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