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How Coca-Cola’s sustainable supply chain finance programme works

The drinks group’s Euro-pacific business has arranged a debt facility that benefits suppliers that cut emissions, use renewable electricity and share their carbon data. Capital Monitor gets the lowdown from Rabobank, the financing provider.

By Adrian Murdoch

suply chain finance, Coca Cola, sustainability
Coca-Cola’s Euro-Pacific business’s supply chain account for 90% of its total emissions. (Photo by Patcharaporn Puttipon/Shutterstock)
  • Coca-Cola Europacific Partners (CCEP) has arranged a €600m ($594.1m) sustainability-linked supply chain programme with Rabobank.
  • The drinks group, an early mover on such a deal, estimates that at least 90% of the emissions it produces come from its suppliers.
  • CCEP has asked its suppliers, by 2023, to set emissions reduction targets, commit to using renewable electricity, and share their carbon footprint data.

Companies have been painfully slow to address the task of measuring or managing their Scope 3 emissions – those that occur in a corporate value or supply chain – even in leading European economies such as Germany. That is despite the fact that such emissions account for the vast bulk of the pollution that many businesses produce, especially in sectors such as retail and food and drink.

Indeed most emissions from the retail and agrifood sectors fall under Scope 3, but sums spent so far to curb them have been limited, according to a 15 September report from Sustainable Fitch.

Yet, companies targeting net zero should be working to help their suppliers also decarbonise their own businesses, Aurelia Britsch, director of climate risk at Sustainable Fitch and the author of the report, tells Capital Monitor.

For instance, Coca-Cola Europacific Partners (CCEP) in August became the first big beverage group to set up a sustainability-linked supply chain programme with a view to incentivising and helping its suppliers to decarbonise. To this end, the London-headquartered business – which makes and sells soft drinks across Europe, Australia, Fiji, Indonesia, New Zealand, Papua New Guinea and Samoa – has arranged a financing facility of up to €600m ($594.1m) with Dutch food and agriculture bank Rabobank.

Another early mover was British supermarket chain Tesco, which set up a sustainability-linked supply chain finance programme with Spanish lender Santander in April last year.

Targeting supply chain emissions

The CCEP deal is hugely significant for its business: the company estimates that at least 90% of its emissions come from its supply chain (see chart below). That’s on a par with others in the sector, such as Anheuser-Busch InBev and Nestlé, as executives from those companies said at Capital Monitor’s Making Sense of Net Zero conference on 7 September.

CCEP spent €6.3bn last year with some 20,500 suppliers around the world on products such as cane sugar, beet sugar, high-fructose corn syrup, stevia, orange, lemon, apple, grape, mango, coffee, tea, soy, pulp and paper.

The group, which declined to comment for this article, produced 3.1m tonnes of carbon dioxide last year of Scope 3 emissions in Europe, down 1.5% from the previous year, according to its annual report. It has not disclosed figures for Australia or the Pacific.

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Accordingly, CCEP’s rolling facility with Rabobank rewards suppliers for improving their ESG performance and thereby supports the company’s plan to reach net zero by 2040 and reduce greenhouse gas (GHG) emissions across its value chain by 30% by 2030.

A supply-chain finance programme is effectively “an early payment service”, says Zwier Smith, director of value chain finance at Rabobank. It allows suppliers to CCEP to accept immediate payment from the bank, typically at a discount. This means they can convert their receivables into cash much more quickly.

'Deliberately simple' KPIs

The sustainability-linked component is down to the fact that if a supplier achieves three KPIs, it receives a discount on the payment it receives. The KPIs are “deliberately simple”, with nothing that should come as a surprise, says Eliana de Rossi, London-based director of value chain finance at Rabobank.

CCEP has asked its suppliers, by 2023, to: set emission-reduction targets validated by the Science-Based Targets initiative; commit to using 100% renewable electricity to power their own operations; and share carbon footprint data with CCEP. The data will be validated twice a year by business sustainability ratings provider EcoVadis.

A discount will be applied for hitting each individual KPI – rather than dependent on meeting all of them – because suppliers are at different “stages of their journey” in respect of emissions reduction, she says.

It is noteworthy that packaging accounts for the biggest chunk (43%) of CCEP’s Scope 3 emissions. Packaging-related KPIs are becoming increasingly commonplace in sustainability-linked finance; they feature, for instance, in recent loans taken out by South African retailer Shoprite and Dubai-based mall operator Landmark Group.

While neither CCEP nor Rabobank are disclosing the discount rates or the supplier take-up, Smith says it is “a meaningful discount versus the initial rate”. As a voluntary scheme, he adds, it must provide an “interesting” enough incentive for suppliers to take it seriously.

Supply chain finance: a long and involved process

Given the many thousands of invoices that CCEP receives every day, it took around nine months to set up the infrastructure and to test the new programme, Smith estimates.

The new system was launched in Germany in June, and is expanding further into western Europe, then Australia, New Zealand and the Pacific countries.

Rabobank aims to have it fully operational around the world by the end of the year. It will be quicker to set up the systems in Australia and New Zealand than it was in Europe, says Smith, as CCEP is going to use “the same technology and the same interface”.

It is early days for the programme, and it will take a year to expand coverage to its suppliers’ full annual spend, but the financial benefits are expected to materialise before too long.

Ultimately companies with a strong climate transition plan for their supply chain will be able to access lower-carbon supplies and could develop new sustainable products that could command a premium, says the Sustainable Fitch report. They could also gain financial benefits, it adds, such as by accessing new financing avenues, including the green or sustainability-linked bond market.

It will be interesting to see how suppliers respond to CCEP’s programme and what impact it has on their emissions. Substantial progress may take a while given, as de Rossi has implied, that the many firms in question will inevitably range widely in terms of sophistication, size and resources.

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