Incentivizing supply chain decarbonization through beneficial financial terms

Published

12 October, 2022

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To reach net-zero, businesses across the globe must address Scope 3 supply chain emissions. Decarbonization within the supply chain plays a critical role in realizing net-zero ambitions, and businesses are in a unique position to influence supplier behaviors, operations and investments through incentives.

In the fifth session of the series, the Incentivizing Supply Chain Decarbonization working group hosted by WBCSD in collaboration with PwC considered how to encourage supplier decarbonization by creating beneficial terms.

Organizations can offer suppliers preferential payment terms or financing rates based on carbon reduction targets, disclosure and progress. Preferential payment terms can vary depending on the value or deposit required, or speed of payment. Financing rates cover the terms of financing such as loan duration and interest rates provided to suppliers.

Organizations may choose to leverage beneficial terms to help suppliers overcome financial barriers to decarbonization associated with cash flow and capital expenditure. This support helps to build trusted supplier relationships, to reduce Scope 3 emissions, and to help meet net-zero targets.

This issue gives more information on the types of beneficial terms that can be used to provide suppliers with financial support, where to start, how to implement them, and what to consider.

For context, the Incentivizing Supply Chain Decarbonization working group considers different decarbonization levers that can be applied to supply chains. These levers range from non-financial to financial, penalty to reward-based, and can be grouped into four areas:

  1. Leveraging procurement
  2. Building capability
  3. Rewarding progress
  4. Enforcing performance