Is ESG possible with supply chain disruptions, inflation, and war?

Is ESG possible with supply chain disruptions, inflation, and war?
How Working Capital Management meets the moment to help organizations navigate both economic and ESG challenges of today.

Overview

Organizations around the world are being pulled in multiple directions.  Post pandemic economies are reeling from years of supply chain disruptions, inflation, and now Russia’s war on Ukraine.  Where does ESG fit into the equation when business fundamentals are challenged?  In today’s challenging environment, is sustainability more of a nice to have?

There is a path through today’s challenges that brings sustainability and business fundamentals together.  This is creating financial resiliency across supply chains through Working Capital Management.

How does Working Capital Management support business fundamentals?

Tension between buyers and suppliers on the timing of payment have existed since the beginning of time.  Supply chain disruptions have increased the Cash Conversion Cycle of many businesses across the world.  Said another way, these disruptions extend the time in which a company is paid for the goods they produce, or services rendered.  The longer it takes a business to be paid, the harder it is to operate and ultimately stay afloat.  Luckily there are options that can help bridge the gap between a company’s Payables and Receivables.

How does this work?  In short, Working Capital trades interest for time.  Companies can get paid sooner in exchange for a reduction on the value of an asset such as purchase orders, inventory and invoices.  The amount of the reduction is based on prevailing global interest rates and the credit ratings of the buyer and/or supplier.  Working Capital Finance is typically easier and cheaper than a traditional line or credit or loan from a bank.

Working Capital Solutions such as inventory finance, receivable financing, dynamic discounting and supply chain financing gives businesses access to needed cash more easily at a lower cost.  This improves financial resiliency and strengthens business fundamentals.

How does Working Capital Management support ESG objectives?

Working Capital Management supports ESG by simply keeping an organization financially resilient.  A financially healthy company can adapt quickly regardless of the macro environment, be it inflation or supply chain disruption.  Strong cash positions allow companies to go one step further with their ESG initiatives.  Here are a few options to consider.

  • Pay it forward by providing receivables financing or early payment discounts to suppliers. Every supplier in the supply chain has a cash conversion cycle.  Buyer-led working capital management programs can help your suppliers improve their cash position so they too can be financially resilient during these difficult times.
  • Leverage free cash flow from working capital programs to invest in green infrastructure such as electric delivery trucks and charging stations for your company and employee vehicles.
  • Sustainable Finance provides preferred financing rates to suppliers that share similar ESG objectives. This is a powerful incentive to help tier 1 and tier 2 suppliers justify investments within their own company to improve their ESG practices.  Sustainable Finance has a multiplying effect on ESG.

Summary

There is a lot of pressure on organizations today to keep business fundamentals afloat.  Often the urgency of today takes precedence over the importance of tomorrow.  Working Capital Management is a powerful tool to help businesses and organizations do both.

What’s Next?

On March 10, 2022, SAP acquired Taulia, a leading provider of working capital solutions.  This brings together the world’s largest physical and financial supply chains under the SAP Business Network.   Learn more at https://www.sap.com/products/business-network/working-capital-management.html