At the Intersection of Sustainability and Finance: Better Work
In 2007, Better Work was established by two leading international organizations to improve garment workers’ lives.
- The International Labour Organization (ILO) is the specialized labor agency of the United Nations with expertise in social dialogue, labor standards, and the application of labor laws
- The International Finance Corporation (IFC) is a member of the World Bank Group, and is the largest global development institution focused exclusively on the private sector
With strong track records in reducing poverty and increasing rights and opportunities where they are needed, these organizations created a roadmap to improve garment working conditions.
At the Better Work Forum held December 18, 2014 in Seoul, Korea, the organization shared insights and practices to ensure safe, clean, equitable working environments at the factory level for South Korea companies. Among the agenda items was a session on financing. The core message: the intersection of sustainability and finance is a unique and very significant crossroads on the path to workplace safety and better working conditions.
At the heart of the discussion was a global trade supplier finance program delivered by the IFC and GT Nexus that continues to draw global attention for its ability to help suppliers leverage social and environmental compliance to qualify for low-cost post-shipment financing and achieve cost savings. The session described an eye-opening opportunity: the better your compliance, the lower your financing interest rates.
The Big Picture
The benefits to suppliers are important:
- 100% advance rate (minus discount fee)
- Provided within two days after buyer’s acceptance to pay
- Priced using buyer’s credit rating and supplier’s sustainability performance
- Reduced discount rates as sustainability scores improve
- Non-recourse financing
- Freed up bank credit lines
But this significantly underplays the value of this type of program.
Initiatives like this forge partnerships and bonds between trading partners. They identify a common enemy and provide tools to attack the issue in a proactive, collaborative way. In this case, harmful and unsafe working conditions are stamped out through partnership that sets parties on the road to sustainable practices while reducing capital costs and related risks. Suppliers who demonstrate stronger sustainability scores are rewarded with better rates. Apparel supply chains are being incented to do things the right way. Given the difficult times and black eyes impacting the apparel world in recent years, it is refreshing to see the industry move in this direction.
But this is not simply an apparel issue.
A recent study by analyst group Aite found that 45% of executives across industries view the strategic importance of running ethical supply chain finance practices as extremely important; while another 50% consider it somewhat/considerably important. It’s a universal concern. For a long time there was inaction due to lack of available resources to execute such a strategy. That’s no longer the case. Companies in the apparel space are stepping up. It’s time for businesses across industries to take on leaderships roles.