A Win-Win-Win: Levi Strauss & Co. and the IFC Team Up to Support Sustainable Suppliers
Levi Strauss & Co. and the International Finance Corporation (IFC), a part of the World Bank Group, have partnered to help garment suppliers in developing countries become more eco-friendly and labor-conscious. Through the Global Trade Supplier Finance (GTSF) program, suppliers gain access to competitively-priced financing based on their environmental, health and safety, and labor standards score measured by Levi Strauss & Co.’s Terms of Engagement (TOE). The better the score, the more favorable the financing. And the terms aren’t static. As suppliers work to improve their TOE score, their financing costs decrease.
The High Costs of Supplying
Suppliers in developing countries often struggle to finance their operations. Capital costs—which go into fixed infrastructure, equipment, and buildings—can run high. Without access to low-cost financing, many smaller suppliers can’t compete with larger operations. Or worse, some can't even begin filling orders without financing. As a result, shortcuts are taken, creating potentially unsafe working conditions and harmful environmental practices. Compounding this problem is the fact that payments aren’t always timely. The longer it takes for a supplier to receive payment, the more risk the supplier bears, and the harder it is to fund operations. Buyers, who in the past tended to delay paying as long as possible, are beginning to see the advantages early payment can bring. Discounts on invoices, for one, are now a roadmap to sustainability.
Rewarding Social Compliance
Retailers and manufacturers have done a lot to improve sustainability practices but various studies have shown that beyond a certain point audits and oversight become less and less effective. There is a need for financial incentives to ensure ongoing improvements to sustainability practices. By partnering with the IFC, whose mission is to encourage global development, Levi Strauss & Co. has found a way to incentivize compliance to its Terms of Engagement through the GTSF program. For sustainable manufacturing as a whole, the GTSF program represents meaningful progress in finding innovative and effective ways to fund sustainability in a world of rising costs, heavy competition, and complex supply chains. Customer demand for fair labor and environmentally responsible manufacturing continues to grow and regulations will only increase. Buyers, suppliers, and financers need to work closely together to achieve both social compliance and profitability. As the GTSF program demonstrates, it’s possible.
Financing Sustainable Suppliers
The GTSF program incentivizes compliance to Levi Strauss & Co. TOE through several features, including:
- 100% advance rate (minus the discount fee)
- Payment provided within 2 days after the buyer’s acceptance, enabled by GT Nexus
- Financing rates established by the supplier’s TOE score and the buyer’s credit rating
- Reduced discount rates with improved sustainability score
- No annual facility fee
- No minimum utilization level
- No change to existing bank relationships
Reviewers will rate suppliers’ environmental, health and safety, and labor standards score through annual audits. All other existing operations will remain intact. The close interrelationship between buyer, supplier, and financer showcased by the GTSF program highlights an important truth to the evolution of global supply chains—it’s going to take partners working tightly together in open, collaborative, global trade networks to achieve anything meaningful, be it sustainability and/or profitability. The business mindset of going it alone is over. As with the planet and humanity, it’s time to recognize that we’re all in it together.