Wednesday 28 March 2018

Is fintech the key to unlocking value in sustainable supply chains? Four startups and six blue chips join a Cambridge initiative to see how it could work.


Imagine if there was an easy way to gather and record, in a transparent and traceable way, all the relevant information from suppliers about their social and environmental standards in the production of their goods, and making that information available to everyone throughout the supply chain. Then imagine if banks were able to use this data to design a financing package where terms of access to particular levels of working capital depend on the sustainability score of the supplier: suppliers would have a financial incentive to meet sustainable objectives, in turn allowing them to invest more and become more productive.

The technology that would help businesses and banks achieve this already exists: blockchain. A new year-long fintech pilot project, supported the UK Department for International Development's UK Aid, is seeking to test the capacity of blockchain and other financial technologies to create the necessary financial incentives that will reward sustainability in supply chains. The aim is to deploy smart contracts and algorithms that convert supply chain data into preferential pricing terms in banks' systems.

From 10,000... to 1.5 billion?

The pilot will use a shared data system that could reach more than 10,000 Malawian tea farmers who supply Unilever, an Anglo-Dutch consumer goods company, and Sainsbury's, a UK supermarket. The quality and relevance of the sustainability data that is material to the assessment of risk, and which is not currently available in existing systems, will be critical to the success of the pilot.

"This will enable financial institutions to broaden the scope of their financing offers and to propose financial incentives to their customer clients, based on their environmental and social standards," according to Marguerite Burghardt, Head of the Trade Finance Competence Centre at BNP Paribas.

"We can harness fintech to deliver valuable new data about sustainability performance to financial institutions, which is key to greening financial flows."
Jessi Baker, founder of UK fintech supply chain specialist Provenance, considers the project an opportunity to "demonstrate the power of a collaborative ecosystem approach to tackling the Sustainable Development Goals, through linking preferential financing to verifiable sustainability claims and transparent supply chains."

Once successfully deployed, the project, developed by the Fintech Taskforce and convened by the University of Cambridge Institute for Sustainability Leadership (CISL), could be scaled up for many different supply chains, with potential positive impacts for the 1.5 billion families around the world who depend on small-scale agriculture. For consumer goods companies, fintech offers a cheaper and more reliable way to verify products than current certification schemes, while for banks, greater transparency could mean better oversight of transactions and simpler compliance with regulations.

For Andrew Voysey, Director of Sustainable Finance at CISL, the cross-collaborative innovation is vital: "By designing innovative collaboration between multinationals, financial institutions and fintech firms, we can harness fintech to deliver valuable new data about sustainability performance to financial institutions, which is key to greening financial flows."

This fintech supply chain pilot was unveiled at the One Planet summit organised by French president Emmanuel Macron two years after the Paris Agreement set the agenda for global climate action. It draws on the technological expertise of startups FOCAFET Foundation, Halotrade, Landmapp and Provenance, with support from Barclays, BNP Paribas, Sainsbury's, Sappi, Standard Chartered and Unilever.


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