Sustainable supply chain finance: making ESG count in real business - Trade Treasury Payments

Sustainability is now the flashpoint of a worldwide argument. Finding a way to integrate it into financing schemes amid mounting regulatory pressure is reshaping supply chains. As a result and through a mix of policy reforms, institutional initiatives, and private investment, we are starting to see the emergence of a new field, known as sustainable supply chain finance (SSCF). 

In Seville this past July, the ICC updated its Principles for Sustainable Trade Finance, widening the lens from environmental issues to also cover social impact and supply chain finance (SCF) rules. Private capital is following suit. Morgan Stanley just launched a climate fund aimed at improving cargo tracking and cutting risks, backed by Overhaul, a supply chain tech firm, with a $105 million investment. 

Obviously, SCF is no longer just about liquidity; its latest evolution, this time with an additional “S”, is redesigning the whole financing process by embedding sustainability with risk management, digitalisation, and performance metrics.

The growth of SSCF

People may be astounded by the real trade-off between the cost and profit of sustainability initiatives in supply chains. A 2024 HSBC–CDP report estimates that addressing supply chain climate risks would cost about $56 billion, but the potential financial gains from proactive upstream strategies could reach $165 billion, while only requiring less than one-eighth of that investment.

SSCF gradually fills in this gap by sharing both the costs and benefits across supply chains. It links financing to suppliers’ ESG performance, offering better interest rates or access to capital when they meet sustainability goals set by key buyers. Buyers, often working with rating agencies, provide ESG data and credit assurances to banks to enable SSCF. This approach incentivises suppliers to improve performance while helping buyers safeguard their brand reputation and meet wider regulatory and stakeholder requirements.

In a 2018 report, BSR estimated that the SSCF market would one day reach $660 billion, one-third the size of the entire trade finance market. There is still a long way to go to reach this value. In 2023, the global SSCF market was valued at $1.34 billion, and is projected to surpass a valuation of $5.7 billion by 2032, at a CAGR of 8.9 % during the forecast period 2024–2032. Mainstream worldwide markets (like North America, Europe and Asia Pacific) all showed great interest in SSCF, presenting its great potential for continuous development.

(Source: HTF, SSCF dynamics and growth forecast)

SSCF in action

As an emerging financing concept, SSCF is still a game with big names. The latest practice came from Asda, which has stepped up its sustainability efforts with two-tiered SSCF schemes, first with HSBC and now extending to a broader domestic focus with Lloyds Bank on 22 August. The original HSBC-linked program launched in late 2024 offers over 250 suppliers preferential financing rates in three tiers, based on their ESG data disclosure and action on sustainability goals like decarbonization (with their performance assessed by EcoVadis, a business sustainability ratings firm). Recently, Asda converted its existing supplier financing into a new Lloyds-linked scheme for UK suppliers, again using EcoVadis scoring against a set of KPIs. In the program, those demonstrating stronger sustainability performance earn better rates and faster payment terms.

Leading banks are also increasingly adopting SSCF programs. HSBC has rolled out SSCF schemes with large companies like PVH and Walmart, linking financing terms to both environmental targets and social compliance. On the development front, Citi and IFC unveiled a landmark $2 billion SSCF program focused on emerging markets, starting with a $500 million facility in Mexico to support SMEs. They also launched a $300 million pilot under IFC’s Global SCF Program to extend sustainability-linked financing to marginalised suppliers, including women-owned businesses. In Europe, the European Bank for Reconstruction and Development (EBRD) partnered with Citi and Metso Outotec, a sustainable technology company, to back a €25 million SSCF package in Turkey, offering incentives to Turkish suppliers that hit emissions reduction goals.

The operational reality of SSCF is inherently collaborative. Large buyers define a set of clear, quantifiable sustainability metrics, validated by rating agencies and finally verified by banks to maintain credibility. Suppliers, in turn, report and verify their progress. Broader participants in this ecosystem may include technology platforms, NGOs, auditors and industrial associations to build a financing system grounded in data, reducing the scope for greenwashing and ensuring that financial benefits are tied to verifiable improvements.

Source: BSR Report 2018

Join the game or not?

The benefits of SSCF are different but equally compelling for large companies and smaller suppliers. For global buyers, SSCF puts money behind sustainability by tying finance to ESG results, which strengthens supply chain resilience, protects brand reputation, and flags reliable signals to regulators and investors. For SMEs, it can break the cost barrier and turn green goals into economic action.

The momentum behind SSCF is growing as ESG reporting becomes mandatory in more markets and new tech makes real-time monitoring cheaper and easier. The Corporate Sustainability Reporting Directive (CSRD) in the EU is forcing thousands of companies to disclose detailed ESG data. Yet challenges remain when the political landscape adds to the dilemma, especially given US President Trump’s reversal on climate and ESG commitments. This creates uncertainty for global companies deciding how much to invest in sustainability. 

So, join SSCF or not? It should be an active choice rather than passive waiting. SSCF actually creates a win-win-win situation for all parties and provides a pragmatic middle ground under uncertainty by spreading both costs and benefits across supply chains, making sustainability progress viable even amid fragmented global regulations. In the long run, sustainability will remain the global mainstream and the right direction to take, at least for EU companies.