PUMA, a leading sports brand, is leveraging sustainable finance to enhance its environmental, sustainability, and governance (ESG) performance. The company aims to reduce its supply chain and logistics emissions by 33% by 2030. PUMA’s sustainable finance journey, which began in 2015, has seen the company use supply chain finance to help suppliers bridge the gap between production and payment.
Sustainable Finance: A Tool for ESG Improvement
PUMA, with revenues of €8.6 billion in 2023, is a global sports brand that designs, develops, sells, and markets footwear, apparel, and accessories. The company is committed to improving its environmental, sustainability, and governance (ESG) performance. By 2030, PUMA aims to reduce absolute Scope 3 greenhouse gas emissions from its supply chain and logistics by 33% compared to 2017. In 2023, PUMA achieved its first science-based greenhouse gas reduction target seven years ahead of schedule, reducing emissions by 24% compared to 2022. PUMA has found sustainable finance to be a powerful tool for enhancing its ESG performance. Supply chain finance and sustainable finance help suppliers bridge the gap between product production and payment.
Bridging Payment Gaps with Supply Chain Finance
Significant payment lags can occur between when a supplier produces goods and when they get paid. To avoid cash flow problems, suppliers often use supply chain finance. This involves a supplier receiving early payment on an invoice from a finance company, for a fee. The most common payment term in the industry is Net 90, which means the buyer must make full payment within 90 days of the invoice date. An invoice is submitted once an order has been delivered to the port of origin.
Factoring vs. Supply Chain Finance
Suppliers can go to a bank, show their receivables, and receive a loan based on a financial arrangement known as factoring. However, this can be a manual, paper-laden process, contributing to higher fees. In contrast, buyer-enabled reverse factoring, more commonly known as supply chain finance, is less costly. The interest is based on the buyer’s risk. A company like PUMA has a higher credit rating than virtually all its suppliers.
PUMA’s Sustainable Finance Journey
PUMA’s sustainable finance journey began in 2015. The principle of the program is simple: The best sustainability performers among PUMA’s suppliers get the best terms. Starting this program was not easy due to banking regulations. However, the International Finance Corporation, a World Bank subsidiary, helped change the interpretation of these rules around sustainability loans. The IFC was particularly interested in promoting the “S” in ESG. This included social issues such as preventing child labor, sex equity in payment and treatment, and ensuring laborers do not work long hours or have to work in dangerous environments.
Current Status and Future Prospects
The program is voluntary; no supplier must participate. Suppliers are grouped in three tiers. The suppliers with the best key performance indicators receive the best rates. The KPIs include sustainability performance. Over time, those KPIs have grown to include environmental issues and not just social ones. There has been a significant uptick in participation. During COVID-19, increased financial stress led PUMA suppliers to make much more use of the ESG-linked SCF solution. The acceptance rate tripled. For every 100 products sourced, 30 were financed through this program. PUMA’s financing facilitation out of this program peaked at $800 million in 2022.
