Beyond Compliance: Embedding Impact through Innovative Finance16OBF can be used to drive innovation in supply chains. For example, companies work closely with suppliers to source sustainable materials, implement circular economy strategies, and redesign logistics to minimize plastic packaging. To date, OBF has been used predominantly in the plastics collection and recycling parts of the value chain. Unilever Nigeria implemented a $2 million development impact bond where investment returns are tied to the volume of plastic collected, the number of new jobs created, and sustainable wages in Nigeria. Through this bond, Wecyclers has expanded its plastic waste management franchise and collection model nationwide with Unilever paying for outcomes.38 This example highlights the importance of considering truly systemic solutions to an issue in addition to immediate solutions that address a severe symptom. While it is currently necessary to incentivize waste management at a local level (often through small business), a long-term solution to plastic pollution will ultimately need to complement upstream collaboration to reduce waste at source. Once developed, such solutions might then be supported by OBF mechanisms by, e.g. linking payments to waste reduction through improved product design, packaging optimization and circular production processes. OBF can be applied to corporate financing structures, which allow companies to raise debt or issue bonds in line with their strategic impact goals. For example, BNP Paribas has developed a sustainability-linked loan (SLL) product for social housing associations in the UK that offers these borrowers better interest rates when they meet specific environmental and social targets. L&Q, Optivo, Clarion Housing Group and Peabody Trust have raised a combined £325 million in debt where investment terms are linked to emissions reduction alongside social goals such as resident employment and training opportunities.42 Early results are promising – for example, L&Q exceeded its employment targets by securing jobs for over 600 residents, earning reduced borrowing costs.CASE STUDY 3 Unilever and Wecyclers – circular products CASE STUDY 4 BNP Paribas – sustainability-linked loans for social housing2.3 Corporate and supply chain financing solutions Companies raise capital or issue debt to support business objectives. At the same time, they support their suppliers to raise capital. These business functions can be aligned with the company’s social impact goals. Sustainability-linked finance, which is well understood and utilized in medium- to large-sized companies, can be repurposed to achieve social outcomes. There is opportunity to capitalize on emerging trends, including stricter verification requirements, increased regulatory oversight, a shift towards sector-specific and social key performance indicators (KPIs), and adoption by smaller companies.39 OBF contributes to preventing greenwashing and supports the selection of meaningful KPIs, credible baselines and ambitious targets.40, 41 Considering the limited inclination of sustainable investors to forgo returns, there is also the opportunity for third party donor capital to step in to support the achievement of material, additional outcomes. Supply chain finance programmes represent a strategic financial solution where companies use stronger credit ratings to help suppliers access working capital at preferential rates. Companies offer direct financing (e.g. reverse factoring, purchase order financing, etc.), partner with financial institutions (e.g. working capital facilities, trade finance solutions etc.), provide technical assistance, and make structural commitments where required to enhance investability (e.g. volume commitments, long term contracts). Companies have used these financing solutions to incentivize sustainable practices in their supply chains.

Beyond Compliance 2024