Coca-Cola Europacific Partners aims to achieve its own sustainability targets by improving the ESG footprint of its supply chain.
The new sustainability-linked supply chain finance program from CCEP (NMS:CCEP) with Rabobank will be launched in Germany initially, and subsequently expanded to suppliers in the rest of Europe, Australia and New Zealand.
CCEP has set a net zero by 2040 target, with an ambition to reduce its greenhouse gas (GHG) emissions by 30% by 2030. Helping its supply chain decarbonise will be a vital step, as it accounts for 90% of its GHG emissions.
Setting up ESG KPIs assessed by a third party could help CCEP’s suppliers set up their own sustainability frameworks, in turn helping them access sustainable financing like sustainability-linked bonds and loans.
Rabobank (AS:RABO) will provide the initial funding, with other banks like Santander (MC:SAN) joining the program to drive it to its anticipated €600 million funding goal. In addition to helping suppliers decarbonise their operations, it will also set up KPIs, to be assessed by EcoVadis.
Having had its 2030 GHG reduction target approved by SBTi as being in line with a 1.5°C scenario, CCEP is asking that 80% of its suppliers in Europe do the same by the end of 2022. At the end of 2021, it reported almost half (47%) of its suppliers had set targets or were engaged with SBTi to do so.
CCEP reports that eight of its production facilities are currently carbon neutral via the use of carbon offsets. While SBTi best practices recommend taking a limited approach to using carbon offsets, CCEP does not rule out resorting to them to reach its goal.
Assembling the right supply chain financing partners
Reducing the GHG emissions of the 20,500 suppliers in Europe and Asia that CCEP sources products worth €6.3 billion will not only help reduce its Scope 3 emissions, but also reduce the risk to its supply chain. Helping suppliers assess and improve their ESG profiles will also help the brand image of the Coca Cola Company (NYQ:KO). CCEP is one of the five largest independent bottlers of Coca Cola.
Selecting Rabobank as a partner to initiate its supply chain finance program extended beyond the bank’s reputation as a social bank. CCEP will use Rabo Foundation, the bank’s social impact fund, to support a farmer programme in Indonesia to promote sustainable farm practices to increase yields.
EcoVadis focuses on sustainability ratings of company value chains, which also makes it an ideal partner for this program. Unlike many of its competitors, it generates its data from independent questionnaires and direct contact with companies, rather than from publicly available reports and sources. In that way, it operates similarly to CDP, with whom it collaborates, and has a focus beyond the financial services industry.
CCEP extended its partnership with EcoVadis in 2020, and began proactively managing supply sustainability risks in 2021 through an intelligence tool called EcoVadis IQ. The resulting ratings come from four themes – environment, labour, ethics and sustainable procurement. In 2021 CCEP’s suppliers had an average EcoVadis score of 59, which it aims to raise to 65 by 2025.
Helping suppliers to help themselves
Improving the ESG profile of its supply chain will not only go a long way in mitigating the 90% of CCEP’s Scope 3 GHG emissions, but could also help its suppliers potentially tap into the green and sustainable finance market.
Most of CCEP’s carbon strategic suppliers, a group of 200 companies accounting for 80% of its Scope 3 emissions, are in Europe (61%). Stricter sustainability regulations in Europe will require these companies to improve their ESG profile sooner, and will likely require large amounts of investment.
The growth of the green financing market, especially in sustainability-linked bonds and loans used to finance transition plans, could prove valuable to CCEP’s suppliers. Integral to raising funds in this market is the development of a sustainability framework, which could help in a favourable ESG rating.
The beverage industry faces an increasingly challenging economic outlook but could take advantage of the popularity of sustainable financing to invest in innovations to drive sustainability.