Frank Waechter, Vice President of Treasury and Insurance at PUMA
PUMA SE (PUMX: GER), with revenues of €8.6 billion in 2023, is one of the world’s leading sports brands, designing, developing, selling and marketing footwear, apparel and accessories. PUMA is working to improve its environmental, sustainability, and governance performance. For example, by 2030 PUMA – headquartered in Herzogenaurach, Germany – wants to reduce absolute Scope 3 greenhouse gas emissions from its supply chain and logistics by 33% compared to 2017. In 2023, PUMA made strides towards its climate goals, achieving the first science-based greenhouse gas reduction target it had set 7 years ahead of schedule and reducing greenhouse gas emissions by 24% compared to 2022 Time Magazine and Statista named PUMA as one of the World’s Most Sustainable Companies in 2024 and ranked it in 67th place out of 500 companies overall and first in the category of Apparel, Footwear and Sporting Goods. PUMA has found sustainable finance to be a potent tool for improving its performance in ESG. Supply chain finance and sustainable finance help suppliers bridge the gap between producing the product and the moment they get paid for it.
Suppliers Bridge Payment Lags with Supply Chain Finance
As there can be significant payment lags between when a supplier produces goods and when they get paid suppliers often make use of supply chain finance to avoid cash flow problems. Supply chain finance involves a supplier receiving early payment on an invoice by a finance company. There is a fee associated with this. In the industry, the most common payment term is Net 90, which means the buyer must make payment in full within 90 days of the invoice date. An invoice is submitted once an order has been delivered to the port of origin.
Factoring versus Supply Chain Finance
Suppliers can go to a bank, show the bank their receivables, and receive a loan based on a financial arrangement known as factoring. Loans are based on risk. Suppliers to a large company will often have a lower credit rating than the customer to whom they are selling their goods. Suppliers in third-world countries will also usually pay more for a loan. Furthermore, 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 uses the Infor Nexus digital platform to support its suppliers. This digital collaboration network connects buyers, suppliers, contract manufacturers, carriers, and banks. The network provides an accurate, electronic record of supply chain activity to ensure that all parties to a transaction are working from a single version of the truth. The platform reduces the manual work involved in getting loans and increases the supplier’s banking options. PUMA’s banking partners on Nexus include HSBC, BNP Paribas, Standard Chartered, and the International Finance Corporation (IFC). Suppliers get paid within 5 days of delivery.
Frank Waechter, Vice President of Treasury and Insurance at PUMA, firmly believes the Nexus platform adds value to this process: “Collaboration with suppliers is much more than a digital exercise. But without digital enablement, it’s nothing!”
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. Banks were about to be regulated according to the Basel III framework, which became mandatory in 2023. Basel III developed by the Basel Committee on Banking was a response to the deficiencies in banking regulation revealed by the economic crises of 2007 and 2008. But Mr. Waechter explained that this framework made sustainable financing more difficult. A bank’s margins were to be based on risk only, and the definition of risk did not consider sustainability issues.
The International Finance Corporation, a World Bank subsidiary, helped change the interpretation of these rules around sustainability loans. The IFC’s mission is to improve the lives of people in developing countries by promoting private-sector investment in these countries. 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. The IFC was willing to create a market for sustainable finance by providing supply chain finance to some early adopters – Levi’s and PUMA – and proving to private banks this could be a safe and lucrative business.
Thus 2016 was the launch date of PUMA’s ESG-linked supply chain finance. If supplier’s sustainability rating was at least average, they could participate. If not, they could not. “But we wanted to further reward suppliers,” Mr. Waechter explained, “we wanted to provide an incentive in the form of more attractive financing costs to those, who were going further than their peers to improve sustainability.”
Even with the IFC’s support, getting private banks to participate was difficult in the beginning. PUMA put out tenders to four banks. Not one of them wanted this business. PUMA’s Treasury team was told they were being “naïve.” One problem was that the banks were not yet comfortable with the Nexus platform. But the IFC was on Nexus, understood how the history of transactions stored on the platform could reduce risks.
Eventually, PUMA convinced the largest European bank, BNPP, to participate. The Nexus platform was adapted to provide some additional quality control process steps. Sustainability loans began in 2016.
Fast forward to 2024. At Infor Nexus’s European Advisory Customer Council meeting in Chamonix, France, executives from three large banks participated in a panel discussion where they touted their sustainable investing programs.
Where Do Things Stand Today?
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.
At the Nexus event, Mr. Waechter worked to convince the banks to create a new form of sustainability financing – moving to PO financing instead of invoice factoring. “The data is all there on the platform. There is no increased risk!” This would allow suppliers to be paid months earlier.