Deutsche Bank incorporates sustainability components into Knorr-Bremse’s existing supply chain finance programme
Deutsche Bank is helping engineer Knorr-Bremse to strengthen its sustainability measures by linking its existing supply chain finance (SCF) programme to the ESG ratings of suppliers
In March 2022, flow reported on how German company Knorr-Bremse AG, a global manufacturer of rail and commercial vehicle braking systems, had implemented tools and processes to improve supply chain and procurement visibility.
Supply chain finance (SCF) is part of that toolbox and Deutsche Bank’s SCF programme with Knorr-Bremse together with its suppliers has now been in operation for 15 years. Suppliers benefit from invoices being paid early by the bank, which, in turn, means Knorr-Bremse can transact with favourable payment terms – helping both parties to optimise their working capital. As the related financing costs for the suppliers in the programme are based on the strong creditworthiness of Knorr-Bremse, the suppliers usually receive cheaper financing than they would be able to secure based on their own credit profile.
See the flow special white paper, Payables Finance: A guide to working capital optimisation for further details on how this structure works.
The new structure is providing suppliers with financial incentives to become more sustainable. If a supplier is able to improve their environmental, social and governance (ESG) ratings, they will be rewarded with even more attractive financing terms than already offered by the existing SCF programme. In this way, it is hoped that the global programme will steadily encourage more suppliers to improve their ESG measures.
This decisive step towards creating more sustainable value chains is part of a wider effort by Knorr-Bremse to improve its ESG credentials. The new sustainability-linked supply chain finance (SSCF) programme complements two other financing instruments through which the company is specifically promoting sustainability.
"SSCF programmes enable our clients to create an incentive for their suppliers to be more sustainable,” said Jan-Philipp Gillmann, Head of Corporate Bank EMEA, Deutsche Bank. “By improving their ESG rating, suppliers can further reduce financing costs together with their clients."
“The financial benefits arising from the latest programme make an ESG rating particularly attractive for suppliers”
Suppliers in SSCF programme can choose between two ESG rating providers: Ecovadis and NQC. NQC’s supplier assurance platform is used by many global automobile brands to assess their suppliers – and this represents their debut in a SSCF programme. The platform is providing suppliers with more flexibility compared to similar offerings.
"The financial benefits arising from the latest programme make an ESG rating particularly attractive for suppliers, creating a win-win situation for both sides: for our suppliers and for us at Knorr-Bremse," added Frank Markus Weber, the group’s Chief Financial Officer and Executive Board Spokesman.
Headquartered in Munich, Germany, Knorr-Bremse is a leading global manufacturer of electronic brake controls, driver assistance systems and air supply systems, thus making an important contribution to road safety. Powertrain systems are another product area, including torsional vibration dampers for diesel engines.
Note: Header photo, Freight train, USA © Knorr-Bremse AG