Working Capital Innovation Fund is thrilled to announce our investment in TwinCo Capital, a supply chain finance provider incentivizing small and medium enterprises to mitigate ESG risk.
The problem: when small suppliers sell manufactured goods (clothing, electronics, etc.) to multinational corporations (MNCs) they are often forced to wait three or more months before getting paid. After winning the contract, the small business must purchase the materials needed, pay their workers, and fund all other manufacturing costs. Once the product is finished, the small business ships the order across the ocean, which can take up to a month before arriving on shore. The product is offloaded from the boat, placed onto a truck, and driven to a corporate warehouse hundreds (or thousands) of miles away. After the goods finally arrive, the large corporation then often can still take 60-plus days to pay the supplier.
While many small businesses hope to win large contracts from MNCs, these orders can drain them of cash, prevent them from paying workers, and lead them to bankruptcy.
Twinco Capital loans suppliers cash the moment they receive a purchase order. The company’s partnerships with large buyers such as El Corte Ingles and Mango allow it to lend money at corporate interest rates, rather than the exorbitant rates that banks offer in a dysfunctional system. Twinco helps suppliers in Bangladesh, Pakistan, China, South Korea, Indonesia, Vietnam, among others.
Twinco makes an environmental and social link to this financing. These small suppliers at the start of supply chains are often the places where risks are most severe. To address this, Twinco offers favorable interest rates to companies with lower environmental and social risk. Suppliers that receive loans from Twinco are required to share data on their efforts to mitigate these risks. This creates incentives for suppliers to shift workplace practices, uprooting human rights abuses and other flagrant violation of ESG principles. In exchange, suppliers are provided the cash they need to pay workers on time and supported as they expand into global markets.
As Twinco collects data, the startup will examine the correlation between environmental and social performance and credit risk. Does a supplier’s commitment to ethical practices decrease credit risk? More simply put: are companies that treat workers well more likely to pay back loans? If data proves a correlation, cash flow to ethical supply-chain actors will increase, and there will be a premium on ESG data. The more data, the more effectively we can address harm to people and the plant.
No team leadership team is better suited to actualize such an ambitious vision than Sandra Nolasco (CEO), Carmen Marin (COO), and Arancha Díaz-Lladó (Chief Sustainability Officer). The three boast decades of experience in trade finance, investment banking, and corporate sustainability. It is an honor to walk alongside them into 2023.