Task Force 5 will create a suite of financial options that cover the upfront costs of lean and clean productivity programs in Vietnamese apparel and footwear factories. In collaboration with donors such as the Dutch and Danish governments, USAID, the World Bank, as well as foundations and impact investors, Race to the Top will help deliver factory improvement programs with a clear return on investment. Task Force 5 consists of two components: creating access to capital for improvement activities, and facilitating cheaper access to capital for more sustainably producing factories.
To deliver on the first component, Race to the Top has established meaningful relationships with impact investors, donors, and financial institutions in Vietnam. With them, Race to the Top stakeholders are working toward access to capital for investment in improvement activities.
The second component of Task Force 5 is an impactful mechanism deployed in Vietnam by Levi’s, Puma, and the International Finance Corporation (IFC). In the apparel and footwear sector, payment of delivered goods may take up to four months. Because producers need working capital and cannot wait until their invoices are paid, invoices frequently serve as accounts receivable that help factories obtain loans. This way, a factory can take out a loan at a discount to cover its accounts receivable. Loans will likely be unfavorable for the factory, as factories’ credit ratings in Vietnam are often poor.
Under the Global Trade Supplier Finance (GTSF) program, suppliers can borrow from the IFC at a much better discount rate, depending on their level of sustainability. More sustainable factories yield more attractive discount rates. Levi’s and Puma, furthermore, assess a factory’s level of sustainability and reward factories that invest in sustainability by placing additional orders with these factories.
Task Force 5 will catalyze incentives similar to those of the GTSF program. Task Force 5 is built on the belief that cheaper access to capital for sustainably operating factories will create a stimulus for factories to invest in sustainable manufacturing practices.