Blending financing and sustainability for SFP Sons

Indian perfume manufacturer SFP Sons worked with HSBC to connect its borrowing costs directly to its sustainability performance.

Founded in 1993 by Dinesh Patel and his family, Chennai-based SFP Sons makes perfumes for the Indian market and exports to Europe, the Middle East, and Asia. It has seen growing demand from customers – particularly those in Europe and the Middle East – for suppliers with strong environmental, social and governance (ESG) credentials.

Fragrance brands globally are responding to growing consumer scrutiny over their use of chemicals or scarce natural resources, like sandalwood and musk¹. As a result, major brands and retailers are prioritising supply chain partners that can offer greater transparency, especially around perfume ingredients².

When HSBC presented a simple and cost-effective way of connecting its cost of funding to sustainability, SFP Sons was keen to hear more.

HSBC introduced SFP Sons to the potential benefits of a Sustainability Improvement Loan (SIL), a sustainable financing tool designed for small and medium-sized businesses.

Launched in Asia in 2024, after success in the UK, the SIL product links the interest margin to a third-party assessment of the borrower’s ESG performance. Companies that improve their scores may benefit from a reduction in interest rates, but if their scores fall, the rates may increase.

To access this product, SFP Sons obtained an ESG rating from EcoVadis, a provider of business sustainability ratings to around 40,000 companies in Asia Pacific and over 150,000 companies worldwide at the time of writing. The rating provides an external assessment of sustainability performance under four areas: environment, labour and human rights, ethics and procurement.

For SFP Sons, the move is a key step in differentiating itself from competitors and expanding its trading relationships.

“Our clients increasingly want to source from firms that are taking ESG seriously,” says Patel. “That’s why we think tracking our performance will help us strengthen old relationships and establish new ones. We have already received positive feedback from one of our top clients in Europe.”

The ESG rating can also lead to potential financial benefits on an existing loan from HSBC, which has now been converted to an SIL. An improving scorecard may lead to a reduced interest rate for SFP Sons. Similarly, interest costs may increase if its scores decline.

“As a leading bank for global trade, we understand the importance of verified ESG credentials for small and medium-sized businesses that are looking to expand internationally,” said Priyadarshini K S, Director & Head of Sustainable Finance at HSBC India. “Tracking and improving sustainability performance allows businesses like SFP Sons to demonstrate their commitment and link their cost of funds to an independent assessment of their progress.”

HSBC’s SIL product offers small and mid-sized businesses a practical way to connect their sustainability progress directly to commercial outcomes. The rating provides a benchmark against industry peers, while the structure of the SIL incentivises clients to make tangible improvements.

An EcoVadis assessment also comes with recommendations as to how a business can improve its score, such as setting quantitative targets on environmental issues, or improving documentation on policies relating to chemicals, waste, or biodiversity. For HSBC, meanwhile, access to a borrower’s ESG scorecard allows the bank to offer practical support for further improvements, such as capex funding related to sustainability investments.

Tracking and improving ESG performance can be a challenging task for businesses in any industry, and may involve additional costs, time and effort. For businesses that are ready to take action, the potential for cheaper financing from an SIL provides a meaningful commercial incentive. And just as it did for SFP Sons, HSBC stands ready to help guide customers through the process from start to finish.