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Role of corporate treasury expands as ESG operations and investing dominates

The COVID-19 pandemic has shown that corporate treasury is a vital business discipline. But corporate treasury is way more important than this, it also has a role in ensuring mankind’s survival. Corporate treasury can be a leading motivator in bringing the ESG disciplines and ways of operating to their businesses. But it is going to be a struggle.

Arthur D Little Report: ESG – The irreversible mega-trend

AD Little’s recent report opens with “Environmental, Social, and Governance and sustainable finance can no longer be thought of as nonessential niceties. They are game-changers that together will reshape the financial services industry. As such, they will become a driving force behind banking and business, their impact fell both broad and deep, and in ways, they will touch every aspect over every leading financial institution, from business lines, segments and product services, pricing, processes, and data, through to interactions with clients/suppliers, distribution position models, and even talent management. This is reflected in the way some large financial institutions like Bank of America and BNP Paribas, have already expressed their commitment to becoming net-zero banks and have adopted ESG as a key strategic element accordingly.”

Net-zero problems

But there are all sorts of problems with aiming for ‘net zero’, an increasing number of scientists consider disaster looms if big finance is allowed to game the carbon offsetting markets to achieve ‘net-zero’ emissions. According to Simon Lewis in The Guardian 3 May 2021, “A more insidious problem is emerging. Net-zero increasingly involves highly questionable carbon accounting. As a result, the new politics swirling around net-zero targets is rapidly becoming a confusing and dangerous mix of pragmatism, self-delusion, and weapons-grade greenwash.”

More and more companies and financial institutions are talking a ‘good game’, but not doing much in real terms. Indeed, AD Little in their report say that “While institutions have begun to discuss ESG and sustainable finance with greater intensity, too often there is still a lack of substance or real direction.”

Recommendations and overall conclusion

The AD Little paper includes, inevitably for a consultancy, several recommendations for banks, including:

  • “Have a clear, credible, and holistic sustainable finance strategy that establishes the business case and delivers how a bank will position itself from an ESG perspective
  • Base your thinking, not on today's worldview, but the one that will apply in five to 10 years.”

ADL’s overall conclusion was, “We are at the beginning of a new era of “sustainable money” in which the rules of the game are going to be very different from those of the past.”

Delivering in the new sustainable era

Companies are also at the beginning of a new ‘sustainable era’ in which corporate treasurers are going to have to (and should want to) play an increasingly important part in “saving the planet”. But how is the problem because ESG is such a huge topic and in some ways controversial?

The ACT’s recent webinar aptly entitled “Sustainability and ESG: what role should you play?” was a reflection of the difficulties corporates find themselves in. The session excellently but intermittently chaired by the ACT’s Naresh Aggarwal (he kept zooming in and out), with technical support from REFINITIV’s Dr. Barnabas Acs, Director Sustainable Finance, and two corporates – Joanna Bonett, Group Treasurer, Page Group, and Tariq Kazi, Director of Corporate Finance, Optivo the housing association – showed that:

  • Recording how much a company’s carbon imprint really takes at least 3 years to get the full data, but companies should not wait to introduce sustainable ways of working
  • Investors are focusing much more on ESG issues and increasingly investing in compliant companies
  • Role of corporate treasurers is increasingly involved in:
    • driving sustainability across the group, and improving sustainability data across the group
    • joining United Nations sustainability groups
    • driving initiatives across the group, e.g. Page are now driving a whole series of programmes such as making travel carbon-neutral, setting science-based targets, talking to everyone in the group as to what is required locally
    • being part of the team that sent questionnaires to everyone in the group as to their reporting and activities, e.g. how to travel, how to dispose of computer and IT equipment, the carbon impact of their office, etc.
    • how to measure the social impact of the group and its impact on society
    • owning the whole ESG reporting landscape, while others share the responsibility with External Affairs Department, etc.
  • One important reason why corporate treasury is taking a leading role in ESG is that investors are asking about how sustainable are your company’s operations, etc.
  • Another important impact is that ESG takes finance/treasury much more into the business and “gets it strategically engaged”

Regulatory deadlines

There is, according to REFINITIV, a wave of new ESG reporting regulations on ESG reporting coming. The European Commission has published oversight plans for sustainability reporting aimed at ensuring future standards are aligned with its broader sustainable finance agenda. For example, there is a 2023 deadline for NFRB (Non-Financial Reporting Directive (NFRD) in which currently applies to big European companies with over 500 employees, will be stricter and also extended to include all large companies regardless of whether they are listed or not, and non-European companies will be included, and companies of 250 employees are to be included too.

(For further details see, the European “Commission’s Corporate sustainability reporting”, here.)

Corporate treasurer’s business role

The ACT webinar showed that corporate treasury has a key role in driving not only ESG reporting but also in driving and improving the company’s ways of operating AND informing potential investors on ESG performance.

CTMfile take: Today’s corporate treasurer is naturally becoming the company’s corporate treasury and ESG officer. This combined role is vital for companies’ and for mankind’s survival.

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