ESG in Treasury Practice

Commentary

[The full report can be downloaded by subscribers at the foot of this article]

This was a very lively and full discussion, conducted at the request of a member. The report details the input, and is well worth reading – but the summary below lays out the key points.

For me, the interesting point which came from all the contributors across a broad spectrum of industries is that ESG now seems to be very seriously at the board level, with companies prepared to accept reduced financial returns to meet ESG objectives. Some participants are even reviewing business models and calling into question the traditional focus on growth. Many expressed frustration at the lack of generally accepted standards to set targets and measure progress, though, over time, progress is being made.

Is the world changing?

Key Take-aways:

• The discussion predominantly focused on environmental strategies 
• There is universal executive management buy-in and support for the ESG initiatives across all the peers driven by
  
  • Customer, supplier, and investor demand
  • Concern for the reputational risk and potential negative revenue impact if do nothing
  • Understanding the revenue opportunities of many reduced environmental impact solutions
• Specific treasury initiatives are limited to green investing and demand for counterparty adherence in service and credit negotiations. While decisions that matter typically take place elsewhere in the company, treasury is pulled in 
  
  • When a broader company initiative requires financing or other treasury support
  • When treasury must address outside stakeholder question (e.g., pension fund managers, financial services providers, etc.)
• There is a fundamental logical inconsistency between permanent growth of the business and trying to preserve the environment. However, companies appear to be bridging that gap as evidenced by a shift in cultural perspective – no one on the call questioned support of the ESG initiatives
• There are currently no well-established standards or measurement processes to assess how well an organisation meets the standards and its stated commitments 
  
  • Work has been done and continues on carbon accounting  
  • There is no consistency in measurement
  • There was mention of the accounting standards boards as potential arbiters of setting standards and measurements
• A number of creative and impactful initiatives were discussed including
  
  • Recycling of components for manufacturers
  • Migration to more environmentally friendly packaging 
  • Working with suppliers to manufacture closer to markets to reduce energy consumption in transport and packaging
  • Development of products as a service with billing based on product usage, replacing wide scale manufacturing, sale, and shipment of products
  • Using greener energy sources wherever possible. 
• Many initiatives have gained success in a company’s home market / home region, with less ability to implement in more geographically distant and less environmentally focused countries