by Bruce Meuli, Global Business Solutions executive, and Jonathon Traer-Clark, Head of Strategy, Global Transaction Services, Bank of America Merrill Lynch
JTC Today more than ever, treasurers engage with, and therefore need to consider the motivations and objectives of multiple stakeholders – teammates, support functions, management, board, investors, bankers, lawyers and so on. At the same time, they have to operate within a defined risk framework and adhere to strict policies and processes. An additional, related dimension to treasurers’ decision-making is how to incorporate the demands and obligations associated with being a socially responsible organisation that considers the long-term impact of its actions and investments. So how can treasurers achieve this balance, particularly on occasions where these diverse objectives may appear to conflict?
BM Well, let’s look at investments, specifically those that are considered ethical. One of the early advocates of socially responsible investing was John Wesley, founder of Methodism, who advocated the basic tenet of “Look after your neighbour through appropriate business practises”. Today, there are a variety of investments geared to climate projects, medical facilities and many other social, cultural or environmental objectives.
JTC Indeed, the appetite certainly seems to be there and today, many firms have dedicated research departments that explore and evaluate investments. Key to note too is that in the US you can now add ESG (Environment, Social & Governance) funds to 401k plans. But how exactly does a treasurer assess these investment alternatives?
BM I would suggest the first consideration has to be price – make sure the fees are compatible with fee benchmarks outlined in your treasury policy. This leads to the second point – balancing risk and return. Treasurers need to ensure sufficient diversification and high quality credit in their portfolio, whether this comprises ‘conventional’ or socially responsible investments. Indices can be useful for directional indicators, but the time base for analysis should be carefully considered too. As with conventional investments, the performance of SRI can vary considerably, so balancing risk and return remains vital.