Despite many other burning issues, ESG is a major concern for treasurers – and it appears to be moving higher up their agenda every year.
But sustainable finance solutions do not always align with fundamental treasury principles. Treasurers’ first, second and third priorities are, understandably, to secure/protect/optimise cash respectively – and yet green bonds seem to offer less attractive interest conditions than traditional bonds.
Moreover, time and cost of developing sustainability frameworks are significant factors, and synchronising the implementation of ESG projects and raising debt continues to be challenging for a number of corporates.
That being said, sustainable finance presents enormous opportunities for growth and the cost and time of ESG reporting is decreasing, thereby removing a major impediment.
Indeed, many treasurers are starting to see the benefits and opportunities arising from ESG investments, such as green deposits. The ESG trend is also increasingly reflected among employees, new talent being recruited, and treasury’s business partners.
Asking the right questions
Since treasurers sit at the intersection between numerous internal departments and external partners, such as banks, fintechs, and technology vendors, they are well-placed to drive their company’s ESG agenda forward.
To assist in this endeavour, treasurers should routinely ask their stakeholders:
- What is your company’s ESG strategy?
- What ESG goals does your organisation have on the horizon (e.g. date for transitioning to net zero)?
- Do you have any ESG metrics available?
- If so, may we see them?
And when speaking to asset managers, treasurers should also ask:
- What is the composition of the ESG fund?
- What is the fund’s ESG rating? Is it Article 8 or Article 9 under SFDR?
- What other types of ESG investments are available?
One of the main obstacles here is the lack of visibility around metrics of ESG impact of investments. And I sometimes ask myself whether ESG investment isn’t better suited for longer-term investment because there seems to be a paradox between ESG and the notion of ‘short term’. That being said, I believe that ESG tenets will become increasingly compatible with the needs of treasury short-term investments because the offering is widening, and appetite growing.
Those treasurers who still do not have ESG on their priority lists should familiarise themselves with the ESG success stories of other treasury teams. These case studies illustrate how treasury can be a pioneer in this area, accelerating a company’s ESG agenda and being seen as an example not only to other departments with the company but to other treasury teams.
A thorny issue
Despite the positivity surrounding ESG in general, there are dark clouds on the horizon. A notable concern is greenwashing.
I believe everything hinges on building the right relationship with business partners like banks and fintechs, asking for transparency over ESG metrics, and sharing data. If a treasurer happens to be exposed to greenwashing, they will know the long-term relationship will change – there is significant reputational risk.
Due to the fear of greenwashing, investors are taking far more time and care over carrying out due diligence. Investors now want to be 100% certain that there will be no reputational damage as a result. As such, greenwashing is not helping ESG investment to gain traction, and to protect themselves treasurers must ask for full transparency from their investment partners.
Finally, let’s not forget that not all funds are suitable for ESG. Yet there is a risk that certain funds will be neglected simply because they are not ESG-compliant. Rather than only investing in ESG funds, and excluding others, we should apply judgment and common sense when assessing investment opportunities. It’s a matter of enacting the crucial investment risk management rule: diversification is key.