When you turn your attention to environmental, social and governance (ESG) matters, it can be difficult to know where to begin, where to end and how far to wander during your journey of exploration. The ESG landscape is changing: guidelines and regulations are emerging almost as fast as stakeholder priorities and expectations are evolving – and it’s on the treasurer’s radar.
“ESG is not a new topic for treasurers,” says Royston Da Costa, assistant group treasurer at Ferguson plc, a North American plumbing and heating products distributor. But treasurers are seeing ESG scope, prominence and expectations growing and changing. “We are learning that it’s about much more than one aspect, such as climate risk or diversity, it’s about sustainable governance.”
Sanjay Bibekar, PwC director, treasury advisory, says: “Increasingly, ESG is filtering through what treasury does.” PwC’s 2021 Global Treasury Survey found ESG affecting investment decisions and financing, both of which may be captured by your tech systems and reported. However, data silos and fragmented tech systems can make data related to ESG hard to come by.
There’s plenty for treasurers to think about. “It’s all about finding opportunities,” says Bibekar. Some treasurers may want to consider investing excess cash in assets that are consistent with the company’s ESG objectives and if these are still being developed, it’s a good time to get involved. “Treasury should aim to join the conversation,” suggests Bibekar.
ESG performance, disclosures and risks are influencing decisions inside companies and out in financial and other supply chains. ESG now affects matters ranging from bank lending, through short-term liquidity investing, to bond issuing. Treasury will need to consider all of this and more, to align its decisions with ESG policy – and identify opportunities and risks.
“Arguably, the biggest ESG opportunity (and risk) for treasury relates to financing activities,” says Bibekar. As governments increasingly require certain companies to disclose ESG impacts and ESG-related risks, treasury needs to be aware of such developments and also familiar with their company’s ESG targets, performance and disclosures.
The integrity of ESG reporting needs to be protected as it may, for example, influence credit availability and pricing. Some banks factor ESG performance into the pricing of loans: sometimes, in the standard risk assessment; sometimes, in offerings such as ESG-linked loans. Some loan interest rates may even be lower if a company meets contractually agreed ESG objectives.
Options are growing for sustainable finance, which considers aspects of ESG when making investment decisions, leading (in theory) to more long-term investments in sustainable economic activities and projects. But this nascent marketplace can be tricky to navigate, not least because of how heavily laden the word and the concept of ‘sustainability’ have become.
Environmental considerations might include climate change mitigation, biodiversity preservation and the circular economy. Social factors could include issues of inclusiveness, inequality and investment in human capital and communities. Governance factors may range from corporate governance in public and private institutions to sovereign policymaking and debt.
This variousness helps to make ESG an area where clarity and transparency can be hard to find. Treasurers may need to dig deep – into external products and services and their own company ESG disclosures – to determine exactly what is meant by ‘ESG’, ‘sustainability’ and ‘sustainable finance’, to source the precise and unambiguous information they need to inform decision-making.
Your corporate tech may help; customers’ and service providers’ tech may help; or it may not. ESG research by UK regulator the Financial Reporting Council found that “the underlying data systems, and the data that supports reporting, pose a challenge… the maturity of the systems that produce the information is significantly less sophisticated than for financial information”.
Lesley Meall is a freelance technology journalist
