Role of Treasury in ESG
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courtesy of Freepik, for illustration purposes only
Introduction
Sustainable Finance is widely known as the consideration of
environmental, social and governance (ESG) factors into financing (including
investing) and decision making processes. For the financial sector, ESG
factors, which are broad in scope, have not been traditionally part of standard
financial analysis. However, now, more than ever, ESG integration into
financial analysis has not only become relevant, but critical.
The difficult first step
Regardless
of sector or region of operations, ESG integration into business model has
always been a challenge. Unfortunately, for treasure, this is even harder. This
is because treasury is partly tied to the organisation’s policies which means
ESG integration into the treasury functions are not 100% control by treasury
directly.
However,
there are a few key initial steps that worth to be taken; and it can start with
an acknowledged framework that maps the potential contributions of treasury to
ESG factors and guides its integration, and this can be based on a few established
frameworks that can meet the above objective.
But, there
hurdle here is; what framework to adopt as the regulations and standards are
still unaligned globally. One of the ways to approach this is to adopt the
common and most widely accepted framework such as the United Nations
Sustainable Development Goals (SDGs). This shall enable clear linkages to the
goals that contribute to each and/or combined elements of ESG. Another option
is the green, social, and sustainable bond principle frameworks of the Climate
Bond Initiative (CBI).
By adopting
these frameworks, it provides guidance and directions to evaluate ESG eligible
project financing.
Contributions of treasury to ESG
Green
financing is not the only way corporate treasury can contribute towards
supporting sustainability. In terms of its operations, sustainability can be
achieved through digitalisation in its processes, record management and bank
statement management. Innovative technologies like robotic process automation,
blockchain, and artificial intelligence should also be implemented to increase efficiency
in an ESG friendly ways. These initiatives will cover the environment impact of
sustainability. In terms of social, corporate treasury should encourage
diversity, equity and inclusion by providing equal opportunities for everyone
and creating an inclusive working environment.
On top of
that, the role of treasury can be further more extensive. Firstly, treasury can
set ESG-related requirements to be met by new business partners. Secondly, for
existing business partners, treasury can create advocacy and awareness for them
towards complying with these requirements. Treasury can also build credible
relationship with credit rating agencies focusing on the areas of ESG.
A
structured model should be established and implemented to ensure an effective
integration of ESG in treasury. This model should include a clear overview of
potential treasury contributions to ESG factors, once they have been selected,
and the building blocks needed to achieve those contributions.
Monitor and Measure
It is
important that the progress of ESG integration in treasury is monitored and
tracked in a structured manner and also using credible metrics and benchmarks.
However, we need to acknowledge that development of metrics and benchmarks for
ESG integration tracking is still in the nascent stage and it comes with some
complexities, in terms of identification of types of indicators, as well as
standardization. Nonetheless, it still can be done effectively with
consideration of a few key approaches.
First and
foremost, it must be made clear on the mapping of each treasury contribution,
and this should be done separately. From here, metrics and benchmarks need to
be developed separately for each contribution based on materiality to the
company and stakeholders. Apart from that, the metrics and benchmarks should
always be updated as the ESG integration matures so there will be efforts
towards improvements.
Examples of
product offerings and operational metrics and corresponding benchmarks are:
·
Assessing
external review of Sustainable Financing framework to measure the perceived the
ESG elements of financing
·
Tracking
digital workflows, through a digitalised form processing and records ratio
·
Measuring the increase in output of a processes in
place to monitor the effectiveness of technological innovation
Conclusion
ESG as a
whole is constantly evolving, and so is the role of treasury in ESG. It is
important for the treasury team to keep up to date with the latest development
of ESG, particularly on Sustainable Finance as well as how operations c
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