How Treasury Can Drive the Sustainability Revolution

Magdalena Mielcarz
Magdalena Mielcarz
EMEA Head, Digital
Channels and Data,
Treasury and Trade
Solutions, Citi

Treasury’s strategic role in supporting the business can be enhanced by the growing importance of environmental, social and governance issues. Digital financial solutions can help corporate treasuries contribute to a company’s sustainability objectives.

Sustainability issues such as climate change, carbon emissions, plastic pollution and employee welfare, have become increasingly prominent in recent years. Government and regulatory action, combined with pressure from consumers and investors, appears to be prompting a sea change in attitudes among corporates.

We have seen environmental, social and governance (ESG) issues are already impacting businesses profoundly. The stakeholders driving change vary according to industry. For instance, in the fast fashion sector, pressure is coming from consumers to cut waste, recycle more, and improve conditions for workers in developing countries. Meanwhile, oil companies are facing a huge transition to clean energy sources driven by shareholders and regulators, who typically wish to incentivize change without creating a “stranded asset” class.

Why treasury?

The role of treasurers within many corporates has evolved. Historically, treasurers have focused on financial flows and been responsible for managing liquidity, cash, the supply chain and related issues such as interest rates and FX. However, as corporate models have changed, it appears that treasurers have steadily become more connected to core business activity such as sales or procurement.

For example, in the auto sector, treasurers were once mainly focused on managing inflows, short term investments and risks relating to currencies. Now, as auto businesses transition to electric and more technologically-advanced vehicles, treasurers’ expertise seems to be in demand. Many carmakers are working to embed the ability to pay highway tolls and parking charges into cars, for example. The treasurer is the obvious source of information about payment methods and therefore can become a more valuable adviser to the business.

The next stage of this evolution of treasurers’ responsibilities is for them to become an ambassador for ESG issues. Treasury is uniquely positioned to play this role because of its connections across various parts of the business that can be critical in delivering ESG-related targets, including procurement, sales, finance, and other functions. Indeed, in some cases, treasury may be the only function capable of helping to enable corporates to achieve their ESG goals.

One reason for this may be that while ESG goals may be set at the corporate level, implementation is often the responsibility of suppliers; it is essential to ensure that the entire supply chain is ESGcompliant. Pushing ESG compliance requirements down to suppliers necessarily creates costs for them. Take the example of a target for working standards for suppliers in the clothing sector (which are often located in emerging markets). The suppliers will not only need to invest to improve ESG standards, but must also bear the costs of an ESG audit by a third-party firm.

These costs are likely to be passed on to the corporate buyer, which could reduce its competitiveness. However, treasury can deploy financial solutions such as supplier finance to create targeted financial incentives for suppliers to comply with ESG targets. Such solutions may not only mitigate higher costs associated with ESG improvements, but may also deliver additional financial benefits for suppliers (and potential working capital benefits for buyers).

To be clear, in such a situation treasury will be in a position to help if it already has a strategic role within a company; in some firms, supplier relations remain the sole responsibility of functions such as procurement. However, given the increasing importance of ESG for both regulatory and commercial reasons — we have seen that many companies accept that the momentum toward a greater prominence for ESG issues is unstoppable and that it is expected to have profound consequences — it could act as a catalyst for treasury to gain greater strategic responsibility within companies.

Drawing on support

Sustainability and ESG issues cover a huge range of topics: there are 17 UN Sustainable Development Goals alone, each of which addresses dozens of topics. Consequently, almost every part of a company will likely be affected by the decision to embrace ESG issues and pivot toward a more sustainable future. Equally, there are numerous ways in which a corporate will need support to adapt to new ways of working and thinking in relation to ESG issues.

Many existing Citi Treasury and Trade Solutions can be adapted to help achieve sustainability goals, relating to supply chains or trade, for instance. Treasury can also help to implement new corporate policies such as a carbon-conscious travel policy that utilizes carbon offsets for business travel. Similarly, treasury can leverage digital tools and processes to help reduce manual, paper-based processes.

Auditing, for instance, still involves huge volumes of paper. Digital solutions can also be deployed for onboarding while optical character recognition and electronic signatures can help further strengthen treasury’s contribution to the company’s ESG agenda.

The lack of clear ESG standards — and the newness of the topic for some — has led to some cynicism in the market about “greenwashing” associated with corporates’ ESG policies: third-party auditing and certification are therefore critical. Certainly, many of the standards and frameworks around sustainability continue to evolve. The European Union is working on multiple initiatives to put ESG considerations at the heart of the region’s financial system to help transform Europe’s economy into a greener, more resilient and circular system, for instance.

Consequently, it is essential for corporates — and specifically treasury, should it wish to take a leading role in driving the response to ESG issues — to keep abreast of sustainability developments. Treasury should seek to draw on the support of its trusted advisers, which can include banks. At Citi, various units across TTS are now aligned to help ensure that sustainability topics are tackled in a holistic way that helps clients to effectively work toward achieving their ESG goals and understand market expectations and changes in sentiment relating to sustainability.