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ESG and D&I: The case for treasury KPIs

Environmental, social and governance (ESG) strategy is now a boardroom priority, but only a quarter of treasury departments employ appropriate KPIs.

Helen Kelly, Head of Europe, Barclays Corporate Banking, examines the approaches of leading treasuries to see what is possible when it comes to ESG , and Diversity and Inclusion (D& I).

Setting the right targets

It is critical that key decision-makers communicate and collaborate throughout the process of developing KPIs, so that targets align to the wider business strategy.

Disclosures and sustainability reporting

Treasurers may assume that non-financial reporting is outside their remit, but their expertise is vital for the performance of ESG and D&I initiatives.

The benefits. Plural.

It makes sense for every corporate business to have an effective ESG strategy, not just for commercial returns, but also for additional employee benefits such as boosted satisfaction, retention and skill-building.

We are committed

We’re setting an example by investing billions of pounds – we’re supporting £100bn in green financing alone – in ESG and D&I initiatives that will help change the world for the better.

Treasury to take the lead

With ESG becoming a board-level priority, Kelly is seeing that “treasury teams are expected to step up to proactively support the wider organisation’s ESG goals.”

Treasurers can select from a growing set of solutions available in the market, including:

  1. Green trade and working capital solutions – Including green loans, supply chain finance (SCF), and green bill of exchange and promissory note discounting.
  2. ESG-compliant investments – Green and sustainable deposits enable corporates to place short-term cash and know that it is earmarked against ESG assets on the bank’s balance sheet. The rise in ESG money market funds (MMFs) also means treasurers have a growing range of ESG-compliant short-term investments available to them.
  3. Digital workflows – As well as saving trees and reducing carbon footprints, digital workflows have the potential to deliver significant financial savings and efficiency gains.

In addition, traditional green bonds and green revolving credit facilities (RCFs) remain popular and, of course, treasuries can exert their influence through talent selection and choice of business partner. Choosing the right corporate banking or commercial banking partner is key to helping treasuries meet their ESG goals.

Setting the right targets

ESG activity within treasury must align with that of the wider corporation, and ideally with the UN’s Sustainable Development Goals (SDGs). Kelly believes “sustainability works best when there is a specific ESG policy for the treasury team, built in conjunction with the rest of the organisation. This enables treasury to play its part, but also be on the same page as the C-suite. Having a standardised approach across geographies and treasury centres is also critical.”

When developing KPIs and/or targets, treasuries may wish to consider the:

  • Percentage of financing that is ESG-linked
  • Percentage of short-term investments held in ESG-compliant vehicles
  • Carbon footprint of the treasury team
  • Percentage of paperless workflows (and meetings)
  • Percentage of women in the treasury team
  • Percentage of ethnic minorities in the treasury team.

Treasurers will need to collaborate with internal and external partners to find the right goals and ensure they are adhering to industry best practice and guidelines. “It’s also important to ensure that these are genuine, rigorous and measurable targets to mitigate the risk of ‘greenwashing’,” cautions Kelly.

Disclosures and sustainability reporting

We hear from Helen Kelly that “while non-financial reporting might appear to be outside of the treasurer’s traditional remit, they’re playing a vital role in the communication of sustainability-related information to stakeholders and the market.” Learning about initiatives happening in the market can give treasurers an edge. Important frameworks, standards, and directives to be aware of include:

  • The European Commission’s (EC) Non-Financial Reporting Directive (NFRD)
  • The EU Taxonomy and Sustainable Finance Disclosure Regulation (SFDR)
  • The Global Reporting Initiative (GRI)
  • The prototype climate-related financial disclosure standard from CDP, CDSB, GRI, IIRC and SASB.

With much progress still to be made among standard setters and regulators “it is worth having early conversations with corporate banking partners, vendors, and third-party sustainability experts, around the ways in which treasury can proactively participate in sustainability reporting,” suggests Kelly.

The benefits. Plural.

“We often talk about the concrete benefits of embracing ESG and D&I – the numbers speak volumes. But at the end of the day, we are all human beings too, and the softer benefits of embracing sustainability initiatives are potentially some of the most interesting.” That’s Helen Kelly’s take and there’s plenty to support it.

A Mercer study^ found that ESG performance can help companies improve employee satisfaction and attract prospective candidates. As a result, employees work harder, stay longer with their employers, and seek to produce better results for the organisation.

“Other soft benefits we’ve seen at Barclays are people learning new skills through volunteering. Days away from the desk helping out at a charity, for example, can also be great for team bonding,” Kelly observes.

She believes “there really is no downside to ESG and D&I. If you’re committed to it and enact your beliefs, there are no longer the ‘cost’ or ‘difficulty’ factors that there used to be. ESG-driven solutions are relatively easy to access and could cost less or the same as traditional alternatives.

It’s time for businesses, and treasurers, to start taking ESG and D&I as seriously as they do other business risks and opportunities. The potential downsides of not doing so can have a serious impact on people, profits and the planet. And yet there are significant upsides on offer for those who approach this topic with the level of commitment it truly deserves.

Helen Kelly

Head of Europe, Barclays Corporate Banking

We are committed

Helen Kelly acknowledges that being a “net-zero bank by 2050 and supporting £100bn in green financing by 2030 ” is no more than you’d expect from a large banking group such as Barclays. However, she adds that we’re “going way beyond targets to make a positive contribution to society and the environment”.

A few examples of the business going above and beyond include the Barclays’ £100m Covid-19 Community Aid Package – an initiative that entails partnering with charities around the world to deliver vital support to communities. “This is not just a bank talking about how to improve life in the community, this is us donating money to where we believe it will make a difference,” explains Kelly.

The bank’s ‘Unreasonable Impact’ initiative – in partnership with Unreasonable Group – helps provide entrepreneurs with a global network of support. Helen Kelly has this to say on the project: “Through this initiative, we are looking to transform global unemployment issues into opportunities.”

Kelly also describes how, elsewhere, we have “created a methodology called BlueTrack™  for measuring our financed emissions and tracking them at a portfolio level against the goals of the Paris Agreement.”

In addition to the above initiatives, we’re constantly looking for ways to have a positive impact in terms of ESG and D&I. Their key areas of focus are multiculturalism, disability, gender LGBT+ and multigenerational issues.

Defining ESG and the Importance of D&I

Defining ESG

The term ESG relates to the minimisation of risks arising from environmental, social and governance aspects of a business. Best practice also involves the proactive search for opportunities to improve the organisation’s long‐term viability .

The three pillars of ESG should be considered in combination. After all, there is a significant interplay between them.

Importance of D&I

Under the ESG umbrella, it is important to consider diversity and inclusion. Companies that have embraced gender and ethnic diversity are significantly outperforming those which have not .

The Covid-19 pandemic has intensified consumer and stakeholder focus on the desire for companies to embrace D&I – it is swiftly becoming a business essential.

Important information

Content taken from article originally written^ by Eleanor Hill and published by TMI.

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