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ESG momentum

Environmental, Social and Corporate Governance is on the global treasury agenda – and its influence is growing.

Susan Barron, Global Head of Sustainable Capital Markets, Barclays Investment Bank and Helen Kelly, Head of Europe for Barclays Corporate Banking shine a light on the fast-evolving topic of ESG.

Learning curve

ESG is firmly on the radars of investors, finance professionals and corporate treasurers. Despite the challenges it poses, it offers opportunity and simply can’t be ignored.

Beyond green bonds

There’s a growing range of ESG-linked instruments, making it possible for all businesses to find appropriate solutions that address both sides of the balance sheet.

Collaboration is a good thing

Sustainability experts working hand-in-hand with corporate treasurers is a recipe for success in the ESG space. The proof is in the case studies.

First steps

Figuring out and mapping out what the components of ESG mean to your business, is the best place to start.

Learning curve

Investors are keen to understand how ESG is being incorporated into businesses’ decision-making, while finance professionals and corporate treasurers must position their organisations effectively for financing and capital-raising purposes.

Helen Kelly observes that “corporate treasurers are struggling to find the free capacity to cover all boundaries in terms of regulatory needs, but then also trying to cover the commercial space too”. They don’t, therefore, see ESG as an opportunity – yet. Barron sympathises but urges those treasurers to seek further understanding, since “deeper involvement helps meet the kind of stakeholder requirements outlined above and hands treasurers the perfect opportunity to engage with other parts of the business”.

Discussing ESG insights and strategy will enable you to build relationships with colleagues in operational, reporting regulatory and other teams. “Externally, it can facilitate conversations with, for example, ESG rating agencies and dedicated second-party opinion providers that can review individual frameworks or associated capital market financing instruments”, Barron adds.

She acknowledges that this can feel daunting at first, but in her experience most treasurers who engage with ESG will begin to see it as an opportunity.

ESG encourages collaboration both internally and externally, and in particular, for corporate treasurers who are eager to share their experiences, it enables every business seeking connections to share their journey so that all may experience the long-term benefits.

Susan Barron

Global Head of Sustainable Capital Markets, Barclays Investment Bank

Beyond green bonds

For many treasurers, their understanding of ESG may be limited to green bonds, but there’s a growing range of sustainability-linked instruments.

As ESG moves into other product classes, the level of activity and opportunity rises, notes Kelly.

“The product set is now addressing the other side of the balance sheet, too, with investments and liquidity opportunities” she adds.

Interest is also blossoming, according to the results of the TMI and Barclays European Benchmarking Study 2021^.

Over the next 12 months, will ESG criteria become more important when choosing short-term investments?

Source: Europe in 2022: Is Your Treasury Fit for Purpose?

Solutions such as green deposits are enabling funds to be placed with a bank, which will adopt a ‘use of proceeds’ approach to invest outwardly in appropriate ESG activities.

“Typically, liquidity is still building in these markets, so corporates are only looking to place smaller amounts”, Kelly observes. However, as the markets mature, we are seeing “a number of treasurers looking to adapt their policies to be able to deposit a greater level of surplus cash”.

For Kelly, there is a simple methodology to ease the shift to sustainable finance. Start with the basics, look at existing methods of calculating counterparty limits, she advises. “Where previously banks were viewed only through the lens of their credit rating, we are now seeing companies scrutinise institutions via a blend of credit and ESG ratings. But treasurers are also considering a broader look at their investment policies – and building more into the analysis of counterparties and their portfolio of ESG investments”.

“When considering ESG from an investment angle, there are various options for treasurers,” Barron adds. “That’s why we find it can be helpful to use a framework to review what types of investment products are suitable”.

Collaboration is a good thing

Barron believes that when sustainability experts within an institution are part of the process, it brings a deeper understanding of the sustainability risks of that institution and how they’re being managed.

For Barron, this can streamline the process and help “define, locate, capture and provide the information needed to create the most effective individual financing instrument”.

Using a framework that is the result of collaboration also lessens the risk of inadvertently greenwashing a financing programme.

“There’s growing acknowledgement that work with appropriate counterparties and second-party opinion providers should be informed by industry framework guidelines, such as those offered by the LMA or the ICMA ”, Barron adds.

The combination of these green ‘failsafe’ measures is helping treasurers to produce the most effective and transparent explanation of what their organisation is trying to achieve, both through its financing and investments and the processes that underpin these.

Kelly believes that with the rules becoming ever tighter, superior diligence around ESG will soon become common practice.

Making the case

The real test of any approach is that it works in the open market. Below are a selection of client case studies, offering evidence that progress through collaboration and a deeper understanding of group needs is indeed possible.

First steps

Kelly believes you should map out what the components of ESG really mean to the business. From there, it becomes easier to develop those ideas into achievable goals.

Treasury must work closely with group sustainability teams. Being steered by group ESG ambitions and strategy is, I feel, the only way for treasury to achieve optimal value for the organisation.

Helen Kelly

Head of Europe, Barclays Corporate Banking

Whichever way it is approached, there can be little doubt now that treasurers have an important role to play in implementing ESG strategies in their organisations.

Important information

Content taken from article originally written by Tom Alford and published by Treasury Management International.

Read the Barclays Investment Bank disclosure here

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