Embedding ESG: role of the treasurer

One way that many companies can take significant steps towards achieving ESG objectives is through the way they manage their supply chains to minimise negative impacts on people, resources and the environment. This requires robust systems to be in place to facilitate supply chain transparency and traceability, for example to ensure the use of ethically sourced products and materials.

Customers and other stakeholders increasingly expect to see companies taking an ESG-aware approach to supply chain management and the products and services they provide.

A key first step is to assess existing suppliers and to ensure they understand the company’s values and supplier selection criteria. This can often be encapsulated in a formal code of conduct that provides guidance and direction to encourage positive action. Some companies work with local experts and NGOs to design supply chain practices that are fit-for-purpose for the countries they are dealing with and to identify suitable suppliers.

Some companies choose to implement changes to the supply chain on a small scale initially, perhaps working with a supplier who ‘buys in’ to what the business is trying to achieve. This can help to measure the impact and effectiveness of any new measures before extending this to suppliers across the board.

Financial institutions are increasingly providing products linked to ESG metrics, both to fund and deliver specific sustainability projects and goals, and to meet an organisation’s wider needs for financing, foreign exchange and trade finance.

The last few years have seen a huge increase in the availability of both green and sustainability-linked finance, requiring organisations to provide evidence of their ESG commitments and the actions they are taking to deliver on those commitments in order to secure access to these products.

Treasurers have a key role to play in working closely with an organisation’s sustainability team and other key stakeholders to understand the ESG objectives they are trying to achieve, as well as the evolving regulatory landscape in which the business operates. This will give them the best opportunity to help the business understand the prerequisites, advantages and disadvantages of the various forms of ESG-linked financing available.

The ability to measure the effectiveness of an ESG strategy by identifying clear and measurable key performance indicators (KPIs) – driven through the business by the leadership team – is critical to embedding a culture of sustainability in an organisation.

Banks and other finance providers increasingly expect to see appropriate KPIs and associated milestones that are credible and aligned with a company’s sustainability strategy.

Given the wide ranging KPI measures that a large organisation can potentially pursue in relation to its ESG strategy, many find it most effective to focus on a relatively small number of measures where it can have the greatest impact in support of its overall ESG goals, whether that be quantifying its carbon footprint, reducing deforestation linked to its operations or eliminating child labour in its supply chain.

Having the right systems in place to provide the relevant, independently verifiable data on key ESG objectives is more important than ever to support financing and treasury activity.