Most treasurers have had to start thinking about sustainability and environmental, social and governance (ESG) issues in conversations with their boards, rating agencies and investors. And the introduction of new disclosure rules will have a big effect on treasury work.
A slew of new reporting schemes from both the UK and Brussels could force financial and non-financial firms to make more disclosures on climate risk exposure as well as other sustainability issues, such as human rights in supply chains.
Corporate treasurers will need to offer sustainability and climate-related data to banks even as their own companies grapple with the reporting requirements and their implications for suppliers. “Treasurers are uniquely placed in that maze because they need to look at all the exit routes as they develop. And that is quite a challenge,” says Kathrine Meloni, a special adviser on banking and finance at law firm Slaughter and May.
There is a wave of new disclosure requirements either in place or on the way. Premium listed companies in the UK already face mandatory climate risk reporting, under guidelines developed by the Taskforce on Climate-related Financial Disclosures (TCFD), for accounting periods beginning on or after 1 January 2021. But the rules have been extended to issuers of standard listed shares with their first disclosures due from spring of next year.
In the UK, the government has also pledged to adopt disclosure rules under development by the International Sustainability Standards Board, a project under the umbrella of the IFRS Foundation.
In Brussels, particularly relevant for companies with European operations, officials are working on the Corporate Sustainability Reporting Directive (CSRD), a successor to the Non-Financial Reporting Directive (NFRD). Though that is not all. The EU is also working on the Corporate Sustainability Due Diligence Directive, regulation that will impose responsibility on companies to report on checking their supply chains for harms to the environment and human rights.
Oliver Moullin, managing director of sustainable finance at the Association for Financial Markets in Europe, agrees the big impact for treasurers will come from financial firms.
“Banks are under pressure to reduce financed emissions – emissions of the companies that they finance – and they will ask [treasurers], how can they work with them to reduce their emissions, but they will also want to look at data to see what the current climate emissions are,” Moullin says.
Information requests won’t just be about current performance. “They also want to see a transition plan going forward as to a strategy for how a corporate is going to reduce its emissions,” Moullin says. “As a treasurer, you’ll need to be able to provide and should expect a request from banks to have that information.”
This may require a new mindset from treasurers. “Have active engagement with your bank and your financing advisers and understand how their strategy will impact what they’re expecting from you as a corporate treasurer, not just today but in the future,” Moullin adds.
There is an additional concern. With many reporting systems under development (even the US is working on mandatory climate-risk reporting standards), there is a possibility they could diverge. Many hope that the new International Sustainability Standards Board (ISSB) initiative may help to standardise international rules in this area
“What is terrifying about it all at the moment,” says Meloni, “is the possibility that the standards won’t dovetail.” She advocates consistency between standards; treasurers will need to maintain a watching brief.
“In any organisation there is going to have to be somebody keeping a close eye on that and keeping dialogue open with advisers and banks to get comfort about the direction of travel.”
Gavin Hinks is a freelance business and finance journalist