Environmental, social and governance (ESG) issues were firmly on the agenda at the ACT Annual Conference in Liverpool in May, with a range of sessions devoted to exploring how ESG increasingly informs many of the decisions made by investors, treasurers, asset managers and banks.
At a special session run by international banking group BNP Paribas, the importance of treasury’s involvement in the journey towards net zero was highlighted by Jane Pilcher, group treasurer at utilities group Anglian Water. Having issued a ‘net zero’ bond in 2021, Pilcher says that while the technical aspect of the financing was firmly within her team’s remit, there were other aspects where the function took a lead.
“A key role for treasury was to highlight to the outside world what we were doing,” she told the conference. “What sustainable finance allowed us to do was to get the word out, and in the process it really excited the business internally and investors, too. The water industry is targeting net zero and it was exciting to issue a debt product linked to that.”
Alongside that, Pilcher said that turning the laudable ambitions to hit net zero by 2030 into realisable action would not be achieved without treasury’s core attributes: risk management, rigorous measurement and long-term strategic thinking. “We developed a series of carbon initiatives that we can measure on the way to net zero, and I’d like to think that came about from the finance and treasury teams moving that forward,” she said.
James Rudolph, group treasurer at high street retailer Marks and Spencer, agreed that treasury’s role was vital in helping the retailer meet its target of hitting net zero by 2040. But with the vast majority of its emissions generated further down the supply chain, driving effective change is not easy.
“But moving into sustainable finance has accelerated that enormously because the business sees that as a genuine commitment,” he said.
Having recently developed a sustainable revolving credit facility (RCF), Rudolph reported that the amount of interest it generated went way beyond the financial impact. “What it represents is a real business commitment – and treasury has to work hard to come up with a series of acceptable metrics that are both simple enough to explain to the banks and detailed enough to explain to the business what it would mean for their particular area.”
Evidence of treasury’s role in driving the sustainability agenda was further provided by Donald McKenzie, director of corporate finance with Metropolitan Thames Valley Housing Association, who explained that having developed the initial strategy, the treasury team was quickly able to find banking partners to support their aims and objectives.
“That helped us put an RCF in place where the margin is closely linked to our Scope 1 and 2 emissions,” he explained. “That focuses on energy consumption in our properties and vehicles. We were able to use the independently audited information from our energy plan that shows that we are reducing our emissions. And while it doesn’t generate a huge backlash when we don’t meet targets, it does serve as a demonstration that we take this seriously.”
McKenzie’s point – that ESG factors are influencing organisations of all sectors and sizes – was echoed by Gustavo Brianza, MD of ESG Advisory at NatWest, who explained that most banks are waking up to the opportunities: “Many treasurers may feel they’re not looking to access finance on a scale that brings this up, but most banks are offering sustainable and green loans.
“So that might involve a use-of-proceeds provision, which includes green projects, and private placements can also be accessed, so I don’t see the size of the business or the deal as being a barrier to adopting a sustainable finance strategy.”
“Sustainability is a such a broad topic, and it’s certainly true that many larger companies have adopted net zero targets, but looking into the mid-market the picture does change,” said Robert King, head of sustainable finance at HSBC.
“Those companies generally don’t have that target, although many of them are in others’ supply chain, so that is driving change from the buyers,” he added. “But as a counter to that, some of the most passionate businesses in this area are the smaller ones – they just lack the resources.”
These discussions took place at the ACT Annual Conference held in May in Liverpool. The 2023 ACT Annual Conference will be held on 16-17 May 2023 in Newport, Wales, UK and you can register your interest to attend here: https://www.treasurers.org/events/conferences/annual-conference-23
Christian Doherty is a freelance journalist and a former editor of The Treasurer
