Automation, financing and ESG: what’s next for corporate treasury

With the Covid-19 pandemic now in its third year, corporate treasurers in Asia are facing the challenge of supporting strategic growth as well as responding to ongoing disruption in supply chains.

For multinational corporations, the treasury’s central role in managing corporate funding, liquidity and financial risks is evolving to include financing support for strategic expansion and sustainability initiatives.

“With many of our clients, the treasury function has moved from being a support utility to a central business function,” said Sofia Hammoucha, Head of Transaction Banking in Southeast Asia at BNP Paribas. “The key is flexibility, combining the day-to-day liquidity needs of the company with involvement in more strategic financings.”

Towards a real-time treasury

The pandemic has accelerated the switch to digital services and the automation of many standard cash and liquidity management operations. As most companies now have flexible working arrangements in place, e-signatures and digital platforms are becoming the norm in the treasury function.

Thales Group, the engineering conglomerate, has been at the forefront in modernising its day-to-day treasury operations, even before the pandemic.

“The basic work – hedging, cash management, cash pooling – has been automated for ages, and is efficient,” said Emmanuel Brouillet, Vice President – Finance at Thales Asia. “We wanted cash flowing in the group without limitations or delays – now we have cross-border cash pooling for countries with FX constraints such as China, which was one of the last pieces of the puzzle.” The group continued to work towards a real-time treasury model and has seen the benefits of this increased automation.

“Cash management capabilities are all digitalised, so much of the work at the treasury level can be automated.” Hammoucha explained. Beyond the actual transactions, reporting and servicing can also be digitalised and embedded into the treasury infrastructure. Real-time treasury is no longer an aspiration. “Real-time payments, coupled with the use of APIs, offer treasurers real-time reporting and visibility to enhance decision making on investments and financing.” 

Thales’ Brouillet added that having real-time visibility has multiple benefits. “For financing activities, treasurers need to be very clear on cash position at any time. Having up-to-the-minute numbers is more efficient and convincing for our clients when negotiating financing.” 

Financing to the fore

The lingering effects of the pandemic continue to stretch inventories and delay logistics, driving demand for financing across supply chains. In addition, many Asian markets are seeing a ramp-up in infrastructure projects as governments launch various stimulus policies. 

In Asia, Thales is working with clients on their infrastructure development plans. “Our key markets are in countries that are taking the lead in infrastructure construction: China and Indonesia and maybe the Philippines in the future,” Brouillet said. “These countries have huge development plans but need investment – the question for us is, ‘how do we fund them?’”

Financing poses an opportunity as well as a challenge for companies. For Thales, a key focus of the year is to be more efficient and effective in provide financing for its clients.

“It’s a very competitive market: the key issue is having an offer that is technically the best and these days financing is now one of the criteria clients look at when evaluating a solution,” Brouillet explained. “We also need to work smartly with our banks and sometimes our clients’ local banks to find a solution that works for all parties.”

Hammoucha points to the importance of engage banks early to embed financing in commercial negotiations. “On the commercial front, having interbank relationships in-country and the ability to connect and onboard local banks quickly will enhance the company’s offering to their clients, and also allow for better market access and risk distribution.”

Automation helps here, too. “We are seeing an increasing adoption of automation in trade – through new platforms that digitalise the end-to-end workflow, with connectivity to third-party platforms to facilitate the transaction,” said Hammoucha. “Conversations, requests and documents of the transactions are captured with embedded workflow and audit trails, in a single platform.”

Brouillet agreed. “Thales is now managing engagement with our clients in a much more embedded way,” he said. “Now 90% of our conversations with clients are digitalised, which is the simplest kind of automation – and now they can extend their automated functionalities: they have a choice of platforms and services to choose from.”

Integrating ESG in treasury

On top of the many changes treasurers are tackling, integrating ESG requirements into the deepest parts of the company is a growing priority. “It’s a key concern for the group globally – we have comprehensive carbon footprint objectives, for example,” said Brouillet. “Now we are working on distilling these for our factories and facilities across the region – and this will accelerate in the next two to three years.”

At the treasury level, the ESG conversation has accelerated in the past few years as governments across Asia have committed to firm targets and are launching various programmes to encourage wider adoption. Corporates in Asia are at varying level of maturity in their sustainability journey. But banks can help here too.

“We work with companies that are integrating ESG strategy at the treasury level, to identify KPIs and put in place appropriate framework and plans to meet their sustainability targets,” said Hammoucha. “This could be achieved through investments with sustainable deposits, or supporting sustainable projects and deploying sustainable objectives to their supply chain.”

The pace of change for corporate treasurers shows no sign of abating and as corporations seek competitive advantages to improve profitability, treasury activities have become a frontline activity. And banks are moving just as fast to find ways of enabling their clients’ strategies through innovative treasury solutions.