With stakeholder focus on ESG practices at an all-time high, corporates are identifying ways to embed broader sustainability policies and initiatives throughout their organisations, from investments to supply chains.
ESG has also emerged as a decision driver for treasurers and CFOs: in a recent study, Greenwich Associates found that 21% of large US firms consider factors like ESG performance, as well as a menu of financing options, when shopping for a prospective investment provider.
At a time when many large corporates have strong reserves on their balance sheets, corporate treasurers are exploring ways to incorporate ESG-linked solutions for their corporate cash. Nikunj Trivedi, Head of Licensed Advisory & Sales, Liquidity & Investment Advisory at BNP Paribas Trade & Treasury Solutions Americas, discusses key themes and the impact of ESG on the corporate treasury space.
Given its ready access to operational levers such as sales, liquidity management and procurement, treasury is the most logical place to put ESG into action.Nikunj Trivedi, Head of Licensed Advisory & Sales, Liquidity & Investment Advisory at BNP Paribas Trade & Treasury Solutions Americas
Why has corporate treasury become a focal point for ESG adoption?
While sustainability is reflected in many organizations’ core values, its practical implementation remains a challenge. Given its ready access to operational levers such as sales, liquidity management and procurement, treasury is the most logical place to put ESG into action. Treasurers are recognizing this and are seeking guidance and perspective around ESG opportunities and outcomes, including how they can redraft internal policies on working capital and investments, among other activities.
What are some key questions clients are asking about sustainability practices?
Our initial discussions revolve around overall sustainability strategy, from carbon waste reduction to ESG standards within the organization itself. From there, clients want to know what cash-investment options are available to them, as well as how to retool their investment policies, some of which may not have been updated in years. In many instances, clients are looking to their banking partners not only for insights into their own industry’s response to ESG, but to provide solutions tailored to their particular needs.
How do firms weigh the benefit of having these ESG instruments, particularly if the returns lag more traditional options?
Mounting regulatory pressure, in addition to board mandates, have led many treasurers to forego premium requirements in favor of achieving ESG compliance. That said, we have seen the gap closing between ESG and traditional investment returns. Additionally, clients may consider purpose-built portfolios with treasury allocations based on their company’s specific ESG criteria. So yes, in these situations we feel the advantages easily outweigh any trepidations over yield.
ESG continues to move to the center of economic and societal discussions on a global basis. In what ways has this impacted corporate policy?
Corporate clients understand that they need to embed ESG across their entire organisation, which can include product procurement from minority-owned businesses, or perhaps using investment funds that buy paper from diverse broker-dealers. Along the way, companies are increasingly seeking impact-assessment strategies that demonstrate a more tangible commitment to the fundamentals of ESG in operations and investments. For example, many treasurers now have tools for determining ESG performance among current and prospective supply chain partners. To help neutralize the extra cost of compliance, treasurers may also consider extending financing arrangements on behalf of suppliers as a way of incentivizing ESG adoption across the supply chain.
Lenders have their own criteria for determining whether a company will be a good fit from an ESG standpoint. How does BNP Paribas gauge a client’s overall commitment to ESG?
BNP Paribas has been committed to partnering with firms on their sustainability transitions across a wide range of sectors, including companies that require greater diligence with respect to achieving global climate goals. In the aviation industry, for example, we want to partner with companies that have a stated commitment to greenhouse gas emission reduction, whether it’s using sustainable aviation fuels or operating electrical ground service equipment. We will work with firms that have demonstrated a willingness to significantly reduce their carbon footprint while also addressing health and safety, among other issues. By allowing treasurers to put their money to work in this manner, we are not only creating connectivity across a wealth of industries, we are helping to promote long-term change in the process.
 Greenwich Associates 2020 Large Corporate Banking Study, Jan 2021