Cash & Liquidity ManagementInvestment & FundingCapital MarketsGreen treasury: maintaining the momentum

Green treasury: maintaining the momentum

Alongside the steady growth in corporate treasury’s remit over the past decade, so the focus of green treasury has expanded from the original preoccupation of moving from paper-based to digital transactions.

In the early years of GTNews, articles on green treasury tended to focus particularly on the environmental benefits of switching from paper-based documentation to electronic communication. However, in the 21st century, the need for all parts of an organisation to adopt a clear policy towards greater sustainability – and to communicate it to its stakeholders and the general public – has steadily grown in importance. The banking sector has lent support to companies adopting green treasury strategies; for example JP Morgan’s ‘Go Green’ initiative will be 10 years old in 2017.

Over the period, companies have increasingly recognised that the benefits of environmentally sustainable practices accrue not only to the business but also to employees, consumers, communities and Planet Earth itself. The concept of creating shared value (CSV) has been adopted by businesses seeking to balance profitability with greater attention to the environment and social progress.

CSV has gained significant momentum since being proposed six years ago in a Harvard Business Review article by Michael Porter and Mark Kramer. They pointed out that too many companies were hampered by an outdated, narrow approach to value creation that was overly focused on optimising short-term financial performance.  “Why else would companies ignore the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of suppliers, and the economic distress of the communities in which they produce and sell?” they asked.

A shared value approach could re-establish a connection between company success and social progress, suggested Porter and Kramer. Companies could achieve this through three basic policies: by reconceiving products and markets; redefining productivity in the value chain; and building supportive industry clusters at the company’s locations. Indeed, various multinational corporations (MNCs) known for their “hard-nosed approach to business” had already adopted initiatives towards these three goals, including GE, Wal-Mart, Nestlé, Johnson & Johnson, and Unilever.

Assessing performance

For the past 10 years, US business management consultant GreenBiz Group has produced an annual study at the start of each year, assessing how companies are integrating sustainability into their business strategy and operations. Produced in partnership with UK environmental consultancy Trucost, the study offers a global view on sustainable business, from basic emissions to leadership attributes. It also shows which of the world’s stock exchanges require listed companies to disclose environmental data and the amount of money being divested from fossil fuel company stocks.

The State of Green Business 2017 report focuses on 10 key trends, including the sustainability applications of blockchain technology, potential solutions to the growing global problem of water scarcity, the encouragingly fast growth of innovation in sustainable materials and corporates’ environmental performance as a fiduciary responsibility for investors. GreenBiz is upbeat on blockchain’s potential, which it sees being employed, among others, by utilities in rethinking how energy is priced and sold to retailers and retailers harnessing it to track a product’s lifecycle and verify sources more efficiently than manual methods allow for.

However, GreenBiz’s chairman and executive editor, Joel Makower, commented last month as the 2017 survey was launched: “It’s hard to imagine a time more hopeful and horrifying for sustainable business.”  In addition to the Paris Agreement, he cited as positive trends:

  • A steadily growing improvement in companies’ commitments and achievements on renewable energy, greenhouse gas emissions, sustainable supply chains, water and land stewardships, the so-called ‘circular economy’ – one that is restorative and regenerative by design, and other sustainable initiatives.
  • Advances in technology that are accelerating the development of sustainability solutions in areas from energy and food to construction and transportation.

At the same time, Makower noted the many ‘troubling’ indicators, such as unprecedentedly high global atmospheric concentrations of carbon dioxide, rising global temperatures and worsening data on metrics such as coastal flooding, heat-related deaths, wildfires, shrinking polar sea ice and biodiversity. Even in the two weeks since he made his comments, parts of Australia have been experiencing their hottest February day on record, with temperatures well in excess of 40°C.

“The Paris Agreement provided hope that nearly 200 nations would work in concert toward mitigating many of those impacts,” said Makower. But last October’s US election outcome coupled, to a lesser extent, with the UK’s Brexit vote last summer had “muddied the waters – promising to slow progress, perhaps significantly.”

As companies and markets dislike uncertainty, he believes the next couple of years could be marked by “head-snapping policy shifts as the public and private sector grapple with two seemingly unstoppable forces: the political momentum of an increasingly nationalist and protectionist world, and the wrath of a changing climate on a civilization ill-prepared to cope. Which force will dominate is anyone’s guess.”

Green bonds

The economic prize for corporates for moving to more sustainable business practices could be as much as US$12 trillion by 2030 according to the Business & Sustainable Development Commission (BSDC). Co-founded by Unilever’s chief executive officer (CEO) Paul Polman and former United Nations (UN) deputy secretary general Mark Malloch-Brown, the BSDC was launched at the January 2016 World Economic Forum (WEF) summit in Davos.

Over the past year the BSDC has developed its flagship report ‘Better Business, Better World’, which was published last month and focused on three main areas:

  • Significant economic rewards, such as new markets, investment opportunities and innovations, if the world tackles the challenges of poverty, inequality and environmental stress.
  • Risks to business performance and stability, and increased fragmentation, resource competition and fragility, if these risks aren’t addressed.
  • The need for corporates to work with governments, international organisations and civil society towards build a future where businesses can perform – with inclusive, sustainable growth and widespread job creation.

The report offers a total of 60 sustainability “hot spots” spread across four market areas – food and agriculture, cities, energy and materials and health/wellbeing – regarded as having the potential to grow two to three times faster than average gross domestic product (GDP) over the next 10 to 15 years.

The hot spots include micro-irrigation, reducing packaging waste, restoring brownfield sites, driverless vehicles, durable and modular buildings, green chemicals and mine rehabilitation, advanced genomics and remote patient monitoring. The report also urges for global infrastructure investment to be substantially increased.

One positive recent development is the growing market for ‘green’ treasury bonds, which are successfully appealing to those wishing to invest in renewable energy. French president Francois Hollande has been a strong advocate of investing in cleaner energy since his country hosted the international conference that led to the signature of the Paris climate agreement in December 2015 and last month France issued a record €7bn in green treasury bonds.

The proceeds of the bonds, which mature in June 2039, were sold to banks, insurers and other institutional investors. It should be added that Poland was actually the first country to issue a green bond, although at €750m it was a rather smaller issue. Despite this recent progress, at around US$170bn in all, green bonds still represent less than 1% of the total international bond market and the potential for further growth is considerable.


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