Treasury network questions fintech role within ESG investment

Collaboration between fintechs and treasuries is an exaggerated trend, in which treasurers often deliver Environmental, Social and Governance (ESG) investments without the support of vendors, according to Christof Nelischer, advisory board member at CompleXCountries.

“I think fintechs are thinking too highly of themselves. I have worked on ESG ratings before and not involved fintechs,” he says. “To me, it’s far more a matter of relationship management with the ratings provider. The relationship management element of it is really where the added value comes in.”

Cat Berman, co-founder and CEO at CNote, yet believes that to proceed with these investments, treasurers often seek support from fintechs, in which technology is a key enabler in driving it at scale and providing significant transparency.

“Where it becomes full of friction is the ‘how’ – for most corporate treasurers and CFOs, this is not their day job,” she says.

“There’s a nice fintech alignment there. Fintech companies step in to help digitise the end experience in low-income communities, particularly when we think about the pandemic, where a lot of minority deposit institutions or low-income credit unions may not have a strong digital presence.”

These partnerships have become an “exciting trend,” according to Berman, in which treasurers can mitigate reputational and operational risk.

“Every single treasurer we’ve spoken to has already been thinking about this, if not already taken some steps in that direction,” she adds.

As pressure from stakeholders mounts, ESG has increasingly topped corporates’ agenda over the years.

Last year, 55 percent of finance leaders reported that stakeholders demanded new insights on nonfinancial factors of corporate including ESG, according to an EY survey.

“We are seeing some movement in ESG investment. More and more corporates are showing that they are delivering responsible corporate governance,” says Berman. “It’s showing up on the environmental, social, and governance spectrum and has become more mainstreamed here in the States as well as disclosing it.”

Berman says corporate treasurers are also increasingly looking to improve investment in Diversity, Equity and Inclusion (DEI) – an upcoming trend in which corporations’ investments and deports can efficiently represent their commitment.

“The ability to move, for example, corporate deposits from the traditional bank into a minority deposit institution, where those deposits can go to work providing new economic opportunity for a low-income community, that has become an opportunity to share their DEI,” says Berman.

Nelischer says ESG is still not on the radar of old corporate funds, but there is an increasing expectation that it will be considered a factor in investing funds given investors have that objective in mind and are accountable to their stakeholders.

“For our own corporate funds, that’s a very minor consideration given the drive to safeguard assets and avoid negative interest. But when it comes to third party funds, which increasingly happens in financial services, it’s becoming more and more of an issue,” he says.

ESG is also up and coming on the debt side rather than the investment side, according to Nelischer.

“On the debt side, you’re addressing the institutional investors market, and these are your public organisations with large external profiles, are increasingly interested in ESG.”