How Treasury Can Actively Drive a Sustainability Agenda

Environmental, Social, and Governance (ESG) principles have rapidly transitioned from the periphery of corporate consciousness to a central pillar of business strategy and stakeholder expectations. For corporate treasury departments, the initial focus on ESG often revolved around data collection for sustainability reporting and ensuring compliance with emerging disclosure requirements.

However, by 2025, leading treasurers recognize that their role extends far beyond mere reporting. Treasury, with its direct influence over capital allocation, investment decisions, financing strategies, and risk management, is uniquely positioned to actively drive and embed a company’s sustainability agenda into its financial DNA, thereby creating long-term value for both the business and society.

Why ESG Matters to Treasury

The imperative for treasury to engage proactively with ESG stems from several interconnected factors:

• Investor Demand: Institutional investors are increasingly integrating ESG criteria into their investment analysis and decision-making processes. Companies with strong ESG performance are often seen as less risky, better managed, and more resilient, attracting a broader and more stable investor base.
• Access to Capital and Cost of Funding: A growing market for sustainable finance products (green bonds, social bonds, sustainability-linked loans) offers companies with credible ESG strategies access to new pools of capital, often at preferential rates. Conversely, poor ESG performance can lead to higher borrowing costs or exclusion from certain investment portfolios.
• Risk Management: ESG factors encompass a wide range of risks that can have material financial impacts, including climate-related physical and transition risks, supply chain disruptions due to social issues, and reputational damage from governance failures. Treasury plays a key role in identifying, assessing, and mitigating these financial risks.
• Regulatory Pressure: Governments and regulators worldwide are introducing more stringent ESG disclosure requirements and, in some cases, mandating consideration of sustainability factors in financial decision-making.
• Stakeholder Expectations: Customers, employees, and communities increasingly expect businesses to operate responsibly and contribute positively to society and the environment. Strong ESG performance can enhance brand reputation and talent attraction.

Treasury’s Levers for Driving ESG Impact

While accurate ESG reporting is crucial for transparency and accountability, the real opportunity for treasury lies in leveraging its core functions to advance sustainability goals:

1. Sustainable Financing and Capital Allocation:

• Issuing Thematic Bonds: Treasury can lead the issuance of green bonds (to fund environmentally beneficial projects like renewable energy or energy efficiency), social bonds (for projects with positive social outcomes like affordable housing or healthcare), or sustainability bonds (a combination of both).
• Sustainability-Linked Loans (SLLs) and Bonds (SLBs): Unlike green bonds where proceeds are tied to specific projects, SLLs and SLBs link the borrowing cost to the achievement of pre-defined, ambitious corporate ESG targets (e.g., emissions reduction, water usage efficiency, diversity & inclusion metrics). Treasury is central to negotiating these terms and ensuring the targets are credible and material.
• Integrating ESG into Capital Expenditure (CapEx) Decisions: Treasury can work with strategy and operations teams to incorporate ESG criteria and shadow carbon pricing into CapEx appraisal processes, favoring investments that support sustainability goals alongside financial returns.

2. ESG-Integrated Investment Management:

• Short-Term Investments: For managing operating cash and short-term investments, treasury can develop policies that favor counterparties (banks, money market funds) with strong ESG ratings or that offer ESG-focused investment products. This includes considering green commercial paper or deposits.
• Pension Fund Management (where applicable): Corporate treasurers involved in overseeing pension fund assets can advocate for the integration of ESG factors into the fund’s investment policy statement and manager selection.

3. Greening the Supply Chain through Finance:

• Sustainable Supply Chain Finance: Treasury can design or participate in supply chain finance programs that offer preferential financing rates to suppliers who meet specific ESG criteria or demonstrate improvements in their sustainability performance. This incentivizes sustainable practices throughout the value chain.
• Incorporating ESG into Supplier Due Diligence: Working with procurement, treasury can ensure that ESG risk assessments are part of the supplier onboarding and ongoing due diligence process, particularly for critical suppliers.

4. Managing Climate-Related and Environmental Risks:

• Carbon Footprint of Financial Activities: Assessing and seeking to reduce the emissions associated with the company’s financial activities, including those of its banking partners.
• Hedging Environmental Risks: Exploring financial instruments to hedge against commodity price volatility linked to climate change or to hedge carbon credit exposures.
• Insurance and Physical Risk: Working with risk management and insurance providers to understand and mitigate the financial impact of physical climate risks (e.g., extreme weather events) on company assets.

5. Enhancing Transparency and Stakeholder Engagement:

• Integrated Reporting: Contributing to the development of integrated reports that combine financial and non-financial (ESG) performance, providing a holistic view of value creation.
• Investor Relations: Working closely with investor relations to articulate the company’s ESG strategy, performance, and how it links to financial value during discussions with investors and analysts.
• Banking Partner Dialogue: Engaging with banking partners on their own ESG commitments and how they can support the company’s sustainability objectives.
• Challenges and Considerations for Treasury
• Embedding ESG into treasury operations is not without its challenges:
• Data Availability and Quality: Reliable, consistent, and comparable ESG data can still be difficult to obtain, both internally and from external parties.
• Standardization and Definitions: The ESG landscape is still evolving, with various frameworks and definitions. Treasury needs to navigate this complexity and align with credible standards.
• Measuring ROI on ESG Initiatives: Quantifying the financial return on some ESG investments can be challenging, requiring a longer-term perspective on value creation.
• Balancing ESG with Traditional Financial Objectives: Treasury must ensure that ESG initiatives are aligned with and support the company’s overall financial strategy and risk appetite.
• Internal Collaboration: Success requires strong collaboration with other functions, including sustainability, procurement, operations, legal, and investor relations.

Treasury as a Catalyst for Sustainable Value

The corporate treasury function of 2025 has a pivotal and proactive role to play in advancing the global sustainability agenda. By moving beyond a compliance-focused approach to ESG and strategically leveraging its influence over financing, investment, and risk management, treasury can be a powerful catalyst for positive change. This not only helps mitigate ESG-related risks and meet stakeholder expectations but also unlocks new opportunities for innovation, cost savings, and enhanced access to capital. As ESG considerations become further embedded into the fabric of the global economy, treasurers who champion and integrate sustainability into their core strategies will be instrumental in building more resilient, responsible, and ultimately, more valuable enterprises for the future.