Treasury Practice

Building a sustainable treasury function

Published: Mar 2013

For some functions within the corporate entity, embracing sustainability is quite straightforward, or at least there are obvious initiatives to implement. IT can focus on low-hanging fruit, such as energy efficiency and the product development team could look at using recyclable materials, or building ‘eco’ versions of existing concepts.

But just having the treasury team recycle their plastic water bottles or work on energy efficient computers isn’t going to cut it in this day and age, especially since sustainability goes much deeper than just being environmentally friendly – it’s about mining for valuable information too. What this means is that treasurers must take a long hard look at their operations and policies to identify areas that could become more sustainable.

Fortunately, Treasury Today has done a lot of the groundwork for you. By speaking to award-winning treasurers and sustainability experts from across the globe, we have outlined key areas where treasurers can really begin to drive change. Unsurprisingly, the first of these is by getting rid of paper.

Saving trees, shedding costs

Still printing documents like its 1999? Well, the vast majority of office workers are, according to a survey released in December last year by Nitro, a company that delivers products to help people work smarter with digital documents. In fact, the survey results reveal that a mere 1% of us always – without fail – review documents electronically, rather than on paper. Like their legal counterparts, many treasurers are all too familiar with a paper-intensive workflow.

“When you’re operating in a company that has hundreds of bank accounts and thousands of customers, paper is most definitely the enemy of efficiency,” says the Treasury Manager of a manufacturing company, who wished to remain anonymous. “Getting rid of paper and going ‘green’ in the process has to be the way forward for treasury functions of any size. And it’s not just about the impact on the planet, or the bottom line improvements. Think about the quality of your employees’ work life. Do they really want to spend their days photocopying, filing and manually reconciling?”

A relatively early-mover in the space, Kellogg began a company-wide ‘Go Green’ initiative in 2005. The aim was to reduce the company’s impact on the environment and the communities surrounding its operational centres. As part of these efforts, the company’s treasury function identified an excellent opportunity to reduce the amount of paper flowing in and out of the department on a daily basis.

Almost 10,000 pieces of paper being handled each month and the equivalent of one full-time employee was dealing solely with manual reconciliation of receivables. With assistance from J.P. Morgan, the company underwent an electronic transformation.

Best practice solutions were rolled out to allow the company to view a significant amount of its bank statements online. For receivables reconciliation, customer remittance information was also moved online. Not only did this electronic solution get rid of paper, it also made automated reconciliation far more achievable, and reduced the company’s days sales outstanding (DSO).

In addition, Fifth Third Bank implemented an electronic remote cheque capture and deposit system for Kellogg. This meant that the company no longer had to use an armoured vehicle to transport cheques, thereby reducing cost and risk, as well as its carbon footprint. All this suggests that going paperless is the most obvious and wide-reaching way of embedding sustainability right at the heart of the treasury function.

Paper reduction: a checklist for treasurers

  • Make the most of your bank’s online offering.

    Logging into your bank’s online platform to view bank accounts will surely be much quicker than digging out the relevant file. It also provides added security controls and keeps an easily accessible record of reviewing and approval processes.

  • Embrace e-invoicing.

    In addition to the cost benefits that have been so widely reported, e-invoicing leads to greater consistency and standardisation, which in turn helps to reduce organisational complexity.

  • Say goodbye to cheques.

    Using electronic payments instruments improves visibility, reduces the risk of fraud and can significantly reduce costs. Consider wire payments, cards programmes and mobile solutions. Where customers persist in paying you by cheque, discount incentives for signing up to direct debit may be useful.

  • Consider electronic bank account management (eBAM).

    Do away with paper-intensive account opening and maintenance procedures to really improve efficiency and control.

  • Set up digital treasury workspaces.

    Whether in a secure cloud environment, or protected on your work server, archive reports and other documentation electronically. The search functionalities this provides can prove invaluable.

  • Printer etiquette.

    If you or your team really do have to print, make sure it’s double-sided and on recycled paper. Any non-confidential documents should be put in a recycling bin after use and a sustainable confidential document destruction programme implemented.

Moving on from paperless treasury, the next area of sustainability investigation is supplier management. While the physical supply chain and the company’s choice of suppliers may not fall squarely into the treasurer’s camp, the bond between the physical and financial chains does make it their business. Even more so where the company is actively financing suppliers through supply chain finance (SCF) programmes, for example. What is more, having responsible suppliers can improve relationships and also reduce risk in both physical and financial supply chains.

Increasingly, companies are using matrices and questionnaires to measure the sustainability of their suppliers. Philips is a best practice leader in this space with a programme that stretches far beyond merely assessment to help suppliers to become more sustainable. The company’s Supplier Sustainability Involvement Programme is built on five core pillars, see table below.

During stage one, the supplier sustainability declaration is made based on an assessment of suppliers across five key checkpoints: labour; health and safety; environment; management systems; and ethics. There are also general considerations such as the suppliers’ compliance with laws and regulations. Suppliers can self-assess their compliance using an online Excel-based questionnaire on the company’s website.

Business is only awarded to the suppliers that live up to the company’s high expectations, but Philips also works with suppliers that need to improve their sustainability, as it sees this as a joint responsibility. Some companies do not have quite such rigorous supply chain standards in place, and many large food and beverage chains have been accused by the global press of simply chasing ‘ecolabels’ to bolster consumer sentiment. Nevertheless, it is widely accepted today that supply chain sustainability is not just the right thing to do from a PR and corporate social responsibility (CSR) point of view, but also from a company viability standpoint.

1. Create commitment 2. Build understanding 3. Monitor identified risk suppliers 4. Manage risk 5. Work with stakeholders
  • Supplier sustainability declaration.

  • Regulated substances list.

  • Training and capability building.

  • Philips risk assessment.

  • Electronic Industry Citizenship Coalition audit tool.

  • Follow up.

  • Consequence management.

  • Repeat audit cycle every three years.

  • Transparency.

  • Constructive dialogue.

Source: Philips Supplier Sustainability Involvement Programme

A step beyond

Aside from supplier assessment, there are a handful of other tools and techniques that come under the heading of supply chain sustainability. Supplier finance is one of these – by providing suppliers with access to credit at a lower cost than they would typically be used to and not squeezing them on payment terms, buyers are taking a responsible attitude towards supplier management. Ultimately, this builds a more robust and sustainable supply chain.

Elsewhere, reverse logistics is an interesting angle to consider. Sometimes referred to as the reverse supply chain, this is an often neglected part of the working capital management process – and sustainability initiatives. In a nutshell, it involves the flow of goods from the point of consumption back to the point of origin. While this may sound like the domain of logistics managers, there are good reasons for treasury to get involved, not least the fact that an inefficient reverse supply chain process can end up costing companies anywhere between two to four times the amount paid for the original item.

And just the transport alone of these returned goods has a far from inconsequential impact on the company’s carbon footprint, but centralised ‘take-back’ processing plants can assist. Sometimes though, it makes better financial and environmental sense to simply replace a faulty product without asking for it to be sent back – the end consumer can recycle it locally where appropriate. Nevertheless, it should be noted that in the EU, disposal of the waste of electrical and electronic equipment (WEEE) is now the producer’s responsibility, not the consumer, under the European WEEE directive.

Employees on the frontline

If a treasury function is determined to set about demonstrating best practice in sustainability, then it is only right that it upholds high standards in all aspects of the day-to-day running of the department. Naturally, this should include employee welfare. This is not just about corporate social responsibility and making sure you are operating an ethical, diverse workplace, but also engaging employees to make sustainability a reality.

A few practical ideas to improve the treasury department’s sustainability credentials by engaging employees might include:

  • Setting performance targets that include reducing the amount of printed documents in the department.

  • Arranging flexible working, to reduce commuting where appropriate.

  • Increased use of video conferencing rather than physical travel.

  • Incentives for walking, cycling or taking public transport to work.

You may also want to set achievable targets for recycling within the department, as easy-wins can help to drive employee engagement. There are also new technologies that companies can leverage to assist, such as CloudApps SuMo (short for sustainability momentum). SuMo is in many ways a modern equivalent of the ‘star chart’. It combines social networking, gaming and sustainability, to help employees connect with sustainability goals and aims, whether departmental or enterprise-wide. Treasury managers should not underestimate the power of such engagement when it comes to employee satisfaction and retention.

Investing in the future

Sustainable investment is another area of focus for sustainability-aware treasurers. It’s a topic that we’ll be covering in the next article in this six-part series, but it certainly deserves a mention here.

Inevitably, companies won’t invest in sustainable instruments purely out of good will; the main incentive will be performance – but this does not negate the fact that sustainable investing can help to ensure that future commitments are not compromised by meeting short-term goals. There are a number of institutions that offer sustainable investment services for corporates, so speak to your bank or asset manager to find out more. Alternatively, you could follow the example of carbon-neutral Google and invest directly in green energy projects. The tech giant committed $915m to renewable energy projects in 2011.

There is another side to sustainable investment to consider as well – investing in the company, as opposed to the markets. Honeywell’s corporate finance team, for example, recently undertook a project to raise $8m in cash and $4.5m in net after-tax benefits to save an ageing production facility that was facing imminent closure – as it specialised in producing substances such as CFC refrigerants, which are being eliminated globally. Not only was the plant saved, but the local community also got to keep a valuable employer.

Reporting for duty

Finally, we come to the treasurer’s role in sustainability reporting – and how sustainability initiatives can provide valuable information and insight.

According to Alan McGill, a Partner in PwC’s Sustainability and Climate Change practice: “non-financial sustainability information can help an organisation to have a far better understanding of what might put their business at risk, such as resource scarcity. It also helps to assess the ability of your supply chain to deliver the goods you require, so that you can continue to manufacture.” In other words, the critical driver for companies to have sustainability information available is the ability to continue to deliver the financial returns that they have historically.

There are various sustainability reporting frameworks that exist in the marketplace, says McGill. “The most widely used and globally accepted is the Global Reporting Initiative (GRI), which provides companies with a solid idea of what kind of information they can report, what disclosures would be required and so on. At the same time, there are some global standards that do exist, and the most widely referred to of these is the Greenhouse Gas Protocol for carbon reporting.”

Arguably what’s going to happen, as it did with financial reporting, says McGill, “is that over the next five to ten years, we will see a maturing of the measurements and the standards for reporting non-financial sustainability information. This will be part of the broader move in corporate reporting towards what is called ‘integrated reporting’. Historically, most corporate reporting has had a single issue focus around the financial performance of the business, but there is a lot more information that can support companies. So, reporting needs to become more reflective of that – particularly around the impact the business is having from an economic, social, environmental and financial perspective.”

Paving the way

In the future, this means that the finance department and key actors within that world, such as the CFO and treasurer will become far more engaged in the provision of information – both financial and non-financial. “The fact that the information has tonnes of carbon, or metres cubed at the end of it, is irrelevant. Companies need to start thinking about these measures as the equivalent of different currency symbols, so instead of a dollar, pound or euro sign at the beginning, you have CO2 at the end of it, for example.”

And it’s true. Sustainability can have many tangible benefits, but one of the biggest barriers to it is totally intangible: mind-set. Is it time to change your way of thinking?

Reporting requirements: a global snapshot

In the UK, the coalition government is introducing mandatory carbon reporting for listed organisations this year. There is also a requirement in the UK on directors, when preparing their annual reports and accounts, to consider and report on the material social and environmental issues that the concern the company.

Outside of the UK, there are legal requirements for sustainability reporting in countries such as Sweden and Denmark. And in France, Grenelle 2 requires French companies to include a variety of social and environmental factors as part of their annual reporting.

Certain stock exchanges, such as Hong Kong, India, Brazil and South Africa, also have listing requirements around social and environmental issues that need to be reported. In South Africa, there is a government code called King 3 (named after Mervyn King who led the review into government reporting) which is entitled ‘Integrated Reporting’. It requires companies listed on the Johannesburg Stock Exchange to include all the social, environmental and economic aspects of their business, alongside financial performance.

But critically, adds McGill, integrated reporting “isn’t about asking companies just to report more information – which would put huge reporting burdens on companies. It’s about putting out better information. So it’s redefining corporate reporting as we know it.”

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks your personal data to enhance your browsing experience.