Sustainability is an evolving issue and one that can’t be ignored. Treasuries have a role in helping to fulfil the company’s corporate social responsibility – but it isn’t always clear how they can help. Here, we take a look at some of the options available to embrace ‘greener’ business, without impacting profits.
The impact of sustainability issues on treasury may not be immediately obvious. But when you consider the following examples, it becomes clear that it is in every department’s best interest to engage in the company’s corporate social responsibility (CSR) programme:
An increasing number of consumers look to make informed choices about companies on the methods used to source materials and manufacture, as well as the company’s own sustainability performance.
International banks are, in some instances, encouraging clients to maintain stricter standards of environment protection to ensure they receive finance (for example, producers of palm oil).
Carbon-intensive sectors may face an increase in the cost of capital and environmentally damaging practices in general are coming under fire from the regulators and public alike.
The risks that natural disasters, ones which occur as a result of the world’s rising temperature, pose to the continued operation of business are on the rise.
Indeed, looking after CSR concerns is part of an effective risk management strategy. But sometimes organisations have difficultly navigating the vast, and potentially daunting, range of sustainability initiatives, investments and agendas that companies can be engaged in. Against this backdrop, Treasury Today explores some of the key developments in the industry and the areas where treasury can look to ‘do its bit’: circular supply chains and paperless treasury.
Currently, in a predominantly linear economy, the world’s manufacturers extract raw materials, using fossil fuels to ship and process these in order to make products that are disposed of in landfills after use. One way of tackling such excessive waste is to change the structure of business models, so that products maintain their quality and usefulness for a much longer duration.
Advocates of a circular economy propose that products should be designed to be disassembled and regenerated; where the goods of today become the resources of tomorrow. But it’s more than just a CSR ‘plug-in’: the Ellen MacArthur Foundation, SUN and McKinsey have identified that by adopting circular economy principles, Europe can create a net economic benefit in 2030 of €1.8trn compared to today, double that offered by the current linear development path.
“Remanufacturing, for instance, could imply savings in terms of production costs that range from 30% to 90% of the cost of producing a new product from virgin materials,” says Dr Donato Masi, Assistant Professor, Supply Chain Management, University of Warwick.
From supply chains to supply circles
This, of course, would be a huge change for the supply chains of today. “For companies to capitalise on this opportunity, business models as well as collaboration across the supply chain need to be reconsidered,” says Jocelyn Blériot, Executive Officer, Ellen MacArthur Foundation. He provides the example of La Place – 100 of the company’s restaurants in the Netherlands provide waste coffee grounds to GRO-Holland, a company that uses them as a growth substrate for oyster mushrooms. The mushrooms are then sold back to the same restaurants to be used as ingredients. The supply chain is therefore made symbiotic or ‘circular’ by turning one player’s by-products into feedstock for the other.
As a result of such business models, there are, Blériot says, some effects on companies’ working capital and financing needs. “In the symbiotic ‘circular supply chain’ model there is a potential reduction in non-payment risk. Players become both buyers and suppliers and so possess a more equal balance of economic power, likely formalised by contracts that incentivise the continuation of the relationship.”