With treasurers and their organisations focusing more closely than ever on ESG and sustainability, it’s important to pin down what ESG really means and how treasurers can tackle this issue. A recent virtual roundtable by Treasury Today and Bank of America took a deep dive into this topic, resulting in some valuable insights about everything from sustainable aviation fuel to the importance of accountability.
In 2020, environmental, social and governance (ESG) considerations have become more important than ever for organisations despite – or perhaps because of – the widespread and continuing impact of the COVID-19 crisis.
But while this topic is becoming ever more critical for companies, and for their internal and external stakeholders, it is not always clear how best to embed ESG and sustainability considerations into the treasury, and across the organisation as a whole.
With this in mind, a recent Treasury Today virtual roundtable with Bank of America took a comprehensive look at how different organisations are tackling this area, and what treasurers need to be aware of in this evolving market. Speakers from Flex, JetBlue, Ferguson, ENGIE Impact and Bank of America discussed their experiences of ESG and sustainability initiatives, explained how the COVID-19 crisis has further shaped this topic, and shared their insights into the steps treasurers should be taking.
While the term ESG is widely used, it can also mean different things to different people. As such, Sophie Jackson, Publisher & Head of Strategic Content at Treasury Today, began the discussion by inviting panellists to share their thoughts on what ESG means to them.
Anita Bubna, Senior Director Treasury at Flex, the global technology, supply chain and manufacturing partner, said that initially she had been more focused on the environmental aspect of ESG and had not realised how broad the scope of ESG really is. Then, in 2016, Flex set 20 ESG-related goals through 2020 that focus on five cornerstones, including people, community, environment, innovation and integrity. The cornerstones span health and safety, employee development, community engagement, environmental stewardship as well as ethics, compliance and anti-corruption activities, among other areas.
Bubna also shared the steps she has taken to shift her treasury team into a more ESG-focused mindset – a process that she started by reading a 100-page sustainability report to understand what the company had been doing in this area. “I had to understand which metrics we should target,” she commented, adding that this included ensuring that any chosen KPIs would be strategic for the business and focused on areas of importance to stakeholders, as well as being easily verified and measured by third parties.
Jeff Waller, Senior Director, Head of Financing Solutions at sustainability and energy management company ENGIE Impact, commented that companies are increasingly thinking about their internal and external stakeholders, all of whom are taking a broader view when evaluating a company. “So they’re not just looking at operations and financial returns – they’re starting to look at environmental footprint, diversity and inclusion, governance – all those different questions.”
Where sustainable financing is concerned, Waller said that it can be helpful to think about sustainable finance in two ‘buckets’. “One is called use of proceeds, whereby you get a bond or issue a loan, and the proceeds have to go to eligible projects,” he explained. “Then there are sustainability-linked loans and bonds, which really look at a company from a holistic perspective.” For example, he said, a company might need to demonstrate progress on a chosen KPI, such as improving renewable energy consumption, in order to avoid a financial penalty.
And Henrik Lang, Global Head of Liquidity at Bank of America (BofA), spoke about how the bank is working to bring its trade finance solution set into treasury conversations. He noted: “One of the things we can do as a bank provider is give powerful tools to corporates so they can categorise their suppliers based on a certain set of ESG criteria and differentiate between financing terms.” Lang added that this provides an incentive to suppliers to improve their own ESG metrics, thereby extending the ESG focus across the whole ecosystem.
Despite the severe impact of the global pandemic on the airline industry, Sara Bogdan, Manager Sustainability & ESG at US based airline JetBlue, gave an inspiring account of the airline’s achievements in tackling sustainability. She noted that while the ‘flight shaming movement’ has subsided somewhat this year given the sudden reduction in travel, “when travel rebounds, we expect that conversation will come right back. And we agree – we think people love to travel, but nobody likes the emissions that come with it.”
Consequently, the company has taken action to address this. “This year, we have become the first and only US airline to achieve carbon neutrality for domestic travel, which is about 80% of our emissions,” said Bogdan. She explained that this has been achieved through a major carbon offsetting initiative, as well as the announcement that the airline would begin using sustainable aviation fuel on regular flights out of San Francisco International Airport. “So our strategy is to maintain carbon neutrality as we go forward, but ramp down what we require from carbon offsets as we build up renewable resources and continue to have more fuel-efficient operations.”
Turning to the rise of working from home driven by COVID-19, Bubna said that Flex had rolled out a survey to employees to help decide what the new workplace should look like. “We also launched an application to help employees self-assess for COVID-related symptoms. Based on anonymous, employee responses, the tool provides guidance and adds another safety layer,” she said. Indeed, Bubna said that the health and safety of employees remains a top priority for the company, with rigorous processes in place – particularly for employees who continue to work in factories.
Royston Da Costa, Assistant Group Treasurer at specialist distributor of plumbing and heating products Ferguson, added that the rise of working from home had resulted in considerable environmental benefits in terms of the amount of pollution generated by commuters. He also noted that this is fuelling the conversation surrounding whether the employees of the future will need to be based in specific geographical locations.
“At Ferguson, and certainly in treasury, all our systems are cloud based, so we can pretty much work remotely as we navigate through this pandemic,” he added. “The one aspect is the social interaction, which we’re addressing as we go along.” Da Costa cited some of the initiatives that Ferguson has introduced, including a gender diversity initiative, that allow staff to engage with topics remotely and build their social awareness.
BofA’s Lang returned to the theme of education, noting that the bank has launched a new framework called ESG Meter, which focuses on understanding the role that ESG criteria play in the valuation of certain companies. “In addition, we’re doing a whole host of other things – we regularly host podcasts where we talk about the most recent ESG challenges our clients face and how they’re approaching them,” he said. “We are also doing some grassroots type activities where we spend a lot of time sitting down with corporates one-on-one and helping them turn their treasury departments into sustainable operations.”
Waller, meanwhile, noted that ESG “is not an area ripe for corporate espionage,” but that corporations that are early movers in this space are actively drawing attention to their activities. What’s more, early movers are not only happy to share their experiences, but also see this as a sign of leadership in the ESG space. “I would encourage folks to take advantage of that, because it’s a great way to learn,” he added.
Returning to the impact of the pandemic and working on the sustainability conversation, Bogdan reflected that while 2020 has been JetBlue’s most challenging financial year by far, “it has also been our most accomplished in sustainability.” In January, the firm announced its plans to become the first carbon neutral US airline for domestic flights, with a planned launch of July 1st – “and then, of course, everything changed in our industry in that time.” But despite the additional challenges brought by the pandemic, the firm’s leadership remained committed to this goal.
In the meantime, Lang said that despite this year’s market volatility, “one asset class that consistently performed better throughout the year is ESG funds – they have seen increased inflows, and also their returns seem to be a little more resistant, and not as volatile, as some of the other asset classes.” Looking forward, he predicted that in ten years’ time “I don’t think we’re going to be talking about green bonds and normal bonds – I think any bond issuance will also need sustainable goals or social goals.”
Bubna noted that another thing that needs to happen is greater collaboration between governments, NGOs, corporates and academia in order to drive holistic solutions. “And another step for corporates to take is aligning their programmes with broader initiatives like the UN sustainability goals, so they’re all working towards matters that are pressing and will move the needle.”
Waller pointed out that this year, the spotlight has really been on the ‘S’ in ESG. “‘E’ has always taken prominence and was typically the one that got the most attention – it used to be that green bond issuance far eclipsed social bond issuance, until this year when the pandemic and the Black Lives Matter movement have led to more of a focus on the ‘S’.”
And as Da Costa said, being at home has also led to a heightened focus on pressing environmental concerns (that have begun to hit mainstream agenda) like global warming. He also pointed out that one of the benefits of the pandemic has been that “the banks have finally come on board with digitised documents – we are now absolutely digitising everything we do in treasury.”
Jackson asked panellists to reflect on the future of ESG, and the factors that need to change in order for more progress to be made. JetBlue’s Bogdan said that from a corporate perspective, people are no longer accepting “vague long-term targets” – rather than setting goals for 2050, investors, customers and crew members are asking what the company is doing today.
“In order to keep this momentum going, different stakeholders need to come to the different organisations and demand meaningful change across all ESG topics,” she added. “And behind the scenes, we’re looking at meaningful programmes: how do we increase our sustainable aviation fuel supply? How do we look at our diversity metrics within our workforce? And how do we improve that bridge to our leadership for our racially diverse crew members? And then, how do we make all this public and report on it?”
Bubna emphasised the need for education and having clear metrics. “There’s a lot of data, but unless that data is standardised and structured so that investors can make use of it, it doesn’t help,” she added. Pointing out that companies currently in the early stages of this can learn from those that have gone before, she emphasised Flex’s willingness to share its learnings with other companies.
Collaboration should mean working not just with other companies, but also engagement with the local community, argued Da Costa: “You’ve got to start where you are, in my view – it doesn’t matter how large your company is, or where you’re based.”
And Waller spoke about the impact of the next generation coming into the workforce. “For a lot of companies, one of the key stakeholder groups that are pushing their sustainability agendas is internal,” he said. “The younger generation are demanding more accountability from their leadership on things like social justice, environmental sustainability and others. And as these folks ascend to more leadership positions, this will get more entrenched.”
The conversation returned to the importance of education and the types of resources that corporates can draw upon. BofA’s Lang pointed out that the challenge with ESG is there is no textbook that has all the answers. “My number one advice would be to speak with your banking providers and challenge them – they interact with a lot of corporates in your industry and outside of your industry, and they can share insights that you can draw on.” He also emphasised the importance of taking a holistic approach to ESG within the treasury department, including defining goals, pre-planning, implementation and monitoring metrics.
Da Costa cited the example of a cyber fraud initiative started by one of the company’s UK banking partners – “It’s an area that most treasury functions and companies have been very shy about.” However, banks and companies have become increasingly willing to discuss this topic openly. ESG, likewise, is an area where banks can be “great facilitators” when it comes to engaging their customers, he added.
Turning to the importance of embedding ESG into every part of an organisation, Bogdan talked about how JetBlue has integrated ESG into the company’s enterprise risk management system – “that’s something that is established, is reported to the board, and also has a whole audit department that’s tracking it.” Actions like this have made sure that ESG is a permanent and significant part of the company’s larger leadership structure – “you can’t lose sight of it.”
Where market developments are concerned, Waller cited the recent launch of the UN Global Compact CFO Taskforce for the Sustainable Development Goals (SDG). “Essentially the goal is to create guidelines and best practices for CFOs and finance teams on how to set meaningful SDG targets, integrate them into their corporate finance activities, and report their progress to investors and the public.”
Da Costa also noted the importance of accountability to managers, the board and shareholders, as well as to society and the economy in which companies operate. “One way of doing that is to belong to an index where your metrics are being measured,” he said, adding that Ferguson is part of the FTSE 100’s 30% Club, which was set up to achieve a minimum of 30% female representation on FTSE 100 boards. Da Costa explained that regulation has helped Companies to accelerate the speed of such driven gender diversity progress on their company’s board.
“There’s only one trajectory that we’re all going on in terms of the way that the world is evolving – but it’s also about getting it sooner rather than later!” he added.
Summing up the conversation, Jackson noted that participants had highlighted a number of important points: “People need to begin looking at the data they’ve got on this; holding themselves accountable; collaborating not just within their company but within the industry, and not being afraid to share challenges and weaknesses, because that’s how everybody’s going to learn. If everyone sits in a silo trying to solve this on their own, nothing is going to change,” she concluded.