Treasury Practice

A bigger catch: Thai Union charts the rewards of sustainability

Published: Nov 2023

Thai Union, the world’s biggest tuna producer, has integrated sustainability throughout the company in a process largely driven by the company’s overhauled and centralised treasury function. Yongyut Setthawiwat, Managing Director, Group Treasurer charts the company’s sustainability progress and explains how it links to the bottom line.

School of tuna swimming around

Since 2015, Thai Union, the biggest tuna processor in the world and owner of household brands like John West and Chicken of the Sea, has spent US$100m on sustainable investment. In 2023 the company committed to spend an additional US$200m by 2030. “That’s quite a lot considering our 2022 net profit is about US$200m,” says Yongyut Setthawiwat, Managing Director, Group Treasurer, for Treasury and Finance Shared Services at Thai Union Group, speaking to Treasury Today from the company’s Bangkok headquarters.

Thai Union’s sustainability strategy rests on a conviction that policies like the traceability of its tuna catch to certified fisheries, detailed processing data and carbon reduction targets, will give its products a competitive edge that differentiate the company from rivals. European customers particularly demand traceable tuna requiring vessel quotas, monitoring systems and full disclosure around processing.

“Sustainability is no longer just an option for companies. It has become a way to do business globally. Committing to sustainability has already opened new opportunities for Thai Union and will continue to do so, helping drive the growth of the business,” says Setthawiwat who has played a pivotal role in the company’s sustainable transformation is testimony to both treasury’s ability to enforce sustainability and strategic treasury in action.

Thai Union’s treasury function is complicated by decades of acquisitions in a concerted growth strategy. It began in earnest in 1997 when the company acquired the third largest canned food brand in the US. A raft of subsequent purchases spanning the USA, Norway, and Vietnam amongst other countries has included factories, consumer brands in key markets, pet food operations, and health and wellness products. Since 2021, the company has focused its acquisitions on food tech, investing in incubators and trends in the food industry. “These acquisitions will help future proof the business,” he says.

The steady expansion has run in lockstep with transformation in Thai Union’s treasury function in a process that was also accelerated by Thai regulation. In 2015, the company restructured treasury, setting up a headquarters and global treasury centre in Thailand supported by two regional treasury centres in the US and Luxembourg (which moved from France) to realise tax benefits introduced by the Thai government to attract MNCs to the country.

New systems included cash pooling and an in-house bank to serve the company’s daily liquidity needs. “Money flows back and forth automatically so that if a subsidiary has a surplus the money comes back to Thailand and if a subsidiary needs money it flows from the centre,” says Setthawiwat. In 2015 the company also refinanced all its euro and dollar long-term financing replacing all these separate loans with finance from the company’s headquarters in Bangkok. Today the company provides all the financing its subsidiaries require in their local currency, hedging the risk with an inhouse programme that locks in costs and avoids the impact of FX movements. The same strategy also allows the company to manage interest rate risk – for example over 72% of the company’s interest rate debt was fixed before interest rates climbed higher.

Thai Union’s centralised treasury has played a pivotal role in facilitating Setthawiwat’s ability to drive sustainability throughout the company. Around the same time as Thai Union set up a new global treasury centre in Bangkok (2015), the company launched its SeaChange® strategy. Now in its second and third iteration it targets 2025 and 2030 goals around 10 Sustainable Development Goals (SDGs) through 11 interconnected ambitions.

Initially much of Thai Union’s sustainable push was driven by regulation, admits Setthawiwat. Thailand was downgraded in 2014 to Tier 3 in US TIPs (Trafficking in Persons) report, the US Government’s principal diplomatic tool to engage foreign governments on human trafficking, jeopardising the company’s and the country’s ability to export to the US. “We weren’t doing anything wrong as a company, but we had our operations in Thailand and we realised that if we didn’t change, we wouldn’t be able to export to the US,” recalls Setthawiwat.

It marked the beginning of the company working with the government to develop standards, particularly around labelling and new systems to support catch numbers and vessel movements that would put the company and Thailand’s wider seafood industry on a par with developed nations.

These efforts also aligned with European IUU regulation (illegal, unreported and unregulated) that applies to all vessels sailing under any flag in all maritime waters. “In a way, legislation was being used as a trade barrier,” he reflects. “But we also needed to admit that as a country we had a real problem if we didn’t solve could impact our future. We are the largest tuna producer in the world, and we needed to lead the change.”

The company’s sustainability endeavour also means it is now ahead of competitors en route to net zero. Thai Union currently targets a 42% reduction in Scope 1, 2 and 3 emissions by 2030. Other targets include extending its responsible wild-caught seafood commitment to mackerel and sardines.

Elsewhere Setthawiwat is exploring different ways to reduce its Scope 3 emissions focused on exploring how to engage all its suppliers in a low carbon roadmap. Early analysis includes exploring the benefits of a sustainable supply chain financing programme with embedded KPIs, he says. “We don’t differentiate with our pricing yet, but we are exploring how we can support our suppliers around sustainable working capital financing and are working with our banks.”

Thai Union itself benefits from being in the supply chain of other groups. Like Walmart’s supply chain finance programme that enables it to tap discounted financing by reducing its carbon footprint.

Cheaper borrowing

In 2021 Thai Union became the first company in Thailand to issue a sustainability linked bond in a process that involved new treasury processes like justifying which KPIs to target and educating investors. All new issuance in 2024 and 2025 will be blue finance attached to KPIs picked from 11 commitments in the company’s 2030 targets. Setthawiwat estimates treasury will pick three to four of the 11 following discussions with its banking partners and says KPIs will also be selected according to their materiality, the ability to collect data and verification, and benchmarking processes. “As well as talking to our banking partners we will gather third-party opinion and talk to the sustainability team before we go to market. It’s important that treasury and sustainability are truly linked.”

In one important evolution of strategy, treasury no longer ties sustainable-linked borrowing to a specific project or issue. “We found it challenging keeping track of these multiple, often small projects, that only required a small investment,” he says. Now, all blue finance is tied to KPIs linked to SeaChange® ambitions and targets which the treasury team can monitor and verify in its quest for lower borrowing costs. “This is a better way to borrow and allows us to really commit to the KPIs.”

For example, the KPIs in the company’s existing blue borrowings commits the company to coming in the top ten of food companies listed in the Dow Jones Sustainability Index – Thai Union is currently listed in the DJSI for the ninth consecutive year and is ranked number one in the food products sector of the index – and to reducing Scope 1 and 2 carbon emissions by 4% annually. A third KPI enshrines the company’s commitment to buying tuna from vessels that have on-the-water monitoring including electronic monitoring facilities, so the company knows exactly what happens on the boat. To date, meeting these targets has reduced the cost of borrowing by between 5-12 basis points.

It has also opened the door to a larger cohort of investors who are focused on sustainability enabling the company to realistically plan for 75% of its long-term finance which will be blue finance by 2025. It’s part of a strategy to capitalise on favourable pricing and conditions as banks increasingly focus on sustainable finance in line with their own lending targets. “By being first we can better access that pool of investment. By comparing Thai Union to other companies that don’t have our level of sustainability, we have more marketing power.”

Advice to others

Setthawiwat’s key advise to other treasury teams positioning to lead on sustainability is to ensure strategy is supported by a robust programme with clear KPIs to hook onto. “It mustn’t just be a PR exercise,” he warns. “Otherwise, the finance function can’t align with the targets, and it becomes too challenging for banks and investors to engage. If you are committed to a real programme, it makes it easier to talk to banks and investors.” He also counsels on the importance of treasury nurturing a “deep understanding” of a company’s sustainability objectives and the underlying importance of sustainability to the future of the business.

Setthawiwat notes Thai Union’s size has impacted strategy, making integration more challenging given treasury must monitor progress and disclosure across global operations – for example, each one of the company’s factories has the same greenhouse gas target. He concludes that having sustainability endorsed from the top has been central to strategy success. “Our CEO is Chair of our Sustainable Development Committee. It reflects our belief we can extract an opportunity from sustainability and we are now seeing recognition of what we have done from around the world.”

ESG trends in Asia Pacific

Kamran Khan, Managing Director, Head of ESG for Asia Pacific, Deutsche Bank

We support our clients who issue all kinds of ESG related debt including SDG-linked and green bonds as well as green loans where we mostly come in as structuring advisor – anyone can bring money. If we are marketing a sustainable corporate bond to investors, we help the corporate with targets and frameworks. Elsewhere we offer corporates a variety of ESG-linked derivatives that include tools like currency hedges. The structure comprises an ESG commitment against the pricing of a hedge, and it’s a very effective tool. The pricing is instantaneous so if a company doesn’t reach the ESG target, they pay the price immediately. We have seen that the trading side of a corporate treasury division is very sensitive to losing money in this way, and corporate reputations can quickly get damaged, so the instruments commit the issuers in very meaningful way.

Our centre of excellence out of Singapore is also involved in due diligence linked to M&A activity supporting Asian acquisitions by MNCs. The process works the other way too. For example, an Asian company acquiring a listed European business will need to brush up on sustainability for consumers, investors and regulators and these companies might consider doing transactions to improve their profile.

We are seeing new sustainable manufacturing facilities spring up in countries like Vietnam. Almost 50% of global sourcing and manufacturing happens in Asia. The sales of MNCs are now also increasingly shifting towards Asia. We need to find a way to incentivise emerging nations to keep going up the ESG ladder because no amount of recycling in the west will save the planet if Asia does not join the global sustainability movement.

We also advise clients on the transition. We think about the transition in three layers. First, the asset mix – any new investments should be transformed into cleaner businesses. Next, it requires a focus on existing operations and what companies are doing to make them efficient and clean. Third, corporates look at who they sell to and who they buy from to clean up their supply and distribution chain.

One of the most important league tables shows the top global banks financing fossil fuels around the world. We want to be as low as possible on that list. We are currently at 24 and our position is continuing to improve.

Discussions between developed and emerging economies have focused on the extent to which rich companies will pay climate reparations to poor countries, but now the debate has moved on.

Fast emerging economies want access to markets and rules of the games they understand. For example, India wants to know how green steel is defined – does that mean it is only made from renewable energy, or does it depend on a technical formula based on patents that belong to companies in Europe? These countries are worried sustainability is going to be used as a trade restriction. It’s a similar issue with plastics. The definitions and sustainability standards of many economic sectors were originally identified in the EU ESG taxonomy and other EU regulations.

Emerging markets were neither at the table nor were the ground realities of emerging markets considered in the analysis. The fast-emerging markets such as Brazil, India and China are now increasingly at the key tables, and they don’t want the global sustainability standards developed without their involvement in the process.

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