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How can companies integrate ESG criteria into treasury? With many companies currently asking this question, a recent Treasury Today webinar took a closer look at the role treasury can play in moving the sustainability agenda forward, with Andrew Blincoe, Head of Corporates & Institutions at NatWest Group, and Alex Ashby, Head of Markets, Group Treasury at Tesco, sharing their views on this important topic.
Liquidity, funding and supply chains
With a recent poll showing that liquidity and funding are of particular interest to treasurers, Blincoe said the bank receives a lot of questions about how companies can access ESG-linked financing. He added that customers that have been most successful in this area “have done it in a way that’s fully embedded with their other strategic priorities, their other funding requirements, and their broader treasury and finance objectives.”
Ashby explained that Tesco’s treasury team came up with the idea of a green financing framework several years ago. The first step was to link a revolving credit facility (RCF) to KPIs set by Tesco in three key areas: greenhouse gas emissions, food waste and renewable energy. The company then issued a sustainability-linked bond in January 2021 – the first such bond to be issued by a retailer, and one that is aligned to a target of reducing greenhouse gas emissions by 60% by 2025, compared to a 2015 baseline.
A further initiative has been to incorporate sustainability into the company’s supply chain finance programme. Suppliers share details of their progress against sustainability goals and are placed into different tiers, with the top performing suppliers able to reduce financing costs by as much as 20%. While the programme was only launched six months ago, around 250 suppliers are already onboard, and further expansion is planned. Ashby explained that Tesco also collaborates with suppliers in other ways to further the ESG agenda – for example, the company has an incubator for start-ups, many of which have a sustainability focus.
Monitoring and reporting
Turning to the challenges associated with monitoring and reporting, Blincoe said it is important not to treat all investors as the same. “The most satisfying outcomes for clients have been when we’ve worked proactively and constructively to engage with individual investors and investor classes to make sure there’s an appropriate framework and set of KPIs,” he explained. He also emphasised the importance of achieving alignment and consistency between ESG reporting and other reporting cycles.
Where Tesco is concerned, the company works with multiple KPIs under the four pillars of People, Products, Planet and Places, with KPIs covering everything from greenhouse gas emissions to packaging. Ashby said that while Tesco has been measuring its performance against KPIs since 2005, a recent initiative has focused on centralising the way that reporting is handled. “We’ve included everything we do in a sustainability report over the last three years – and we’ve started increasing the number of KPIs that are included in the annual report,” he noted.
It’s clear that ESG is becoming an increasingly central issue for treasury teams. Ashby said this topic currently accounts for as much as 50% of his time. Blincoe, meanwhile, revealed that helping customers on the ESG journey was possibly the bank’s biggest single area of activities.
When it comes to progressing on this journey, Blincoe pointed out that sustainability is not a race – “It’s not about who’s going to get there first. This is something we have to win together, and the prize is a collective one.” As such, he encouraged people to be both ambitious and collaborative, underlining the importance of seeing the sustainability agenda both across and within organisations, but also with partners and down the supply chain.
Finally, Blincoe said it is important for organisations to focus on where they can have the biggest impact, either collectively or individually, and grow from there: “Everyone’s focus is different, and where we can have the biggest impact is going to be different for everyone as well.”
To hear more from Andrew Blincoe and Alex Ashby on how companies can integrate ESG considerations into treasury:
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