Treasury Practice

The benefits of sustainability

Published: Mar 2021

Recent research finds many CEOs feel business isn’t doing enough to integrate sustainability. Treasury teams have a crucial role, explains Marcelo Bacci, Chief Financial Officer at Brazil’s pulp and paper giant Suzano, where sustainability adds value on every level.

Welsh Assembly wooden roof

Up until now Marcelo Bacci, Chief Financial Officer at the Brazilian pulp and paper company Suzano, wouldn’t have thought of attending a UN Climate Change Conference. But in a sign of how much time he now spends on sustainability, the scrutiny his department receives from the company’s creditors and investors and his need for fluency in key sustainability concepts, he plans to attend COP26 this November. “It is becoming more important for the company to have access and be exposed to cutting edge global sustainability concepts. We need to bring them into our work,” says Bacci, who oversees a treasury team of 20 (the wider finance department is around 400) at the Salvador-based company that uses sustainably grown wood from eucalyptus plantations to feed global demand for products like toilet tissue, nappies and paper.

For treasury teams navigating the growing importance of sustainability and mindful of increasing pressure from influential investors concerned about the impact of climate change on their portfolios, Bacci’s expertise on the importance of targets, investment, nurturing an ESG investor base and the growing link between sustainability and the cost of capital, offers valuable insight.

Targets first

Integrating sustainability begins with targets. Suzanno went public with a raft of far-reaching sustainability targets last year following three years of discussions that included harmonising goals with Fibria, a domestic forestry rival it bought in 2018. Targets include a commitment to remove an additional 40 million tons of net carbon by 2030, hard reductions on water use and nurturing local development, where the company has pledged to lift 200,000 people over the poverty threshold in its areas of influence by 2030. Elsewhere, it has set targets for diversity and inclusion and is developing renewable products, with some pledges linked to management compensation.

“For example, when we say we want to reduce water consumption, we make sure our plant managers are incentivised to effectively reduce water consumption,” says Bacci, who adds that choosing and setting targets was made easier by the fact sustainability lies at the heart of the business and is already central to how the group differentiates itself from competitors. “Our clients value the fact that we have a traceable supply chain and we only work with planted trees. The fact we only produce pulp from planted trees has a value in the pulp market, it is something very much linked to our business and differentiates the company from competitors.”

His most important piece of advice is to set targets in line with broad corporate strategy. Don’t link them to one off or particular financial transactions like, for example, a green bond, he warns. “All our sustainability targets have a business orientation and haven’t been developed to support a financial transaction. This link ensures first that our targets are genuine, and secondly that they make sense for the business.”

Sustainability targets are the vital first step in raising corporate ambition, adds Sanda Ojiambo, CEO and Executive Director of the UN Global Compact, the voluntary organisation that cajoles and encourages businesses to integrate sustainability and which created a CFO Taskforce to help companies integrate the UN’s 17 sustainable development goals into their operations in 2019. Targets, reporting and accountability are the organisation’s guiding mantra. “We simply cannot reach the SDGs without businesses being on board,” she says. The challenge is certainly daunting. According to UN Global Compact research, only 21% of CEOs feel business is currently playing a critical role in contributing towards the SDGs and only 39% of companies in a recent survey believed they had sufficiently ambitious sustainability targets.


Once targets are set, treasury and finance departments play a central role communicating them to investors, says Bacci. “We have to explain to investors and creditors how we are going to reach our targets. It’s not just a number; we have to detail what we are going to do to get there.” Most importantly, it is a chance to differentiate Suzano from the pack.

And as more equity and fixed income investors pile into ESG and competition for assets grows, Bacci is convinced Suzano’s sustainability record will give the company an advantage. “We like this trend. We follow high standards and believe that the more attention the financial community pays to sustainable issues the better it is for Suzano – and for the world.” Around 65% of the company’s equity float is international investors of which he says a significant proportion are ESG-savvy European institutions, with whom sustainability is already an important seam of conversation. In the last year he says ESG-minded US and Brazilian investors are increasingly cropping up at investor meetings too.

Suzano’s ability to articulate its sustainability story to investors is particularly important, given the company’s need to distinguish itself from sustainability laggards in Brazil’s wider agribusiness sector. Last year Nordea Asset Management delisted Brazilian meat producer JBS over transparency failings in its supply chain related to deforestation and the sharp rise in Amazon fires. Corporate destruction of the Amazon is an example of how some companies can create a reputational issue for others, or worse still in Bacci’s words, “the whole country.” It shadows the impact of Suzano’s important environmental policies that include setting aside a vast area of Brazil’s natural forest for permanent conservation, and reforesting thousands of hectares more with WWF Brazil.

But rather than calling for more regulation, he calls for better application of Brazil’s existing laws, and more standardisation. “Environmental legislation is good in Brazil. [The problem is] when the government is not clear about its ability to enforce the law. Companies that don’t follow the rules should be punished.” Moreover, he believes change is coming via influential investors allocating capital to best-in-class companies, and the steady evolution of sustainable finance linked to broad corporate targets. “Self-imposed, market forces are working,” he says.


Next, treasury teams play leverage off targets and link meeting them to benefits in terms of cost of capital. This happened at Suzano when it became the first emerging market corporate to issue a step-up bond last September, selling a US$750m bond linked to the company’s ability to limit carbon emissions. The issue, which attracted bids of more than US$6bn, is tied to the company cutting its greenhouse gas emissions by 15% over ten years. Should the firm fail to reach the target by 2026, it will have to pay an additional 25 basis points on its coupon.

The finance team had to explain to investors how the bond gave the company skin in the game, says Bacci. “It took a long time to explain the strategy and structure,” he says. “Having a sustainability target linked to a financial transaction in a structure where your cost of capital goes up if you don’t reach the target is a good way to say to the world that you are serious about sustainability – to say that you are willing to pay the price financially and reputationally if you don’t achieve the targets. It’s very efficient, and treasury is closely linked to this process.”

The bond issue has also broadened the company’s investor base. “We had a significant number of ESG dedicated investors looking to buy this security in addition to our normal investor base.” That said, although ESG investors were notably present during roadshows, he does note that it is difficult to distinguish the pockets of ESG investors from mainstream investors at the big investment houses like BlackRock.

In a bid to sharpen stakeholder communication, Suzano has created an internal task force comprising the company’s communications and marketing departments with investor relations and treasury. “In the past we didn’t need to consolidate these efforts. But different parts of the company communicate with different stakeholders, and we need to make sure the strategic message is the same.” Other corporates are doing the same. Daniel Weiss, Deputy Group Treasurer at Novartis, says issuing the drug group’s first sustainable bond with a coupon step-up last year required a different kind of communication. A high-level, corporate-wide team helped smooth the process, particularly between the internal and external legal teams regarding language in the bond prospectus around how the coupon step was tied to Novartis’ KPIs around disease prevention. “We had to align the whole organisation to stand behind those KPIs. It’s substantially different from the usual bond and takes time to put in place,” says Weiss.


Meeting targets involves investment, once again placing treasury at the heart of a company’s ESG integration. “Our finance department is intimately linked because in order to achieve some of our sustainability targets, we need to make investments,” explains Bacci.

Suzano invests around 1% of its annual revenue (equivalent to around US$50-60m) in sustainability under the umbrella of a bio-strategy focused on business development and R&D. It spans investment in new technologies around planting and harvesting, as well as developing cutting-edge products designed from pulp. For example, the company has created a lignin-based product line (a material found in wood that is responsible for supporting and protecting trees) that can also serve the resin, rubber and plastic markets.

Elsewhere, Suzano has entered the textile industry with an equity stake in Spinnova, a Finnish company that develops environmentally sustainable technologies for the production of fabrics using wood fibres. “Given the renewable nature of our product, we believe that pulp can be used to produce other things and will be able to substitute plastic and fossil fuels as we bring sustainability as well as product functionality to market. In our case this link is very clear.”

Nestle, the largest food and beverage company in the world, is also investing in sustainability to create value. Speaking at a recent CAGNY virtual conference, François-Xavier Roger, Executive Vice President and Chief Financial Officer, says the company plans to invest around CHF3.2bn (£2.5bn) over the next five years including spending CHF1.2bn (£0.95bn) on regenerative agriculture. Investment won’t come out of shareholders pockets, insists Roger. “We do not expect our shareholders to pay for increased investment in sustainability,” he told attendees. “Sustainability investments are expected to be earnings neutral through structural efficiencies and growth leverage.”

One such efficiency will come via cutting packaging costs. Nestle plans to reduce packaging by around 30,000 tons, cutting costs by CHF100m (£78m) in a strategy that holds benefits for everyone in the supply chain – apart from packaging suppliers where the company expects 40% fewer on the roster by 2023. Elsewhere, Nestle plans to invest CHF1.5bn in the sustainable packaging market, with plans for a food-grade recycled plastic market alongside investment in paper and compostable packaging materials. In other initiatives, Roger outlined CHF250m investment in a venture fund focused on start-up companies experimenting in packaging innovation, and says the company is also pouring investment into research into plant-based products on the back of striking consumer preferences, and growth. “Sustainability is now a core part of consumer expectations, we increasingly see consumers responding to sustainable brands and products,” he says.

For Ojiambo, the need for business to invest more in sustainability is overwhelming. “CFOs collectively manage US$14trn in global corporate investment annually, including US$7.5trn in emerging markets,” she concludes, calling on finance teams to work with boards to spend on sustainability throughout a company. “Finance teams can turn ambitious commitments and well-articulated sustainability strategies into investments. They can also help to improve the credibility of SDG finance through outcome-based impact measurement and corporate-wide accountability.”

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