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Treasury Management

Sustainability Could Enter Treasury's Purview

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June 08, 2017

Treasurers likely to increasingly face sustainability questions from investors.

Blue fish red fishUS companies are on track to be the global leaders in terms of sustainability, a trend that’s key for corporate treasury to be aware of when talking to investors, especially if a company is considering an offering in Europe.

The Governance and Accountability Institute’s annual analysis of S&P 500 companies found that 82% report on sustainability, including environmental, social and corporate governance. The biggest increase occurred between 2011 and 2013, from just 20% to 72%, and the percentage has climbed steadily ever since.

Hank Boerner, chairman and co-founder of the G&A Institute, said the C-Suites and even boards of the biggest companies are pushing the trend, emphasizing areas such as the reduction of waste, using more environmentally friendly and/or reusable materials, and minimizing greenhouse gases.

Key for executives to understand at the next levels of companies in terms of size is that the biggest MNCs are pushing their supply chains to do the same.

“They’re looking at their supply chains and the behaviors of those companies, in part to avoid future litigation,” Mr. Boerner said. He noted that General Motors has analyzed its operational practices in terms of sustainability and pushed Johnson Controls and other suppliers to do the same. Meanwhile, Johnson & Johnson has “a very vigorous program of this type and has supplier preference status for more sustainability-minded smaller suppliers,” he said.

General Electric’s Ecomagination growth strategy aims to enhance resource productivity and reduce environmental impact at a global scale through commercial solutions for customers and in its own operations. Mr. Boerner noted that Ecomagination’s products generate revenue equivalent to a Fortune 200 company.

“The savvy treasurer or other financial executive will tune in to all this because the sustainability journey of the public company is all about increasing the bottom line, creating competitive advantage, and demonstrating added-value to its customer base,” Mr. Boerner said.

More directly pertaining to treasury, while corporate peers and customers pressure companies to improve sustainability, institutional investors have been the predominate force pushing for change. Treasury executives typically are a part if not heading up roadshows to market their companies’ securities to institutional investors. Boehner said sustainability issues do arise in meetings with US institutional investors although they tend not to be part of official presentations but rather concerns specific to an industry, such as waste water and other waste in the energy industry.
In Europe, however, companies can expect to be grilled routinely on their sustainability efforts. S&P 500 companies have tapped capital markets in Europe and elsewhere for decades and especially over the last several years, when rates have been historically low. The next rung down of companies are also looking across the pond, not only to take advantage of ultra low rates but to diversify their investor base, and their finance executives should be prepared to answer sustainability-related questions they may not yet have faced at home.

“When US companies go to Europe, they’re questioned quite thoroughly by European institutions about their sustainability programs,” Mr. Boerner said. “And they bring that discussion back home … about what they should be doing if they’re not doing it already.”

Mr. Boerner attributed much of the S&P 500 companies’ recent emphasis on sustainability to European institutional investors.

“European investors have been a driving force here in the US in terms of sustainability,” Mr. Boerner said. “They’re more socially minded about corporate behavior, so we see insurance companies, endowments, foundations and retirement systems in Europe all being very interested in this.”

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