While treasury departments have for many years been urged to go paperless as their main contribution to their green economy, a growing number have more ambitious plans in terms of contributing to the sustainability agenda.
This is not surprising, as the role of treasury departments within organisations and government is growing increasingly complex. If there is a ripple in the market or within the organisation, the chief financial officer (CFO) is often the first to know. The reality is that markets are shifting more frequently and more quickly. In response, treasury departments constantly need to be aware of the impact on the organisation in terms of profitability and credibility, and play an active role in influencing decisions that have knock-on effects on strategy, operational performance and capital investment.
In the context of contributing to the “green” agenda – and going beyond that the “sustainability” agenda – the treasury department has an important responsibility in influencing such decision-making, particularly capital investments that drive green initiatives or protect the overall resilience of the organisation. Core to this responsibility is effective visibility and decision-making. This is important considering when a missed risk, as a result of bias or complacency within decision-making, creates a massive long-term loss of market credibility, ability to operate and profitability – exactly what a treasury department would want to avoid.
We are increasingly seeing examples of what this looks like across events within supply chains and the impact on society and the environment, as well as commercial profitability, market credibility and the ability to operate. We don’t need to look further than catastrophic operational events to understand the risks that can result in the loss of human lives, damage to the environment and the commercial ramifications.
Meeting the goal
A further example is in the banking and wealth management sector, where companies are barred from portfolios for lacking a clear and mandated sustainability programme. Companies also have to respond to the growing power of the consumer, who is more knowledgeable, empowered and vocal about social injustices and sustainable issues than ever before. Many more companies are thus aligning with the United Nations Sustainable Development Goals (SDGs), aka ‘Transforming our world: the 2030 Agenda for Sustainable Development’ – a set of 17 aspirational global goals setting out 169 individual targets – both to tackle societal challenges and to leverage them as opportunities to enhance business growth and long-term competitiveness.
Clearly, sustainability is no longer a nice-to-have, but a collective moral and economic imperative. Being sustainable is not just about being “green”; it is also about adaptability – the ability to respond with agility within the parameters of a long-term investment, move quickly to meet the needs of markets and be competitive.
How do organisations make this goal real, tangible and relevant?
Aligning sustainable efforts with visibility to business model, strategy and operational risks provides the opportunity to re-think approaches to value creation and transformation. It is a catalyst for the development of new market opportunities and innovation; moving the needle on sustainable development and benefit creation while managing operational risks.
Sustainability is a journey of constant refinement and optimization, where many organisations are at different stages of maturity in their approaches. What these programmes or initiatives look like vary greatly across organisations and industries. What is most important is to get started and continually transform through this process.
Some organisations focus on implementing initiatives that not only have a positive sustainability impact, but create cost savings or a return on investment (ROI). Others focus on ensuring their operations engage with the local community and create sustainable programmes that deliver positive environmental and social outcomes.
One example is circular supply chains, involving product redesign for ethical sourcing and smart use of natural resources; a manufacturing process of efficient production, including reduced greenhouse footprint; right through to product lifecycle considerations for the full end-to-end waste management process of re-use and repair.
Alternatively, in operationally intensive environments – particularly where large infrastructure and assets are involved – we see leading organisations develop renewable sources of energy, providing clean water and other green projects to the benefit of both the business and the local community of operation.
In many of these cases, treasury can provide the catalyst for capital investment and ROI beyond short-term gains. Just a few years ago, organisations were privately funding sustainable or green projects with a smaller remit to provide a positive benefit. Treasury has a key role to play in this, by developing an understanding of the future economy and the competitive advantages that comes with demonstrating adaptability and transitioning into new business and financial models. In doing so, it also resolves some of the key challenges that the private sector, governments and communities face today.
Leading organisations that successfully integrate sustainable initiatives by understanding their full business model vulnerabilities and the implications for their business risks and strategy, operations, and the local community realise several benefits.
They see an increase in profitability and market credibility, as well as a more engaged workforce. They are more likely to create a business model of sustainable growth and performance; one that is resilient and more responsive to disruptive risks. We see organisations that take this approach have greater confidence to take and benefit from risks. There is also likely to be more structured and improved communication between leadership, operations and stakeholders. However, this can only come about by integrating risk indicators with strategy and operational performance across the whole organisation and supply chain.
With markets now more volatile than before, continuing with traditional ways of working is no longer viable. Treasury departments should be ambitious in their decision-making towards sustainable incentives and initiatives. By being bold in exploring the risks and pressures to the organisation, working with these risks proactively and readily, and engaging in conversations that matter to solve a range of the key challenges facing societies and economies, they can enable their organisations to reap the rewards of agility, resilience and growth.
Supply chain finance (SCF) at its surface can appear to disrupt supplier relations and the status quo. Thus, it’s critical for treasury to champion the value of SCF cross-functionally, and the strategic value it delivers in way of specific capital allocation commitments, EBITDA guidance, or free cash flow targets previously committed by the CFO.
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