Green Treasury: The Way Forward

Amid continued concerns over companies’ thinning profit margins and efficiency, it’s no wonder that financial executives are becoming innovative in their attempts to contain costs. By going green, rather than creative accounting, corporates can reap considerable benefits.

Ernst & Young’s (E&Y) recent report ‘Six Growing Trends in Corporate Sustainability’ included a survey, conducted in late 2011, of 272 sustainability executives over 24 industry sectors from companies generating annual revenues of more than US$1bn. It found that more than half the companies expect to continue investing in sustainability initiatives. Reducing costs topped the list of key drivers for their sustainability agenda. Although most of the respondents were from the US, the results point to increasing recognition globally that going green is also a viable way to reduce cost and improve balance sheets.

Green initiatives are not just for energy-intensive companies. Even if your business is not in manufacturing, it does not mean that you are operating in a ‘clean’ sector and that sustainability-oriented actions are not worth the effort. 

The Power Game

Let’s consider the environmental impact of a financial institution. The energy used to power a variety of typical office equipment, from air conditioners to computers to appliances such as water dispensers, which often operate for lengthy periods, can be massive. A less recognised but equally important device that financial professionals heavily rely on is IT backroom servers. These, too, are energy-hungry. Add on the often wasteful behavior of individuals within the organisation and the overall energy and emissions footprint is considerable.

There are tangible opportunities to reduce power consumption, both at institutional and individual levels. The challenge is the various mindset and behavioural changes that are required to wean people off wasteful practices. For green efforts to be sustainable, the right tone must first be set at the top and must be consistent.

The most impactful step starts with reducing the use of air conditioning, which typically accounts for close to 60% of the energy load in a normal office. For older buildings, institutional level plans include refurbishment or replacement of older items with more energy-efficient air conditioners, IT servers and equipment, and the installation of motion sensors to activate air conditioning fan units and lights. At the individual level, changes in energy usage patterns, such as switching off computer monitors, lights and personal devices when not in use, and using water more responsibly, are incremental  ways that can add up to considerable energy savings over the long term.

The Paper Chase

In addition to energy efficiency, another green opportunity lies in managing paper usage, often accompanied by the equally heavy consumption of printer cartridges. This has knock on effects in terms of the usage of plastics and metal (key components in cartridges), chemicals (in inks) and electrical energy (which translates to carbon dioxide (CO2) emissions).

Figure 1: The Split Between Paper-based and E-communication in Asian Banks
 
E&Y Figure 1

Source:Asia’s Developing
Retail Banking Landscape – Building Sustainable Customer Relationships,The Asian Banker, 2010 

The easy response to tackle paper consumption is to go paperless. But the fact remains that this can be a practical challenge. According to The Asian Banker’s 2010 report ‘Asia’s Developing Retail Banking Landscape – Building Sustainable Customer Relationships’,  banks consider paper-based communication the least effective means of communicating with clients compared with six other customer interaction channels ranging from short message service (SMS) to electronic direct mailers. However, the same research indicated that the majority of consumers across most markets in Asia continue to opt for printed monthly statements, fixed deposit receipts, transaction records, contracts and other banking records. Perhaps consumers find more comfort in seeing their transactions documented on paper, but financial institutions find themselves caught between the competing priorities of setting better sustainability standards and their customers’ preferences. The good news is that the younger generation is more receptive to going paperless.

In addition, comScore’s ‘State of Online Banking 2010’ survey of over one million US internet users found that 58% of respondents had enrolled for paperless statements, up from just 5% a year earlier. The majority (70%) had gone paperless for their savings or chequing accounts; a lesser number did so for credit card statements (47%), insurance (28%) and brokerage (16%).

From a business-to-business (B2B) perspective, given that the scale of B2B transactions is larger than business-to-customer (B2C), the potential for savings from paper usage is also proportionately higher. There is evidence to indicate that the B2B sector has progressed further in its paperless initiatives, with a higher success rate.

Figure 2: Current User Status of Paperless Trade in Korea
 
E&Y Figure 2

Source:Towards
a Single Window Trading Environment’,UNNExT,
2010 

For example, according to United Nations Network of Experts of Paperless Trade in Asia and the Pacific’s (UNNExT) brief ‘Towards a Single Window Trading Environment’, work on electronic data imaging-based transactions commenced back in the 1990s. In Asia, Korea is at the forefront through its uTradeHub project, a paperless trade platform bringing together the entire set of players – including traders, banks, logistics firms,government agencies – through a seamless system interface. uTradeHub offers various services by linking its platform with systems of around 30,000 trading and logistics firms, and banks.

By enabling reduced volumes of paper documentation in various operational areas, including trade financing, licensing and certification, customs clearance and logistics, uTradeHub is estimated to bring economic benefits of about US$3bn. Of this, the electronic export and import process is expected to save about US$550m by reducing labour costs in issuing and circulating documents, representing savings of 18%.

Figure 3: Estimated Economic Benefits of Paperless Trade
 
E&Y Figure 3

Source:Towards
a single window trading environment,UNNExT,
2010

Even without government-supported infrastructure such as uTradeHub, organisations can have green initiatives of their own. An example is AXA Equitable’s collaboration with JP Morgan to identify the best opportunities within its treasury department for paperless processes.

According to JP Morgan, as a result of the efforts AXA eliminated almost 400,000 documents annually from its treasury workflows, reducing accompanying bank fees by US$213,000 and saving US$15,000 in storage, research and labour fees. The environmental impact for AXA’s efforts was also significant, with 134 trees saved, 97 tons of greenhouse gases prevented and paper usage reduced by 5.5 tonnes annually.

The Pursuit of Green Treasury

Even if efforts to reduce the use of natural resources or energy encounters rough weather, from consumer resistance to sheer business pressures, the least that financial professionals and organisations can do is to ensure a sustainable footprint and become good corporate citizens by:

  • Ensuring that paper is sourced from vendors who provide certification that their product is from sustainably grown plantations.
  • Establishing a procurement policy, so that the organisation’s network of suppliers adheres to acknowledged norms for ensuring green practices.

After all, going green is an altruistic act that reduces waste and saves money; what’s not to like about it?

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