The Sustainable Treasury: More than Recycling

Sustainability, much like ‘efficiency’, does not have an intrinsic meaning. The 1987 Brundtland Report from the United Nations World Commission on Environment and Development (WCED) provides a definition of sustainability: “meeting the needs of the present generation without compromising the ability of future generations to meet their needs.” In a simplistic sense, sustainability merely means the capacity to keep doing something. For example, some businesses use the term to communicate their ability to sustain their business activities. An ethical approach to sustainability suggests that an organisation fosters long-term trust with all of its stakeholders in order to protect the business, its license to operate and the community in which it works.

Sustainability has gained traction in businesses because it is easier to measure than ethics, and therefore easier to report on. Carbon emissions, waste generated or saved, airmiles spent are among examples. It also has the benefit of saving money, rather than spending it. Technology is speeding up this change. For example the cost of more energy efficient technology, such as a fluorescent light bulb, will be offset by future savings. This allows companies to view environmental sustainability as at least compatible with, and sometimes complementary to, their profit seeking goals.

It is important to emphasise that a company’s impacts are not just those on the environment, but also on society, the economy and the world.

Gone are the days when sustainability reports were window dressing for companies to greenwash over the cracks in their reputation. Stakeholders are demanding more from these documents. They want to see a true picture of how business is done; in other words a company’s ethics.

According to the Global Reporting Initiative, whose professed goal is to make sustainability reporting mainstream: “Sustainability reporting helps organisations to set goals, measure performance, and manage change in order to make their operations more sustainable.

“A sustainability report conveys disclosures on an organisation’s impacts – be they positive or negative – on the environment, society and the economy. In doing so, sustainability reporting makes abstract issues tangible and concrete, thereby assisting in understanding and managing the effects of sustainability developments on the organisation’s activities and strategy.”

As interest in the organisation behind the numbers grows, business ethics issues are gaining a higher standing on many corporate agendas. The use of materiality analyses, whereby an organisation identifies the issues which are most salient to the business and are of concern to wider stakeholders, have shown this.

Reflecting this shift, metrics about business ethics are now becoming commonplace in external company reporting. These include diversity reporting (the percentage of women on the board, in senior management and across the company as a whole); staff engagement results; online training metrics – especially in the area of human rights; greenhouse gas emissions; and the number of reports to the Speak Up line.

Despite this move towards more rounded corporate reporting, these metrics highlight some of the ethical activities that companies undertake rather than how high standards of business conduct are achieved and how they operate ethically.

Reporting on how ethical values are applied in the day to day running of the business is not, as yet, routine. Commitment to company values, conducting business responsibly and building and sustaining trust are often mentioned in the statement of the chairman or the chief executive (CEO) at the start of the annual report as part of reinforcing the ‘personality’ of the organisation. But adopting a ‘warts and all’ approach to corporate reporting would increase the validity of the report. Many companies now report numbers of breaches to their code of ethics, and resultant dismissals, but reporting on business ethics needn’t be limited to addressing misconduct. Further areas which would also contribute to making corporate reports more rounded could include consultations with stakeholders, customer complaints, staff turnover rates and results of staff surveys – especially responses related to employee perception of the values and culture of their workplace.

By harnessing hard facts to report on the soft issues, businesses will not only be showing a truer picture of how business is done; investors can feel more confident in their investments; staff morale will be enhanced; and society can begin to place trust in businesses again.

The Role of the Treasurer

Treasurers are uniquely aware of their organisation’s reputation and responsibilities; whether that be to bankers, investors, the general public or fellow employees.

For the treasurer as risk manager the interest in ethics and sustainability is a vital part of their ambassadorial role and communicating with banks. Banks, like investors and the rating agencies, are beginning to look at a company’s sustainability programme and ethical reputation when assessing credit issues.

As risk managers, treasurers are also custodians of the company’s sustainability. Historically, risk management was a term used to address insurable risks. Today, risk management also involves addressing un-insurable risks such as a company’s reputation and integrity risk. A good reputation takes time to build, yet is so easily lost. It is easier to cultivate if the company recognises that doing business ethically makes for better business. That is what the treasurer is there to promulgate too, because better business means lower borrowing margins.

It is important for treasurers to understand the objectives of the organisation they work for, their role within it, and their part in the reputation, sustainability and accountability process.

Doing business ethically is something you do when no one is watching; therefore it can’t be done simply for show. Aside from the fact one should do the right thing because it is the right thing to do, there are business benefits to ensuring that ethical values are embedded within company culture, not least reputation risk management. Companies are more aware that their sustainability depends upon the trust of their stakeholders (investors, customers, employees, suppliers, society at large). Ultimately, trust comes from being ethical.

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