In times like today’s where the world is facing unprecedented disruption – many companies around the globe are re-evaluating their business models and strategic priorities.
In earlier times organizations’ stance on ESG issues was a public relations tactic. However, in today’s rapidly changing business climate, attention to ESG issues is becoming critical to long-term competitive success. Not only enterprises but even investors now realize this and make sure that companies in their portfolios take a proactive approach to ESG policies and messaging.
So, what exactly is ESG? ESG can be understood as a framework for analysing companies and assessing how well they are as compared to their peer in terms of performance against the following metrices:
Under E, we have Environment – All organisations have water usage, waste production and general kind of environmental behaviour and how efficient they are at managing their resources and also the environment.
Under S, we have Social – It’s around how well do organisations manage their workforce, customers or clients, then there is also some diversity aspect around the management.
Under G, we have Governance – Governance covers a broad range of corporate activities including board and management structures as well as a company’s policies, standards, information disclosure, auditing and compliance.
In today’s sustainability-positive-environment where every part of the corporation is expected to help advance the corporate’s strategic sustainability goal, finance and treasury functions are no exceptions.
There have been numerous questions around how modernization of Treasury and trade finance operations can contribute towards a corporate’s sustainability objective.
The answer to the question is – By reshaping Treasury and Trade Finance functions using technology enablers to digitize its operations.
Let’s now examine how digitization of treasury helps an organization to achieve its ESG goals
Environmental Impact The Treasury management operations require extensive amount of paperwork, and by adopting electronic transaction processing, treasuries can reduce the amount of paper used by their corporations as well by their counterparties. This not only helps the environment by reducing the use of paper, but also by reducing the emission of greenhouse gases during paper document delivery using any mode of transport. Similarly, the international trade cycle involves use of paper by the corporates and the large number of parties involved in the cycle. Adopting digital processes instead of paper can appreciably shorten this cycle. Furthermore, treasury’s adoption of cloud computing can also have a major impact on environment.
Social ImpactThe digitization and automation of treasury operations enhances the experience of the work force by automating the repetitive and redundant tasks, the quality of work also improves as well when the manual error prone work flow is replaced by a digital solution. This not only increases the efficiency of the employees but also give them a sense of achievement and motivation when they can focus on more strategic aspects for their roles rather than spending time on redundant activities.
Governance ImpactTreasury plays a key role in managing a corporate’s risk management – one element of this lies in ensuring compliance with regulation and corporate policies. Apart from safeguarding the corporate’s financial assets, it also helps in fulfilling the governance part of ESG.
Treasury can strengthen its operations by leveraging digital solutions that can provide capabilities like in-built audit trails, alerts, notifications, approval mechanism and escalation matrix as per the organization’s process workflow. The digital solutions facilitating reports and dashboards can be useful from the internal as well as external audit perspective. Consequently, this would provide more transparency, visibility and control for the top management over the entire treasury, risk and trade finance operations.
As the development of ESG in treasury continues at a rapid pace, it is important for treasurers to stay informed on the latest developments, and to find out if the goal is to make finance sustainable, or to finance sustainability. We anticipate lot more innovation, a lot more product coming to the market that are ESG linked and support sustainability.