How treasury can help maximize the value of ESG
A company’s environmental, social and governance strategy can help treasury add value by enhancing how it manages liquidity, mitigates risk and drives growth.
A change is occurring in how business performance is measured. Increasingly, companies are using nonfinancial metrics to assess how they contribute to all stakeholders, not just shareholders.
While the corporate focus on environmental, social and governance (ESG) factors is not new, it’s certainly come to the forefront of investor decisions and how business leadership sets strategy.
As treasury’s strategic role within the business evolves, incorporating ESG into core functions will become highly important. Treasury must value ESG, precisely because the business values it.
Why ESG is important to treasury
Treasury groups have long been seen as the financial conscience of a business, which makes ESG a natural focus. The principles of sustainability, fairness and accountability are familiar and mesh seamlessly with treasury’s role.
Ultimately, ESG is important to treasury because it is beneficial both to the business’s reputation and to its bottom line. Expectations from investors, rating agencies and shareholders fundamentally tie ESG to the long-term financial success of the business.
It’s treasury’s responsibility to shepherd finances—and leading on ESG can help it do so. Factoring ESG into capital deployment, funding, allocations, account management and more can help improve performance. The added benefit is knowing it’s not just for the good of the business but for all stakeholders.
How can treasury create value through an ESG agenda?
Treasury organizations have a broad opportunity to elevate organizational ESG priorities—and the business’s core mission—by aligning cash management processes and infrastructure with these objectives.
- Elevate performance through incentives when managing cash and sources of financing. Treasury can leverage positive ESG activity to gain access to specific ESG funding or enhanced financial terms on credit facilities and deposits, for example.
- Enhance internal relationships with other stakeholders promoting ESG performance. This may mean strengthening existing relationships or building new ones. Treasury can use this engagement with other business units to advocate for positive ESG performance, thereby showcasing the additional value it brings to the organization.
- Align ESG priorities with external partners. Treasury will need to deepen its relationships with outside organizations—such as rating agencies and counterparties—to set expectations and align standards for doing business.
Learn more: Tactical steps treasury teams can take to help advance ESG priorities.
Risk management crucial to treasury ESG initiatives
Treasury is a steward of risk. Advancing and advocating for ESG performance is an extension of that responsibility, as treasury must add ESG risks to its purview.
Opportunities exist for good behavior, but treasury should be just as prepared for negative impacts of ESG performance—which can lead to decreased revenue or share prices that affect how treasury groups manage liquidity and maintain compliance with financing agreements.
Regulatory scrutiny of ESG factors is increasing across multiple jurisdictions, which makes keeping pace with the changing regulatory landscape essential. Regulatory compliance is already a core competency of treasury, so these skills can be expanded to help the business take a codified organizational approach to ESG. Proactively considering local jurisdictions’ expectations could allow the business to enter new markets more easily.
Well-documented policies and procedures are essential to good governance. Treasury should also take external ESG risks into account by assessing the performance of vendors, banking providers, trading partners and other counterparties, and by establishing minimum standards for relationships.
Importantly, this risk management can be done while treasury continues to champion efficient and sustainable business operations.
Next steps for treasury
Treasury already interacts with different business units to bring value through its insights. Increasing this scope to include ESG is a natural progression for many.
The importance of ESG to corporate strategy is here to stay, and treasury can help maximize its impacts by strengthening cross-functional partnerships to deliver value.
JPMorgan Chase has a strong commitment to sustainability, as well as the treasury solutions to help your organization focus on ESG. Contact your relationship team to learn more.
© 2022 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.