ESG Aligning finance with ESG In the future, aligning environmental, social and governance targets within the DNA of their organisations will be vital for corporates looking to raise nance H ow corporates fund their ESG strategies will become increasingly important as their investors and other stakeholders demand evidence that they are hitting or exceeding climate change and other environmental, social and governance targets. In turn, this will place treasury teams at the centre of corporate decision-making processes as boards face increasing pressure from investors and other key stakeholders to act and report on their ESG policies and how they translate into their organisations financial strategies. And accurate, timely data will be key to understanding how boards, and treasurers, are responding to these pressures. These ESG themes were at the centre of the discussion with treasurers at the Association of Corporate Treasurers recent ESG conference, which included a panel featuring BNP Paribas CIB, BNP Paribas Asset Management and a panel of experts from Anglo American plc. BNP Paribas Exane recently asked 375 managers at 322 listed companies across Europe, representing more than 6 trillion in market capitalisation, what they considered to be the key ESG challenges that now face their companies and investors. The results are illuminating. According to three-quarters of the survey respondents, less than 5% of ESG issues addressed by investors have a financial impact, and while two-thirds of companies say they integrate ESG into their financial strategy, less than half define key performance indicators for ESG. And although almost all respondents want to retain ESG investors in their shareholder base, only 6% set quantitative targets. But one of the most important findings is that almost half say their sustainability departments report to the CEO and that two-thirds have a board member appointed to monitor ESG issues. Corporates absolutely need to position ESG at the C-suite level, says Constance Chalchat, BNP Paribas CIBs head of company engagement and global markets chief sustainability officer who led the panel. This is probably the key question that investors or suppliers will ask of their corporate clients; where is ESG positioned in your organisation? ESG should not be placed on the side, it should be integrated into the organisation in a very comprehensive manner. Investors expect to see it within the DNA of what the corporates are doing. The implication is clear if a corporate fails to tackle its ESG issues, and report on how they are doing so, then investors will have less trust in the organisation and increase the cost of finance accordingly. Translate into financial strategy However, it is equally important to translate an ESG strategy into a financial strategy in a credible way ambitious ESG targets, which can be measured and reported, will lend credibility to the ESG strategy and how it impacts financial performance. KPIs will drive ESG in an organisation, and the underlying data is critical, says Edward Lees, co-head of the environmental strategies group at BNP Asset Management who shared investor perspectives on the panel. He mentions that without clean or complete data you can arrive at 26 ISSUE 1 2023 treasurers.org/thetreasurer TT ISSUE 1 23 pp26-27 Aligning finance.indd 26 23/02/2023 09:14