Building a framework sets the stage for green bonds—an umbrella to systematize initiatives.
Increased scrutiny of corporate sustainability efforts by investors and other stakeholders has made it essential for companies to place ESG initiatives into a clear framework.
- Building the framework to coordinate decisions and address investor inquiries more effectively requires communication among key parts of the company, with treasury playing a critical role.
- These were among the takeaways from a recent meeting of NeuGroup for Capital Markets sponsored by Wells Fargo during which members learned about two companies’ journey to build such frameworks.
Virtuous cycle. One member at a major tech company noted its longtime focus on environmental issues, and its creation several years ago of a dedicated sustainability office.
- Treasury executives have been “unleashed,” he said, with support from the treasurer and CFO to proactively find ways to incorporate ESG initiatives.
- Working closely with the sustainability team in a “virtuous cycle” assures that financial initiatives are consistent with the company’s broader ESG objectives. “Collectively we can land that with senior leadership in a very effective way,” the member said.
ESG bonds help. Another member’s company decided eight years ago to power its energy-hungry business completely with renewable energy. It reached 90% in 2019 when, coinciding with the arrival of a new CEO, it created a more formal program headed by the VP of investor relations that applied greater focus to green, social and diversity initiatives.
- A recent green bond “was an accelerator that helped crystalize strategic targets and get buy-in from within the company for what the targets should be,” the member said.
- Serious consideration of a green bond started when the company achieved investment-grade status. The sustainability office saw an opening and “they really took over in terms of creating the green framework,” the member said.
- “It was a big lift coming up with the list of commitments the company would stand by and communicate externally.”
- That involved reaching out to colleagues in operations, construction, procurement and other departments. “A massive undertaking led by the sustainability office, along with the bank we chose and treasury,” he said.
The payoff. The bond led to broadening the company’s ESG initiative to include constructing only LEED Gold-certified buildings globally, and investing in waste-water management and recycling as well as charging stations for electric vehicles.
- “A structure was put in place for internal targets and a framework that the sustainability office could show externally,” he said.
Sustainability board. The member cited the benefits created by communication between treasury, sustainability and other departments, achieved partly through the company’s sustainability board.
- It comprises more than 20 representatives from departments ranging from data-center construction, those responsible for powering and cooling the centers, folks constructing devices, perhaps with recycled materials, and those in charge of the company’s employee transfer programs.
- “There is a virtuous cycle of ideation and innovation that can occur from bringing key ideas to that board for feedback, to make sure they are honed and as impactful as possible,” he said.
- The company’s sustainability bond last year “put everything under one umbrella,” the executive said.
- “It made it clearer to us in treasury that we could play a role in tying together the financial narrative, working with the communications team, IR and the stability office to build the connective tissue that connect sustainability, environmental and governance.”