A discussion of green bonds includes the view that treasury “can’t push the cart up the hill” on sustainability.
The steady drumbeat of enthusiasm about ESG from bankers, investors, rating agencies and the media has failed to convince some treasury teams to push their companies to jump on the green finance bandwagon. For one reason, these treasury practitioners say that issuing green bonds or using other forms of sustainability-linked finance does not currently make economic sense for them.
- More importantly, these NeuGroup members say treasury’s role is to support, not drive, corporate sustainability efforts that must be embraced by the C-Suite and embedded into the business before treasury teams help assist and finance those efforts.
- Those takeaways emerged at a recent ESG working group meeting NeuGroup organized to discuss topics including the use of proceeds from green bond issues.
Pricing and PR. One member, who said every bank has pitched green bonds to his company multiple times, said he sees very little benefit from a pricing perspective, meaning the main value or return would be from public relations.
- “Green Bonds don’t necessarily provide a pricing benefit to non-green bonds,” he said. “While you are expanding your investor base, the issuances aren’t generally all that large and I’m not sure it would impact your overall bond pricing.”
- Another member said his company has high ESG ratings, thanks in part to investments in renewable energy projects, and doesn’t need the positive PR from issuing a green bond. He told others, “Don’t do green [bonds] for the sake of doing green,” particularly if a company, like his, does not have enough uses for the bond proceeds.
Supporting, not leading. A consensus emerged that whatever the motivations for making use of sustainability-linked finance, treasury needs to act in response to initiatives and messaging driven by the company’s senior leadership, not the finance function.
- “Treasury is the tail, not the dog,” said one member whose CEO has pushed sustainability and social responsibility into the company’s business operations and culture. As part of that vision, treasury did the hard, time-consuming work of issuing a green bond for the first time.
- The goal of that initial deal, the member said, was generating publicity and telling the story of the company’s commitment to sustainability.
- But for another member, pushing a green bond would put treasury “way ahead of the rest of the organization.” He said he would be “loath to jump in without a more comprehensive plan. If you don’t have the projects to spend money on, it doesn’t feel authentic.”
- He added, “A bond deal, which would generate lots of PR, needs to be one component of an overall green strategy which would include external communication. If we’re going to do it, it needs to be led by the sustainability team. We don’t want treasury pushing the cart up the hill on green.”
An ideal world? Another member whose company has issued sustainability bonds for both capital expenditures and operating expenses (a topic we’ll dive into in a future post) said he’d like to know if his peers viewed sustainability as a “bolt-on” or “can we do things we’re doing in a more sustainable way.”
- Put another way, is sustainability a “core mandate of treasury on an ongoing basis and less “pushing the cart up the hill,” he asked.
- A member of the treasury team at a large technology company that issues sustainability bonds offered a clear and compelling perspective on treasury’s role within a company committed to ESG principles:
- “In an ideal world, when a clear corporate strategy exists, I think treasury has an important role to play in partnering with the sustainability team to understand the art of the possible around linking financial tools to sustainability initiatives,” he said.
- “We have a very sophisticated sustainability team, but they are not avid followers of the capital markets; so it’s on treasury to push the envelope for how we can embed sustainability themes into our investment/financing activities.”