Treasury’s Need for an ESG Filter to Keep the Focus Where It Belongs

By October 18, 2021October 19th, 2021No Comments

Tech treasurers in Asia discuss ESG priorities with Goldman Sachs Asset Management. 

Members of NeuGroup for Asia Tech Treasurers heard insights on treasury’s growing role in the accelerating efforts of corporates to promote sustainability through environmental, social and governance (ESG) initiatives at a recent meeting sponsored by Goldman Sachs Asset Management (GSAM).

  • Among the key takeaways: Figuring out what matters and what doesn’t to investors and other stakeholders diving into the ESG pool is critical for treasurers facing pressure to innovate and manage complex projects.
  • In addition to examining where ESG fits in treasury’s investment and issuance responsibilities, the meeting featured panel discussions between members and subject matter experts on the rise of digital assets and the search for yield by investment managers.
  • You can see a video synopsis of the meeting’s takeaways by clicking here. Below are takeaways from the ESG session. Please watch for takeaways from other sessions in future posts.

Make treasury an ESG center of excellence. In response to questions from Queenie Siu, head of Greater China liquidity solutions sales at GSAM, John Goldstein, head of sustainable finance at Goldman, said that because ESG “is important and it’s often about money, treasurers often become a center of excellence within the firm.”

  • To do that, in addition to figuring out ESG’s role in cash management and investment as well as capital markets issuance, treasurers are increasingly playing a strategic role in helping C-suite executives explain to investors where ESG fits in the company’s story, Mr. Goldstein said.
  • “You could see it as an opportunity for treasurers to be central to that dialog or a growing requirement,” he said. “Treasurers have really started to better appreciate the full range of tools they have to express the ESG views, advance the ESG mission, tell the ESG story within their organizations.”

Figure out what matters. The opportunities ESG presents to treasury teams to help shape their companies’ sustainability narrative come with some challenging responsibilities, Mr. Goldstein noted. He recalled talking to one treasurer who had been asked in the last year for more than two thousand different ESG data points.

  • Amid all the requests for data, metrics and other reporting, “It’s easy to get lost and figure out what matters and what doesn’t,” he said. “It’s almost as important to know what doesn’t matter so as to not waste time so you can focus on the stuff that does.”
  • To assist treasury teams make those distinctions and focus their efforts, Goldman spends lots of time gathering intelligence by talking to investors, helping treasurers stay “close to the market” and “make good decisions based on new, fresh, clear understanding.”
  • Treasurers are learning fast that, like other areas of responsibility, ESG issuance and investing involves both innovation and project management.
    • “Innovation is hard; project management is hard,” Mr. Goldstein said. “As you get more things to do and more innovation,” it becomes more important for treasury to grapple with “how you keep up with it all.”

Investments or issuance first? Corporates face lots of options as they survey the ESG landscape, starting with whether to focus first on investments or issuance. This prompted one NeuGroup member to ask, “How can we most effectively evaluate the priorities among these ESG-related activities?”

  • Mr. Goldstein’s answer: “Starting with investing is often easier, it takes less time, you can lean much more heavily on outsourcing to other people, so that has real advantages.”
  •  Investing with ESG principles allows treasury to learn “what metrics are other people using” and to better understand the data, he added. “For some people it’s learning, for some people they’re not ready to issue.”
  • That said, if senior leadership is intent on telling the company’s ESG story to the market, “that may mean it’s time to get working on an issuance framework,” something that takes plenty of time and planning, he said.
  • Asked by the member about the trade-offs regarding yield and risk in investing with an ESG lens, Mr. Goldstein said that in designing portfolios with a client, “We’ll say, ‘If you get this level of carbon reduction, this looks great. If you want to get to this point, you’re changing your universe, it may be hard to get the yield with this duration and credit quality you want.
    • “There’s not one answer to it. For us, it’s a process. The process is fact-based and analytical. ESG is a field where people spend a lot of time with opinions as opposed to facts. We don’t like to make up our mind until we have the data.”
Justin Jones

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