In the corporate environment, sustainability is becoming ever more important, primarily as a result of growing regulatory requirements at European and national level. This can lead to new issues for corporate treasury departments and the need for support and input on sustainability issues so as to meet reporting requirements. So what steps are necessary? Which aspects need to be taken into account? And what challenges will need to be faced?
What actions should be taken?
The Corporate Sustainability Reporting Directive (CSRD) adopted by the European Parliament in 2022 introduces significant changes for companies and their finance departments, which are being integrated more closely into sustainability reporting on an ongoing basis. Companies will have to document and provide sustainability-related information in a precise and comprehensive manner. This calls for the integration of ESG criteria (environmental, social, governance) into processes and strategies, specifically in risk management, liquidity planning and management as well as in matters relating to the financing of planned projects. It is apparent that instruments such as green bonds or sustainability-linked bonds are playing an increasingly important role. It is now a matter of integrating these more strongly in practice and using them in a structured manner.
What needs to be considered?
When implementing the CSRD, companies should focus in particular on the requirements of the European Sustainability Reporting Standards (ESRS), as these establish a clear framework for reporting. In doing so, the spotlight is not only on environmental aspects, but also on social and governance aspects. Treasury management has a key role to play by taking into account the opportunities, risks and positive and negative impacts identified as material and by acting as a sparring partner for achieving the overarching sustainability goals. Among other things, this includes the greater integration of material risks and long-term financial effects into liquidity planning, risk management and scenario analyses. The aim is to achieve a robust financial strategy, greater transparency in reporting and consistent and comparable information that strengthens the confidence of investors and stakeholders.
What are the prevailing challenges?
Putting the CSRD into practice comes with a number of challenges. Organizations will have to set up new reporting structures, integrate complex regulatory requirements into existing processes and bring stakeholders together in interdisciplinary teams. Not only does collecting and evaluating ESG data require new technical solutions in some cases, but also specialist expertise related to sustainability and financial management. In parallel, increasing transparency means that companies find themselves under greater scrutiny from investors and the public. This calls for careful planning and close coordination between departments in order to meet the new requirements, identify potential risks at an early stage and manage them effectively. As far as treasury management is concerned, it means expanding its specialist knowledge in a targeted manner, identifying new links to sustainability-related factors and integrating these more closely into day-to-day work and decision-making processes.
The current political situation as it relates to the CSRD's implementation in the long run
There is political pressure in many European countries to develop and drive forward their national strategies for implementing the CSRD. The EU member states were required to transpose the Sustainability Reporting Directive into national law by June 2024. Yet some countries, including Germany, have not yet fully completed this process. While the German government has already presented a draft bill for a transposition law, final adoption is still pending.
This delayed implementation adds to the pressure on the countries concerned, as the European Commission initiated infringement proceedings in September 2024. The persistent delays are also creating uncertainty for companies, auditors and other stakeholders. They also undermine the credibility of the sustainable transformation in Europe, which the CSRD is intended to drive forward decisively.
Conclusion: What treasurers should keep in mind now
For some time now, sustainability ceased to be a marginal issue and has instead become a central component of corporate strategy – including for treasurers. As regulatory requirements under the CSRD become more stringent, not only are comprehensive adjustments to reporting required, but also a strategic realignment in finance departments. Corporate treasurers will need to integrate ESG criteria into processes such as risk management, liquidity planning and financing in a targeted manner.
The key here is to act proactively:
- Understanding regulatory requirements: Treasurers are well advised to analyze the European Sustainability Reporting Standards (ESRS) in more detail to ensure that they reflect the regulatory requirements in their core processes.
- Integrating ESG criteria: Sustainability goals must be consistently embedded in the financial strategy, for instance through the use of green financial instruments.
- Cooperation and transparency: It is crucial to collaborate with other departments and stakeholders so as to produce consistent and comparable reports that boost investor and public confidence.
- Technology and expertise: Implementing suitable technical solutions and upskilling the team are essential to effectively manage the collection and analysis of ESG data.
Time is of the essence: While the delays in the national implementation of the CSRD create uncertainty, they have made one thing clear – sustainability is no longer an optional part of financial strategy, but a core task that treasurers must tackle in a determined manner.
Source: KPMG Corporate Treasury News, Edition 150, December 2024
Author:
Nils Bothe, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Nils A. Bothe
Partner, Financial Services, Finance and Treasury Management
KPMG AG Wirtschaftsprüfungsgesellschaft