Sustainability in Corporate Treasury

Sustainability is becoming increasingly important in the corporate environment, particularly due to the increasing regulatory requirements at European and national level. For corporate treasury departments, this can give rise to new issues and the need to support and collaborate on sustainability issues in order to fulfil reporting requirements. But what steps are necessary? What needs to be taken into account? And what challenges need to be overcome?

The Corporate Sustainability Reporting Directive (CSRD) adopted by the European Parliament in 2022 will bring significant changes for companies and their finance departments, which will be increasingly involved in sustainability reporting on an ongoing basis. Companies must document and provide sustainability-relevant information precisely and comprehensively. This requires the integration of ESG criteria (environmental, social, governance) into processes and strategies, particularly in risk management, liquidity planning and control as well as in issues relating to the financing of planned projects. It is clear that instruments such as green bonds or sustainability-linked bonds are gaining in importance. The task now is to integrate these more strongly in practice and use them in a structured manner.

When implementing CSRD, companies should pay particular attention to the requirements of the European Sustainability Reporting Standards (ESRS), as these set a clear framework for reporting. The focus is not only on environmental aspects, but also on social and governance aspects. Treasury management plays a central role by taking into account the opportunities, risks and positive and negative impacts identified as material and acting as a sparring partner for achieving the overarching sustainability goals. This includes in particular 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.

The implementation of the CSRD brings with it a number of challenges. Companies are faced with the task of establishing new reporting structures, integrating complex regulatory requirements into existing processes and bringing stakeholders together in interdisciplinary teams. The collection and analysis of ESG data not only requires new technical solutions where necessary, but also specialised expertise in the areas of sustainability and financial management. At the same time, companies are increasingly in the focus of investors and the public due to growing transparency. This requires careful planning and close coordination between departments in order to meet the new requirements, recognise potential risks at an early stage and manage them effectively. For treasury management, this means expanding its expertise in a targeted manner, establishing new links to sustainability-related factors and integrating these more closely into daily work and decision-making processes.

Politically, many European countries are under pressure to develop and drive forward their national strategies for implementing the CSRD. The EU member states have been obliged to transpose the Sustainability Reporting Directive into national law by June 2024. However, some countries, including Germany, have not yet fully completed this process. Although the German government has already presented a government draft for a transposition law, it has yet to be finalised.

The delay in implementation is increasing the pressure on the countries concerned, as the European Commission initiated infringement proceedings in September 2024. These ongoing delays are creating uncertainty for companies, auditors and other stakeholders. At the same time, they undermine the credibility of the sustainable transformation in Europe, which the CSRD is intended to drive forward decisively.

Sustainability is no longer a marginal issue, but is becoming a central component of corporate strategy - also for treasurers. The increasing regulatory requirements of the CSRD not only demand comprehensive adjustments in reporting, but also a strategic reorientation in the finance departments. Corporate treasurers are faced with the task of specifically integrating ESG criteria into processes such as risk management, liquidity planning and financing.

The key here is to act proactively:

• Understanding the regulatory requirements: Treasurers should analyse the European Sustainability Reporting Standards (ESRS) in more detail to ensure that they take regulatory requirements into account in their core processes.
• Integration of ESG criteria: Sustainability goals must be consistently embedded in the financial strategy, for example through the use of green financial instruments.
• Co-operation and transparency: Co-operation with other departments and stakeholders is crucial in order to produce consistent and comparable reports that strengthen the confidence of investors and the public.
• Technology and expertise: The introduction of suitable technical solutions and the further qualification of the team are essential in order to effectively manage the collection and analysis of ESG data.

Time is of the essence: The delays in the national implementation of the CSRD create uncertainty, but make one thing clear - sustainability is no longer an optional part of financial strategy, but a core task to which treasurers must dedicate themselves with determination.

Source: KPMG Corporate Treasury News, Issue 150, December 2024

Author:
Nils Bothe, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG