How finance & treasury are driving sustainable business transformation
Executives at networking-equipment maker, Cisco Systems and the power management company, Eaton Corporation discuss how their strategic role in supporting the business has been enhanced by the growing importance of ESG issues.
The role of treasurers within many corporations has evolved. Historically, treasurers have only focused on financial flows and been responsible for managing liquidity, cash, supply chain and related issues such as interest rates and FX. However, as corporate models have changed, treasurers have steadily become more connected to core business activity such as sales or procurement.
Unlocking the energy transition
Consider the American-Irish multinational power management company, Eaton Corporation, which responded to the energy transition from fossil fuels to renewables by implementing solutions that transform the electrical power value chain (energy storage and UPS), investing in electrical vehicle markets (EV charging infrastructure) and employing digital technologies for power management. These strategic focus areas are an important part of the company’s response to corporate social responsibility.
During discussions around these developments, Andreea Laplace, strategic financing and venture business development director at Eaton, realised that while customers are interested in these sustainable product offerings, they are faced with roadblocks such as annual departmental budget and the authorisation of significant capital outlay. This meant that organisations ended up waiting months for essential renewable energy technology.
This meant that the finance and treasury team had to develop bespoke financing solutions to help clients accelerate their energy transition plans whilst preserving cash flow. These tailormade solutions offer a predictable fixed payment that includes infrastructure, equipment and access to the company’s global service network.
Furthermore, in January 2023, the company also partnered with a bank to expand its leasing facilities. This finance programme is currently available in France, Spain, Switzerland, Norway, Germany and the UK and will be further expanded in Europe in 2023.
Supporting the ESG transformation
The multinational digital communications technology conglomerate, Cisco Systems, signed the United Nations Global Compact (UNGC) in September 2001 which had ten principles across Human rights, Labour standards, Environment and Anti-corruption. Thereafter, in 2015, the company stated its aim to positively impact 1 billion people by 2025 through its social impact grants and multiple signature programs .
While the California based giant has been carrying these activities via its foundation and networking academies, in 2021, it took a major shift in its strategy and purpose to achieve an inclusive future for all. This was carried out by defining 18 topics that were critical to Ciscom, its ecosystem and stakeholders.
To support this shift, the treasury team signed a $3 billion Sustainability-Linked revolving credit facility which has been specifically linked to two clearly defined ESG initiatives. Firstly, to reduce the use of foam in packaging equipment by 75% by 2025 as compared to 2019, and secondly, the company also included its ongoing initiative of positively impacting 1 billion people within the same timeline. Furthermore, from a cash management perspective, the treasury team has been looking to place excess cash in funds or liquidity products that support ESG initiatives.
Meanwhile, in August 2022, Eaton also issued a $1.3 billion sustainability-linked bond, wherein the interest rate is subject to the achievement of a sustainability performance target to achieve at least a 40% reduction in absolute Scope 1 and Scope 2 emissions by year-end 2027, relative to a 2018 baseline.
“Linking your financing structure to your sustainability goals sends a powerful message that demonstrates your genuine commitment to sustainability,” Laplace told delegates at the conference.
Despite the generally optimistic outlook for ESG and sustainability initiatives, fears over “greenwashing” continue to remain amongst treasury executives. However, Kaya told delegates that it is essential to keep targets quantifiable and explicit which in turn corroborates towards an authentic and honest ESG framework.
From March 21st to 22nd 2023, join senior-level peers to explore the effect of unprecedented economic volatility on treasury and the measures needed to support the business at EuroFinance’s 8th annual Global Treasury Americas, West Coast.
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