Introduction
The importance of environmental, social and governance (ESG) issues among corporates has been on the rise in recent years. Originally a tool for measuring a company’s non-financial performance, ESG is now a key component of corporates’ financial fundamentals. An effective ESG practice has the potential to bring corporates many benefits, such as lower capital costs, mitigated reputational risks, and the ability to meet increasing client and regulatory requirements. Numerous studies have shown that a company’s ESG performance is positively correlated with its revenue growth and return on investment (ROI), which can bring long-term shareholder value. In short, ESG can help corporates enhance their overall competitiveness, and create long term value opportunities that address key social and environmental challenges.
With ESG factors increasingly being embedded into corporate strategy and finance, more collaboration is needed among CEOs, CFOs, CSOs and Treasury professionals, and more questions arise. How ambitious should companies be when making their net-zero goals? Should corporates consider issuing labelled financing vs conventional bonds for financing? Or how should the company cooperate with its upstream and downstream partners to reduce carbon emissions as opposed to working it out on its own? The answers to these questions will depend on the overall maturity of an organisation’s corporate ESG strategy and its proficiency in sustainable finance.
To better understand how ESG strategies are defined and implemented, and how sustainable finance can help companies to go further, The Asset was recently commissioned by BNP Paribas to conduct a survey, inviting chief executive officers (CEOs), chief financial officers (CFOs), chief sustainability officers (CSOs) and other senior executives to share their views and experience on aligning ESG strategy and sustainable finance.
The survey allowed respondents from various countries and industries to openly share their motivations, difficulties and levels of progress while advancing their ESG agendas, and thus provide valuable insights.
Based on these inputs from responding company representatives and BNP Paribas, we have compiled this report in an exclusive series of three articles. In the first article we review the responses to key questions related to ESG strategy and sustainable finance, such as:
• What are the top priorities and challenges for companies in shaping ESG strategies?
• What stage of development are companies currently at?
• How can they go further?
In the next article, we will dive into the challenges faced by senior executives. In the third and final part, we propose that a deeper incorporation of sustainable finance with the help of banks is a powerful tool to overcome these challenges. We also provide wrap-ups of the findings and BNP Paribas’ expectations for the future.
This report serves as a compass for leaders in the strategy, treasury and sustainability departments to improve their understanding of issues pertaining to corporate ESG strategy and sustainable finance, by identifying specific actions that target change.
Voices from top management
In recent years, ESG has become a key focal point for board members and C-suite teams. Faced with climate change challenges, evolving socioeconomic conditions, and increasing demand for business transparency, CEOs are beginning to devise ESG-aligned corporate strategies, CFOs and treasurers are trying to learn more about sustainable finance, and CSOs are being appointed to coordinate ESG efforts. From the survey results, several interesting trends have been identified with regard to ESG corporate strategy-making and implementation.
First is the prominence of challenges in the E, S and G categories, which vary according to each company’s geography, sectors and ownership type. For example, 58% of the respondents indicate their companies face more environmental challenges than social and governance issues, while 32% believe social issues to be more pressing for their organisations, and 37% select governance issues as the most important. On balance, ESG issues are more pressing for non-Asia companies than for Asian companies. Yet, 31% of Asian companies and 33% of non-listed companies are working on net-zero targets, and there are signs this proportion is increasing.
Capturing this difference is important because, as shown in the latter part of this report, companies’ perception of ESG challenges is directly associated with their approach in dealing with ESG issues.
Second, the survey finds that currently CFOs and treasurers’ influence and involvement over corporate ESG strategy are not as strong as that of CEOs and CSOs. Overall, 46% of survey respondents believe CEOs are the main party responsible for advancing corporate ESG agendas, while 35% point to CSOs (together with the corporate social responsibility department) as the ones in charge of corporate ESG strategy. Only 29% think CFOs (and the treasury department) should be driving ESG strategy for their organisations.
However, many CFOs and treasurers believe the incorporation of finance functions in ESG strategy making and implementation can create synergies.
in the consumer goods sector
Likewise, Cynthia Tchikoltsoff, Head of Global Trade Solutions, APAC, at BNP Paribas, also expects CFOs and treasurers to play a larger role in the future.
“We expect the Treasury function will play a larger role in climate-related disclosure, sustainable procurement and ESG risk management. In addition, we see more treasurers aligning their financing strategy with their corporate and ESG strategy,” she explains.
“With clients across the board showing a more mature ESG approach, we see a shift from setting ambition to delivery. In other words, the conversation has shifted from “why?” to “how?” to implement sustainable finance in practice.”
APAC, BNP Paribas
Finally, the pace of ESG integration varies among organisations. While 20% of respondents say they have already begun to consider ESG factors consistently in their corporate financing decision-making, 37% are still in the planning phase of integrating ESG into their financial decision-making. For the most advanced companies, ESG integration extends into their network of suppliers, creating value-chain-wide ESG best practices.
Actions of these ESG leaders also suggest that ESG has gone beyond reporting and disclosure. Eric Tran, Head of Sustainability, Transaction Banking APAC, at BNP Paribas, says: “ESG is not only an imperative for disclosure and regulatory compliance, but is also progressively perceived as a key business differentiator to gain market share and demonstrate sustainability leadership to customers and investors.”
Transaction Banking APAC, BNP Paribas
Some of the increased challenges facing corporates in the ESG space will be explored in the second section of the report.
This is part of a series of articles on “ESG take-up in the spotlight”, based on a survey commissioned by BNP Paribas
BNP Paribas and Asset Benchmark Research gathered feedback from over 200 CEOs, CFOs, CSOs and other senior managers from corporations around the globe on their views on ESG adoption and what they expected from their service providers to take their respective companies to the next level of sustainability development. To ensure a comprehensive understanding of their viewpoints, respondents were involved in one-on-one interviews and an online survey was conducted in the first half of 2024.
