Balancing ESG and Treasury priorities in Uncertain Times

Once it gathered momentum, ESG was never going to be the easy option. It’s why, with most businesses today classifying ESG as a strategic component of what they do – from operations to investments – many are feeling the heat, often quite literally.

After an era of ESG conviction and corporate commitments, diverse stakeholders, including customers and staff, shareholders, investment managers, and credit rating agencies, are all ultimately seeking a degree of proof that enterprises are sufficiently upholding their proclaimed values of sustainability. For corporate treasurers, it is a real test to simultaneously meet the ESG demands of the business while continuing to satisfy enterprise-wide financial goals.

Indeed, as de Drouas notes: 

We’ve seen a mounting need for reliable ESG data, and once again, treasurers, because they own enhanced financial data, have a huge role to play in its delivery.

But, she adds, their level of contribution and knowledge has also positively placed many treasurers in the driving seat in terms of financing their companies’ transition to sustainability. 

While an increasing number of treasurers recognise that ESG has real value in a world where the idea of common good is under threat, in the current testing economic environment, driven by overlapping geopolitical tensions, there is an added challenge. And that is treasury’s need to grasp the recent uneven reassessments of the rules.

Moving targets – and supply chains 

The EU’s Omnibus Regulation proposals, announced in February 2025, are aimed at streamlining disclosure and reporting rules, enabling businesses operating in member states to remain compliant while still actively pursuing their sustainability goals. Meanwhile, in India, ESG regulations are being reviewed by its Securities and Exchange Board of India (SEBI), and in the US, the Securities and Exchange Commission (SEC) has moved to roll back climate disclosure rules. 

While the moving goalposts of ESG regulation add another level of complication for treasurers operating globally, closer to home, the reappearance of inflation and higher interest rates will have confronted the capital allocation strategies of most companies, further muddying matters, notes de Drouas.

Whereas companies know ESG will be a longer-term return on investment, they are now having to balance that understanding with the pressure to make shorter-term economic returns, and that obviously makes it more complex for treasurers to integrate.

There are opportunities in the mix though, she notes. In the US, for instance, despite the recent push-back on support for renewable energy, the call for new power-hungry data centres as the AI roll-out ramps up could see a marriage of great convenience if those data centres can, to some degree, be powered by sustainable energy sources. 

The political influence on wider supply chain activity, especially SCF and trade finance, is clear as the imposition of tariffs drives a reconfiguration of procurement and sourcing strategies. This can alter elements of sustainability with new corridors opening up as companies decide to reshore, nearshore or simply relocate. 

Certain production lines in China, for example, have been shifted to other parts of Southeast Asia, such as Vietnam, notes de Drouas. This is creating new transportation routes which in turn carry an ESG effect, such as increased carbon emissions generated. Where for many corporates, a significant level of their emissions is derived from their Scope 3, especially upstream value chain, this change must feature in their re-calculations. 

The reconfiguration of the production, procurement, and transportation of goods is an important consideration for sustainability, explains de Drouas.

“And because we’ve seen trade disruptions once again putting pressure on profit margins for instance, it can begin to squeeze out the choice for sustainable materials that can sometimes be more expensive.”

If ever a business thought this was not an issue, the knowledge that credit rating agencies and investors are now considering how companies are adapting to the risk of geopolitical disruptions should certainly be ringing the alarm bell for them, warns de Drouas. She believes that these stakeholders are actively challenging corporates on how they maintain their ESG standards – including environmental and labour commitments – in the context of supply chain disruption, simply because they now classify it as core risk management.

Asking the experts

The constantly evolving nature of regulation, financial markets, and supply chains – and the pressure to assess and reassess the impacts of these in the context of serious ESG commitments – seems like a mountain to climb for treasurers. 

Arguably the function has other more important claims on its time, however, ESG is no longer just a tick-the-box but, among other things, is a very real indicator of commercial intent and accomplishment. The fact that it matters to stakeholders beyond the immediate confines of each business amplifies the seriousness with which it is now taken.

Of course, certain EU corporates are subject to the Corporate Sustainability Reporting Directive (CSRD), which requires them to report on the impact of their activities on the environment and society, and on the sustainability risks to which they are subject. A response is mandatory but the content of these independently audited reports have, comments de Drouas, often been “extensive and interesting”, serving as a valuable tool in bank analysis of client sustainability.

Many clients have taken this opportunity to create strong links between their financial and CSR [corporate social responsibility] teams, she adds.

Some have even created ‘sustainable finance’ roles, which she suggests not only helps integrate sustainability into the financial DNA of these companies but also serves as a focused and knowledgeable contact point between bank and client when discussing sustainable finance. 

Given the importance accorded to sustainability, it’s not surprising that ESG is being progressively integrated into corporate risk management structures too. This, for example, considers the physical risks presented by climate change for instance to corporate assets and even business models.

“It’s a positive signal for us,” says de Drouas.

As we’ve seen increasing numbers of corporate clients engaging with ESG, so their treasurers have been engaging more on the topic with all the stakeholders they face – so not only their CSR colleagues, but also their procurement, investor relations or communications teams, and even the C-suite. This is better enabling them to share their financial and CSR strategies with us, and from there we can help better support them in the challenges they face in their transition.

Collective effort

As with any fundamental transformation, an effective response to ESG cannot be achieved alone, states de Drouas. “Treasurers are well aware that they can succeed in this only if all the relevant actors are working together, and that includes external partners such as banks and suppliers.”

On the supplier side, there is indeed a risk consideration. The integration of ESG into ‘know your supplier’ due diligence is especially vital for strategically important providers. This may look at how resilient the supply chain is, not only at the hands of supplier instability created by geopolitical actions but also through climate change and extreme natural events. This has seen the adoption in some case of SCF as a protective measure, and thus calls into play banking partners as part of these discussions. 

“At Societe Generale, we deem that ESG is in the DNA of supply chain finance,” says de Drouas. A core SCF objective is to offer lower-cost working capital support especially to the SME or midcap suppliers of larger corporate buyers. Of course, this boosts the resilience of those suppliers, and thus the supply chain itself. But by integrating ESG, in the form of sustainability-linked SCF for example, the buyer’s Scope 3 can for instance also be improved, as participating suppliers are incentivised by the offer of lower-cost funding to support those goals.

As a bank, we also advise our clients and their suppliers on how to optimise the CapEx and OpEx that will be needed for the transition of their business to a more sustainable model, continues de Drouas.

These discussions also help the bank to discover and anticipate how best to adapt its financial products to meet its clients’ needs, whether through transaction banking or more broadly corporate & investment banking solutions. 

Quickest way to the TOP

At a broad level, this is being achieved with the support of the Transition Opportunities Potential (“TOP”) tool. Developed largely by the bank’s corporate and investment banking (CIB) team, de Drouas explains that TOP is fuelled by a wide range of knowledge and publicly accessible information, adapted to sector-specific challenges. 

TOP has been developed to assess clients’ climate transition strategies. The tool is adapted to each sector specifics and based on a transparent methodology. It helps bankers to structure and strengthen strategic discussions with their clients and better support their transition strategies with adequate, innovative financing solutions.

The development of TOP commenced with carbon-intensive industries, with real interest from these players, and has been progressively rolled out to cover other industries. 

This has not been a copy-and-paste approach, explains de Drouas, but rather one that calls upon the bank’s accumulation of knowledge and expertise on the transition challenges specific to each industry and the involvement of cross-functional expertise within the bank. 

Taking up, and taking over

Although current geopolitical trends have added certain complexities to the general take-up of ESG, de Drouas notes that many clients, especially larger corporates, are already at a level of maturity that suggests they are not about to roll back on their commitment any time soon. Indeed, with green loans, bonds, and trade finance firmly embedded into their business strategies, a number are looking to go further, she says. 

“These products are still of interest, but attitudes are evolving. Sustainability-linked loan volumes are now stable in terms of uptake and client discussions are beginning to focus more on securing sufficient CapEx and OpEx to support their sustainability transformation.

It’s telling that some clients are also now seeking more accurate ways of measuring their return on investment on ESG initiatives. Where previously it may have been accepted as a relatively small outlay on something long-term and largely intangible, now they are still looking to invest but need to monitor – and report – on the impact of those investments. There has clearly been a step up from the early commitment phase into something altogether more concrete.  

While there have been “some interesting initiatives” in quantifying ESG investments and returns de Drouas admits that most treasury functions still need to rely on qualitative ESG perspectives in their investment committees.

That may soon change, observes de Drouas.

The challenges inherent in delivering and communicating ESG commitments for treasurers are undoubtedly more complex in the current environment. But we’re seeing an ever more positive shift away from the tick-box exercise of old, with its static evaluations, towards a highly dynamic, forward-looking model that understands sustainability as a matter of both commercial, environmental, and social resilience. 

With that in mind, treasurers who wish to make a positive impression, are now in a position to make the strongest case for the adoption of sustainable finance.