ESG Reporting: What Is Treasury's New Role?

• DOI: http://doi.org/10.1002/jcaf.21905
• Author: LuAnn Bean
• Published date: 01 November 2013
• Date: 01 November 2013

33

© 2013 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21905

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LuAnn Bean

Traditionally, treasurers are responsible for man-

aging cash and market risk. That ensures that the

company has sufficient funding and can manage

complex compliance issues. But in recent years,

the size and complexity of treasury management

and compliance issues have expanded enor-

mously. Today’s treasurers not only oversee cash

management, foreign exchange, and short-term

debt; they struggle with increased responsibilities

in other areas: managing capital market activities,

merger-and-acquisition activity, insurance and

pension programs, credit and receivables man-

agement, and working capital projections. These

newer tasks demand that treasurers take on a

new role that requires understanding environmen-

tal, social, and corporate governance (ESG) report-

ing risk factors. What must today’s treasurers

and companies do to meet these new demands?

© 2013 Wiley Periodicals, Inc.

ESG Reporting: What Is Treasury’s

New Role?

INTRODUCTION:

TREASURY

MANAGEMENT’S

EXPANDING ROLE AND

ESG REPORTING

Traditionally, cor-

porate treasurers have

been responsible for

managing cash and

market risk, in order

to ensure that the com-

pany has access to suf-

ficient sources of fund-

ing, as well as the ability

to manage complex

compliance issues. In

recent years, both size

and complexity of trea-

sury management and

compliance issues have

expanded tremendously.

Current treasur-

ers must now balance

more traditional tasks, such as

cash management and handling

foreign exchange and short-term

debt, with the increased demand

of managing capital market

activities, as well as increased

responsibilities associated with

merger-and-acquisition activity,

management activities related

to insurance and pension pro-

grams, credit and receivables

management, and working capi-

tal projections.

As a result of these newer

tasks, treasurers need to under-

stand ESG (environmental,

social, and corporate governance

issues) reporting risk factors,

which are embedded in any firm’s

corporate strategy. These factors

not only affect financial perfor-

mance but can provide guidance

on short-term investment volatil-

ity, particularly in

falling markets (Hud-

son & Knott, 2007).

In other words, ESG

factors can signal

whether a company

has an aggressive or

conservative long-

term strategy for

dealing with ESG

risk, as compared to

competitors, and the

extent to which the

long-term nature of

investment aligns

with the short-

term behavior of

management.

RECENT

DEVELOPMENTS

IN ESG RISK

REPORTING

Despite the significance of

ESG risks, many companies do

not include them in financial

performance reporting. The

Global Reporting Initiative

(GRI), an Amsterdam-based,

nonprofit organization focused

on ESG, is working closely

with accounting organizations

like the American Institute of

Certified Public Accountants