Treasurers are increasingly looking to support their business goals by exploring the growing range of ESG-related financial instruments. During a recent podcast, TMI Editor, Eleanor Hill, spoke with three experts from Treasury4Good Award-winners Societe Generale, to see how the bank is responding to this demand.
Corporate treasurers are keener than ever to find new ways to integrate ESG metrics across a wide range of cash management, financing and supply chain processes. This will often involve turning to their banking partners for advice – and the tools to make ESG really ‘happen’.
Louis-David Rouyer, Deputy Head Payments and Cash Management International Network, Societe Generale, has seen the growth of treasury interest in ESG first-hand: “For a year and a half now, we have seen a steady increase in requests from our corporate clients to integrate ESG features in treasury management,” outlines Rouyer. “Treasurers are eager to know if we can help them and advise them in a way that supports their ESG objectives to make their sustainable transition a success.”
It is no surprise that ESG issues are high on the agenda for treasurers, as integration of these factors can offer a range of benefits. These include more efficient processes, increased profitability, greater resilience, improved shareholder value, access to new investors or clients, and stronger supplier relationships. Treasurers have a pivotal role in financing the ESG transitions of their organisation and strategically advising senior management and board members. Understanding how to adapt to the changing operating environment is critical. One channel of support for treasurers comes from strategic partners such as banks.
“We are putting all our expertise at our clients’ service to maximise the value that can be added through a global ESG offering,” Rouyer explains. “This is aligned with existing standards and best practices and adapted to our clients’ specific needs and sector of activity.”
Three of the critical areas of treasury management where Societe Generale is particularly active in supporting ESG-linked activities are trade finance, cash management, and factoring.
Promoting ESG activity through trade finance
Following the trend for ESG solutions in the debt market, the ESG trade finance market initially saw the advent of a number of green trade instruments offered that were industry specific. Today, however, Societe Generale provides positive impact trade finance to a broader range of sectors through green, social and sustainability-linked trade finance offers and even hybrid solutions. One example of this is in India, where the bank implemented a green letter of credit (LC) with a renewable energy actor, which helped support a major solar power project in the country.
“We are enlarging our offer to social and sustainable labels,” reveals Emmanuelle Petelle, Deputy Head of Trade Finance, Societe Generale. “There have been many achievements over the past 12 months, particularly concerning trade finance deals we have closed that are focused on the social pillar of ESG. In line with our strategic focus on Africa, the bank supports activities with a positive impact on the environment and social aspects, meeting essential needs including access to clean energy, water sanitation, and health care.”
Another example of Societe Generale’s efforts in this space is when it acted as fronting issuing bank of a green trade guarantee issuance programme for a Spanish train manufacturer investing in accessible equipment to support its disabled customers. Similar deals providing access to electricity through mobile batteries in Africa have covered both sustainable and social goals in a single project.
Looking to the future, the bank plans to expand its offerings in line with market developments and some new regulations in the pipeline.
“We have been following the evolution of the EU taxonomy on the other four environmental objectives: sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity,” outlines Petelle. “Additionally, we follow the International Finance Corporation’s ‘blue’ financing guidelines for ocean-friendly projects and clean water resources protection.”
The latter example could well be a future avenue for trade finance. The bank has organised itself in such a way that it can monitor and respond to the various ESG regulations and standards as they grow and evolve.
“Our teams are integrated into what we call a ‘ONE BANK’ approach, together with the Societe Generale Corporate and Investment Banking environmental expert team,” explains Petelle. “This is a dedicated team where expertise is constantly applied for the benefit of our clients. This team studies market standards and local taxonomies, particularly those from within the EU, and as such acts as our guard against greenwashing.”
That focus on regulation and standards means that Societe Generale is positioned to enhance its trade finance offering over the next 12 months. Petelle explains that the bank is particularly concentrating on three key areas.
“We are focused on new eligible sectors, subsegments of the green trade finance framework,” she says. “We recently added construction and are now looking at hydrogen and carbon capture subsegments. The bank also has a new blue trade finance offering, as a subset of the green trade finance framework, and a focus on new hybrid trade finance programmes.”
Having already been presented with the Best Bank for Sustainable Supply Chain Finance at the TMI Treasury4Good Awards 2021, the momentum behind Societe Generale’s ESG innovation in this space shows no sign of slowing down.
ESG cash management developments in Asia
China has set ambitious goals to reach a peak in its carbon emissions by 2030 and achieve carbon neutrality by 2060. Societe Generale has developed a broad knowledge base on how to support its clients in the Asia Pacific region with their green and sustainable transition projects. For example, large Asian corporates tend to be cash rich. To assist these companies, the bank launched an innovative green deposit offering in China in 2021. This aims to enable such corporates to invest their excess cash in projects focusing on decarbonisation or promoting the energy transition. As Rouyer outlines, the demand for green deposit structures is growing.
“One of the world’s largest cosmetic companies kicked off the scheme and will expand the balance gradually to support more ESG initiatives with Societe Generale China’s growing green financing portfolio,” he says. “This solution relies on our ability to finance green projects or activities and have a strong pool of green assets. This enables us to support our clients in their transition journey through green working capital loans.”
The bank recently arranged a $100m green working capital loan dedicated to wind and photovoltaic [the conversion of light into electricity] projects in China and multiple Southeast Asian countries for a large public entity based in China. The bank also granted a £20m green working capital financing for a car manufacturer to revamp its range to offer exclusively electric and hybrid vehicles from 2025.
“In 2022, we are further intensifying our support to corporate treasury departments and defining how we can support our clients with their ESG strategy across our 41 countries, across Europe, Asia, the US and Africa,” outlines Rouyer.
Enhancing the positive impact of cash management
ESG has become an increasingly important consideration for corporates when deciding how to finance new assets, manage investments, and handle liquidity. And treasurers are now expecting banks, as financial partners, to provide advice and solutions that support them in this transition. At Societe Generale, the bank’s payment and cash management (PCM) team offer dedicated ESG solutions across various transaction banking and liquidity management areas.
“We know that to fund dedicated projects that have a positive impact or support the energy transition, our clients will need short-term financing and green working capital facilities throughout Asia and Western Europe,” says Rouyer. “In addition, to answer our clients’ needs in green liquidity management, we are monitoring our green assets pool. We offer green deposits based on this pool in Asia, most significantly in mainland China, where proceeds of the cash surplus investment are funding green and sustainable projects.”
The PCM team also collaborates with the bank’s trade finance teams to extend green and sustainability-linked domestic guarantees in Europe.
Regulations are essential in the ESG space to ensure that green and social solutions do exactly what they proclaim. In this area, the Societe Generale transaction banking department has developed its ESG experience and expertise alongside its dedicated franchise on Sustainable and Positive Impact Finance Solutions.
“Our sustainable offers are aligned with recognised standards such as the EU green taxonomy, the LMA [Loan Market Association] Green/Social/Sustainable-Loans Principles, ICMA [International Capital Market Association] standards, and can be adapted to local taxonomy in relevant geographies,” reveals Rouyer. “We also actively follow the work done to formalise industry standards specific to our businesses, such as the ICC [International Chamber of Commerce] sustainable trade finance framework.”
Areas that the bank recognises as eligible green activities include renewable energy, waste management, low-carbon transport, water management and water treatment, and hydrogen.
Placing ESG at the core of factoring
Factoring is yet another area of corporate finance that is seeing an increasing demand for ESG-linked solutions. As such, Societe Generale has embedded the concept of ESG into its factoring strategy and launched two ESG factoring offerings for treasurers. These are based on current corporate contracts of receivables finance, forfaiting, and supply chain finance (SCF), to which the bank has added ESG covenants and conditions.
Philippe Pougeard, Deputy CEO, Head of Business, Societe Generale Factoring, elaborates: “One of our ESG factoring solutions is our green and social offering. This makes it possible to finance receivables dedicated to sustainable development, this includes improving energy efficiency, renewable energies, low-carbon transport, and the treatment and recycling of waste and water, for example.”
Importantly, this offering is also dedicated to financing social or societal receivables from companies and associations with a social vocation, such as providing education and training or social housing. The green and social option is particularly adapted to pure ESG players’ clients, which are rewarded for the positive impact they create through preferential pricing.
“We have used this offering to finance corporates in sectors such as solar power, the wind power production value chain, and green electric car manufacturers,” reveals Pougeard. “Then, in social programmes, we have financed organisations in sectors such as health, particularly hospitals, rehabilitation, disabled workers, and children with disabilities.”
The other primary ESG focus from the Societe Generale factoring team is its sustainability linked offering. This means the bank’s more mature ESG clients can be rewarded for achieving their own ambitious objectives. The rate of the financing commission will decrease if the client fulfils the goals set at the implementation of the contract.
“Several key indicators are selected with our clients, and together we set the sustainable performance targets to be achieved, intermediary targets, and the final deadline for each of them,” explains Pougeard. “These indicators need to be verified by a third party, and we strongly recommend the public communication of these KPIs. This offering lets clients that already have a strong and developed ESG strategy to improve their environmental and social impact deeper into their supply chain.”
For example, the bank’s SCF programmes can quickly adapt in various sectors where large corporates have many small suppliers, such as the food, manufacturing, and retail sectors. The bank will offer a different incentive rate to small suppliers according to their ESG rating – the better their ESG rating, the better their pricing. Equally, on the social side, smaller suppliers can benefit from better pricing due to a programme based on the size and credit quality of the corporate that sets the programme to accompany suppliers.
“Our plans for the future are to develop expertise and accompany our clients with the emerging challenges they will face,” confirms Pougeard. “These challenges will derive from new regulations, strong stakeholder expectations, and shifts in their business model, to name just a few. We also plan to develop our stronghold in Africa with a tailor-made approach focusing on environmental and social aspects.”
The plans from the factoring business reflect the overall ambitions of Societe Generale’s Transaction Banking franchise, which will continue to adapt its business model around ESG offerings for its corporate clients.
“We are providing dedicated and tailor-made ESG treasury solutions in liquidity management, short-term financing and supply chain and receivables finance, and trade finance instruments,” concludes Rouyer. “Our objective is to concentrate, together with our clients, on global treasury solutions, support them in their ESG ambitions, and navigate future challenges.”
