Treasury & Sustainability: How to Integrate ESG Factors into Cash Management

Companies around the world are growing in their understanding that financial and sustainability objectives are complementary rather than competing priorities, and see ESG not just as a compliance need or a PR opportunity, but as a strategy that can deliver tangible benefits. The data supports this shift: embedding ESG objectives into overarching financial operations, as well as daily cash management, can yield more sustainable long-term financial performance. The responsibility to navigate this falls on treasurers, who need to evaluate banking partners not just on financial terms but also on their sustainability commitments and performance. Investment opportunities are scrutinised through the dual lenses of financial return, as well as ESG standards. This integrated approach means that businesses can achieve their sustainability goals while maintaining focus on financial performance and risk management.

Before looking into the practical side of how treasurers can contribute to achieving ESG goals, we need to discuss the regulatory landscape surrounding sustainable finance, as it has expanded drastically in the last two decades.

European regulators have taken the lead, with the EU's Sustainable Finance Disclosure Regulation (SFDR) requiring financial market participants to disclose how they integrate sustainability risks into investment decisions. This directly impacts how businesses should select and evaluate financial partners and investment options.

Another regulation, the Task Force on Climate-related Financial Disclosures (TCFD) framework, albeit voluntary, has recently gained significant global traction as well. It provides guidelines on how to disclose climate-related financial risks, with implications for risk management and reporting processes. More and more jurisdictions are moving toward mandatory TCFD-aligned reporting, which means companies need to develop appropriate monitoring and disclosure capabilities.

In the UK, regulatory developments include the Green Finance Strategy, as well as plans for mandatory climate-related disclosures.

For treasury functions, these regulations are not just a compliance requirement, but also a chance to stay ahead of the curve by adopting ESG-oriented practices early on.

Treasury departments must incorporate multiple ESG dimensions into their daily processes to integrate sustainability in a meaningful way.

Environmental considerations extend beyond climate impact and include the utilisation of resources, preservation of biodiversity, and pollution prevention. Social factors encompass human rights, labour standards, community relations, as well as diversity and inclusion. Finally, the governance part of ESG focuses on ethical business practices, transparency, and accountability.

While it might seem that financial decisions cannot directly drive change, treasury functions can advance corporate ESG initiatives by:

Strategic capital allocation: Directing investments toward sustainable projects, green bonds, and ESG-focused financial products

Banking partner selection: Evaluating and selecting financial institutions based on their sustainability credentials and ESG performance

Supply chain finance: Using financing programs that incentivise suppliers to improve their sustainability practices

Risk management: Identifying and mitigating ESG-related financial risks through appropriate hedging and diversification strategies

Monitoring and transparency: Establishing clear guidelines for ethical financial decisions and implementing appropriate monitoring and reporting.

At the same time, corporate treasurers need to balance ESG targets while ensuring liquidity, managing risk, and optimising returns. This multifaceted approach represents a significant expansion of the traditional treasury function regarding sustainability.

The implementation of sustainable cash management means adopting specific practices that align financial operations with ESG principles.

One of the most straightforward approaches is green deposits, which allow companies to place cash with financial institutions that commit to funding environmentally beneficial projects. These deposits function similarly to traditional banking products but with the added assurance that funds are allocated towards sustainable initiatives.

ESG-linked investments provide another avenue for sustainable cash management. Businesses can allocate portions of their investment portfolios to sustainable bonds, ESG-focused money market funds, and other responsible financial vehicles. This approach combines generating returns with aligning investments with sustainability goals. Major financial institutions now offer expanded sustainable investment options specifically designed for the needs of corporate treasuries.

Using sustainability-linked services and technologies is another way to support ESG principles within the company. This can include using credit facilities with interest rates tied to sustainability performance, transaction banking services with enhanced ESG reporting, and treasury management systems with integrated sustainability monitoring. The additional benefit is that these services help align day-to-day financial operations with broader corporate sustainability goals while maintaining operational efficiency.

Technology solutions can play a crucial role in helping treasury departments implement and monitor sustainable practices. Modern treasury management systems incorporate ESG metrics alongside traditional financial indicators, facilitating the tracking of sustainability performance across investments, banking relationships, and financial operations for the entire business or a specific entity.

Data analytics tools provide treasury teams with capabilities to assess the ESG impact of financial decisions and quantify the financial implications of ESG factors. By investigating patterns in financial flows, investment returns, and sustainability markers, treasury can optimise its approach to sustainable cash management and support the business case for additional sustainability initiatives.

Reporting and disclosure technologies are not only required in some jurisdictions, but they also streamline the process of documenting ESG performance for internal and external stakeholders. These solutions automate data collection, standardise formats, and ensure consistency across different frameworks. In a multi-entity, global operations setup, these technologies reduce the administrative burden of ESG reporting while improving accuracy and transparency across the business.

Traditional treasury performance indicators focus on quantitative financial outcomes, but ESG often incorporates qualitative elements that resist simple measurement. This is why establishing a meaningful measurement system for sustainability proves to be challenging. The insights required from stakeholders often need to capture both financial and sustainability dimensions, adding another layer of complexity.

Common approaches to measuring treasury ESG performance include:

Calculating the percentage of cash and investments allocated to sustainable financial products

Tracking the ESG ratings of banking and investment partners

Measuring the carbon footprint associated with treasury operations (e.g., reductions from paperless processing or cloud vs. on-premise tools)

Assessing diversity and inclusion metrics within treasury teams and financial partners

Monitoring compliance with relevant ESG regulations and voluntary frameworks

Having standardised industry metrics to adhere to is a good starting point, however, organisations should also include custom indicators that reflect their specific sustainability priorities. The most effective measurement approaches align treasury ESG metrics with broader corporate sustainability goals, creating a coherent framework for evaluating performance across the business.

Integrating ESG considerations into treasury management is increasingly becoming a core treasury task, but it's not without its challenges. The tension between short-term financial optimisation and longer-term sustainability goals creates friction, particularly in volatile economic environments. The decision to balance competing priorities—adhering to long-term sustainability goals while responding to market shifts or liquidity crises—is a tricky one and, truthfully, one that the treasury community as a whole is still learning to navigate.

Data quality issues present another significant challenge. ESG information often lacks the standardisation, consistency, and reliability of traditional financial data. This complicates efforts to incorporate sustainability factors into treasury and financial decision-making processes. A lack of clear, consistent data might also deter certain senior stakeholders from further investing in sustainable finance practices, seeing them as a lesser priority.

A third major hurdle is organisation-wide alignment. Effective implementation of sustainable treasury practices requires coordination across multiple functions, including sustainability, risk management, and reporting. On top of that, competing, entity-specific financial goals, as well as regulatory requirements, might considerably hinder the establishment of a clear corporate-wide sustainability roadmap.

The evolution of sustainable treasury will continue to accelerate, as it is driven by regulatory developments, stakeholder expectations, and technological innovation. Treasurers should prepare for increased integration of sustainability into core financial operations and day-to-day work, with ESG considerations becoming standard elements of cash management, investment, and risk assessment processes.

Since the first step towards better governance is visibility, aggregating financial data and operations into a single platform, platforms like Fyorin, which offer complete visibility of cash and treasury across all entities and accounts, will support both financial efficiency and ESG integration. With features for automated cash management, robust bank connectivity, and transparent payment processing, as well as comprehensive reporting to manage banking relationships, Fyorin helps treasury teams implement sustainable practices while maintaining operational excellence. As ESG considerations become increasingly central to treasury operations, integrated solutions will play a vital role in enabling the sustainable treasury of the future.