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VISIONS OF THE FUTURE
The unpredictable nature of the start of the 47th US President’s term of office was, ironically, entirely predictable. Donald Trump’s negotiating tactics over the introduction of tariffs on imports from neighbours Canada and Mexico, as well as those against Chinese goods, had been well trailed. And even though, at the time of going to press, details remain subject to last-minute chops and changes, what is also predictable is that treasurers are set for busy times – again.
It is not just executive orders emanating from the Oval Office that are set to keep the business and financial worlds on their toes, however. As our cover feature reports, there is also a host of national and international regulatory changes on the near and far horizons that are going to have an impact on the treasury world – T+1, ISO 20022, CSRD, CTP and CFT; the alphanumeric soup continues to boil over. Our regulatory correspondent, Keith Nuthall, has the lowdown on the knowns and unknowns that lie ahead in 2025 and beyond.
In the same vein, another unknown is what will happen with inflation – rising prices remain a challenge, and while central banks struggle to keep a lid on inflationary pressures by gradually trimming interest rates, certain government policies are adding to those pressures. Business and finance writer Gavin Hinks spells out how treasurers can respond.
For the more technically minded, amendments made to the international
Photography and illustration: iStockphoto.com Cover: iStockphoto.com
PAGE 14
financial reporting stand for financial instruments, IFRS 9, are set to affect the timing of the derecognition of financial liabilities settled by electronic payments. The advice is to review payment systems and the terms and conditions of the relevant contracts, and adjust processes where necessary to comply with the changes, which will come into effect from 1 January 2026.
While on the subject of payments systems, we report on the UK government’s ‘New Payments Vision’, which aims to create a ‘world-leading’ payments infrastructure that will combine resilience and regulation with innovation. As one commentator says, treasury life is going to get tougher as payments move closer to becoming instant and real-time.
Finally, what type of treasurer are you: prudent, compliant or hopeful? According to King’s College London professor Marc Lepere, these different types of treasurer will prepare differently for impending sustainability regulations – some might be hoping they will go away, some will only prepare once final legislation is agreed, while others will be preparing now. Which are you?
phil.smith@cplone.co.uk Ben Walters looks at return on capital employed and asks whether the performance indicator is fit for purpose
PAGE 20
reviews market changes and the career opportunities available for treasurers in 2025
PAGE 44
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LONG VIEW
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REGULATION ON THE HORIZON Treasurers need to look ahead at financial regulatory changes in 2025 and beyond, but there remains a number of unknowns
ROCE FIT FOR PURPOSE?
Return on capital employed is widely adopted as a key performance indicator by many firms, but other measures may be better
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HORIZON SCANNING
Treasurers need to look ahead to financial regulatory changes in 2025 and beyond, but there remains a number of unknowns, reports Keith Nuthall
Treasurers are preparing for long-planned changes in 2025, from initial preparations for shifting to T+1 settlements and increasingly proactive sustainabilityfocused regulation, to anti-money laundering rules and online resilience. While treasurers are waiting for more details, there is a real risk that doing nothing in the meantime will mean they get left behind as the pace of change quickens.
So, what are some of the key areas that treasurers need to be looking at as they cast their eyes at the horizon?
Time for T+1
James Winterton, associate director, policy and technical, at the Association of Corporate Treasurers (ACT), stresses that treasurers should be considering the likely acceleration of settlement times for financial instruments as a key development in the UK, the EU and Switzerland, following the US’s move to T+1 last year. “Even if T+1 is mandated only for a narrow scope of instruments, such as equities, we anticipate this will add pressure for accelerating other settlement processes,” says Winterton.
Officials in all three jurisdictions have stressed the value of moving from T+2 (two-day settlement) to T+1 at the same time, with the European Securities and Markets Authority releasing a November paper targeting an EU switch in Q4 2027, which fits with the UK’s Accelerated Settlement Taskforce’s deadline of December 2027.
Winterton says treasurers should start preparing now, assessing their current pre-trade initiation and procedures through to settlements and payments. Anecdotal feedback from the US suggests that some degree of business process re-engineering may be expedient, rather than simply trying to run existing processes faster, taking into account emerging best practices and standards. For example, the Financial Markets Standards Board (FMSB), of which the ACT is an affiliated member, has recently released new guidance for client onboarding processes and KYC (know your customer) documentation, as well as for the sharing of standardised settlement instructions (see QR code on page 13 for more details).
Winterton also suggests treasurers review the new payment messaging standard ISO 20022, which, in turn, should support the switch to T+1, “which would require reformatting of address fields”. He explains that, at present, transaction documentation involves one box for address and counterparty details, whereas ISO 20022 models involve spaces for a street name, town and postcode, “so it’s not just one free format text in one box; it’s now specific fields for each of these”. Therefore, treasury teams must consider whether they need to reformat their payment databases (see QR code on page 13 for the Bank of England’s latest guidance).
Switching to T+1 means transaction documentation must be completed and ready to go in advance, while T+2 affords time to make a start, complete details and sign off before settlement. At the same time, various parallel initiatives around the digitisation of trade documentation and tokenisation promise to accelerate settlement cycles further. For example, The UK’s Electronic Trade Documents Act 2023 makes it possible to create electronic bills of exchange. “There are some procedural implications of these trends that are likely to be significant for most businesses,” says Winterton, “and, as usual, treasurers will want to be discussing these developments with their financial counterparties in order to take account of any step changes when planning their Treasury Management System upgrades.”
Sustainable reality
Sustainability reporting will also become a reality for most major international companies and their banks in 2025. Around 11,000 major companies operating in the EU have already been preparing reports under the EU corporate sustainability reporting directive (CSRD), which are due to be released this year. From 1 January, companies with two of these thresholds must also start to prepare reports: 250+ employees; €50m+ annual turnover; or €25m+ in assets.
While the German government, facing a potential national recession, has been arguing for these reporting deadlines to be pushed back two years, the reality is that companies are already working on sustainability reports, with
“There’s a really significant push factor coming to the fore now, because we’ve got all the EU [sustainability] regulation coming to land”
treasury teams having to liaise with banks wanting information on their clients.
Kathrine Meloni, head of treasury insight at UK-based law firm Slaughter and May, stresses that, while there have been some delays, many key jurisdictions are moving ahead on sustainability reporting requirements based on International Sustainability Standards Board (ISSB) rules.
Australia is now insisting on companies making sustainability reports for the financial year beginning 1 January 2025; and Brazil announced in November that sustainability reporting based on the ISSB rules would become mandatory from 1 January 2026. Meanwhile, Canada has released detailed plans to mandate sustainability reporting this year and the UK plans to release and consult on its planned mandatory reporting standards (called UK SRS) in the first quarter of this year.
The EU has not responded to Germany’s sustainability reporting delay request.
Rather, the new European Commission, under reappointed president Ursula von der Leyen (a German Christian Democrat) is set to publish an ‘Omnibus Simplification Package’, designed to consolidate EU corporate sustainability
reporting requirements within the CSRD, the EU taxonomy regulation and the corporate sustainability due diligence directive, a proposal that Germany supports.
Even with the US Securities & Exchange Commission sustainability reporting plans on hold (and unlikely to progress under a Trump administration), Meloni says that the ongoing sustainability initiatives mean that most international corporations will continue to devote significant resource to implementing reporting structures.
“There’s also a really significant push factor coming to the fore now, because we’ve got all the EU regulation coming to land, which affects the banks in the same way as it does corporates,” Meloni says. “For a treasurer, there has to be an understanding – there’s a partnership with banks and banks need to categorise their assets to enable their own sustainability reporting. And they cannot categorise their assets without information from their clients... I don’t think treasurers can avoid that, because it’s moving into the realm of compliance.”
Meloni advises treasurers to be literate about
sustainability reporting and ensure lines of communication are sufficiently open between sustainability and compliance teams and those in finance and treasury functions: “There is a role for treasurers to educate the sustainability and compliance function on the aspects of that information that financial counterparties need and the way that needs to be presented,” she says.
Ratings regulations
A development that could potentially ease the burden of reporting environment, social and governance (ESG) information are initiatives boosting the robustness and transparency of ESG ratings, with both the EU and the UK moving ahead with ESG ratings provider regulations, for example. UK legislation and policy proposals are expected to progress this year, with the Financial Conduct Authority backing a “globally consistent approach that enables users to make better-informed investment decisions and gives the market confidence in the reliability and quality of these products”. The EU approved its own ESG ratings regulation in November 2024, and with such guidance being encouraged by the International Organization of Securities Commissions, more regulations can be expected internationally.
“I think, this year, it’s going to be all about the continued embedding of sustainability regulations and how that feeds into finance counterparty
interactions,” says Meloni, who says when ratings “become trustworthy, more robust, usable and transparent in methodology” they may be useful “as a shorthand for the range of information that banks and other counterparties are looking for, and that should streamline the market for some companies”.
Online resilience
As for other priority issues facing treasurers, Brian Polk, a London-based financial services regulation and technology expert, comments on efforts to regulate online service providers supplying key financial systems (see QR code, opposite): “There is concern that the cloud suppliers have become so important... that, if they have problems, it presents a financial stability issue for the economy.”
He notes how regulators have moved beyond telling major firms that they should have more than one cloud supplier to deliver security, adding that regulators also want to see how major firms manage their critical third-party risks and how cloud players structure their operations in the UK: “What are the backup procedures; what are the recovery times like when there are problems?” Polk asks. Big tech, he notes, tout their cybersecurity smarts, “but the regulators have said: ‘You’ve reached such a critical mass of the financial system that we feel duty bound to get on top of this’”.
While this regulation may be sensible, the new
“We’re awaiting the details… but that’s not an excuse to do nothing, because… conceptually, the whole thing is going to speed up”
Labour government has also been stressing its goal to increase investment and growth, with the Chancellor, Rachel Reeves, signalling that this could involve loosening controls on financial services, some of which have been in place since the financial crash of 2008.
Money laundering and terrorism
One key anti-crime issue that treasurers will need to consider in 2025 is the coming into force of the EU’s new major anti-money laundering (AML) and combating the financing of terrorism (CFT) reforms.
The EU is not only making AML/CFT controls more onerous for obliged entities such as banks and other financial services, but it is also widening controls to more crypto-asset service providers. Given a significant portion of EU AML/CFT controls will shift from being a directive to a regulation, the 27 EU member states will have to follow these rules to the letter, rather than having the flexibility afforded by directives – which will mean some change in national rules.
Keeping an eye on such shifts will be the new European Authority for Anti-Money Laundering and Countering the Financing of Terrorism, which will be established in Frankfurt, Germany, this year, with direct and indirect supervisory powers over high-risk obliged entities in the financial sector.
While many corporates will not be directly impacted by regular AML reporting, many will –for instance, in gambling, precious metals and property sales – as will their bankers, accountants and lawyers.
Winterton says treasury teams will need to keep on top of these changes in the EU to understand whether their activities are in scope and to keep an eye on shifts in UK AML/CFT rules.
Here in the UK, for example, Companies House will be introducing a new identity verification process this autumn, to fix the register’s muchcriticised weaknesses in vetting entries. In future, says a Companies House note, “anyone setting up, running, owning or controlling a company in the UK will need to verify their identity to prove they are who they claim to be”. The agency will release guidance on how these KYC changes will be made during the coming year.
While accurate Companies House filings will
already have been taken care of by reputable corporates, Winterton stresses that the changes underline how treasurers will want to ensure KYC is conducted on their counterparties, as well as responding to KYC conducted on them: “They have to worry about it,” especially to ensure treasury teams are “dealing with reputable banks”.
That is especially the case for medium-sized corporations, as larger multinationals, points out Winterton, are more likely to have “payment factory” subsidiaries with payment compliance experts handling such KYC work.
Risk of doing nothing
With these changes and more facing treasurers in 2025, Winterton says it is just as well they “are experts in managing financial risk”. He adds: “The speed of change in those risks has accelerated in recent years. The word ‘polycrisis’ is sometimes used.”
The key is preparing for likely change, he says: “We’re awaiting the details to understand what some of these changes really mean in practice, such as the precise scope and implementation steps for T+2 to T+1 in Europe. But that’s not an excuse to do nothing, because what you can see is, conceptually, the whole thing is going to speed up. So, as a treasurer, you will want to be identifying the pinch points in your current processes.”
In other words, it pays not to just look at what is on the horizon, but to act on it and be prepared.
Keith Nuthall is a freelance business and regulation journalist
Scan this code for more details on the FMSB’s guidance to onboarding processes:
Scan this code to find out more about the Bank of England’s ISO 20022 programme:
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Inflation balloon yet to burst
Although inflation rates have come down over the last two years, pressures remain, with treasurers advised to be prepared, Gavin Hinks reports
Inflation dominates headlines. Is it up, is it down, what does its movement tell us about the economy? This year there is added urgency to talk about inflation — post-COVID-19, Western economies are just coming out of a period of high inflation but statements from US president Donald Trump have economies around the world on high alert for rising prices.
Most of the concern stems from threats to impose high tariffs – import taxes – on goods entering the US from China but also from many other parts of the world.
At the time of writing, Trump’s programme has to be fully revealed but initial reports sent US bond markets into a frenzy of higher yields with UK bonds following suit.
for the UK economy. However, though it has bobbed about, inflation looks as if it might be rising again. In October it was 2.2% and November figures show it had risen again to 2.6%. But December saw a modest fall to 2.5%.
As such, any view forward has to accept the risk of volatility and the ‘uncertainty’ that comes with it.
Treasurers have their eyes on developments, too, because rising inflation will touch directly on their work, and they might be forgiven for being a little twitchy. “I would be very concerned and building in some quite significant contingencies,” says Fiona Crisp, a former treasurer and now founding adviser at Crisp Consultants.
There is no doubt that inflation figures are obsessively covered by the press and pored over by commentators. Every tick upwards or downwards prompts either doom-laden speculation or celebration that some poorly defined normality is returning to the economy.
This interest is a hangover from October 2021 when UK CPI inflation peaked at a vertiginous 11.1% before taking almost two years to return to more normal levels of around 2-2.5%.
Many observers believe there is more to come. KPMG and Investec speculate that UK inflation could rise to 3% early this year, though these appear to be outliers. The OECD has said inflation will average 2.7% over the next 12 months, below the OECD average of 5.2%, while the IMF believes inflation will peak at 2.6%.
At its Monetary Policy Committee meeting in December, the Bank of England maintained the bank rate at 4.75% “guided by the need to squeeze remaining inflationary pressures out of the economy”.
The underlying pressures remain the same as they have been for some time: energy prices, rising wages and a tight labour market. Recent budget measures, such as higher employers’ national insurance contributions, could also put pressure consumer prices.
These factors have now been exacerbated by the expectation that Donald Trump’s presidency could herald an era of high trade tariffs and increasing government debt, both inflationary factors at home and abroad. UK inflation may have fallen back to 2.5% in December, but no-one is currently reading that as comforting news.
George Lagarias
During that period, the UK experienced a steep rise in interest rates, higher energy costs and a cost-of-living crisis that saw millions struggle to pay their bills.
In May last year, inflation was back at 2%, the Bank of England’s target rate, and safely in the comfort zone
“Higher inflation means higher yields. If you’re leveraged don’t be more leveraged”
But what does it mean for corporate treasurers? How should they prepare and what should their response be to rising inflation?
Return to growth
If inflation does rise, interest rate rises could follow as the antidote. Speculation about rates has swung wildly in recent months. There had been much gloom after the UK government’s budget strengthened workers’ rights and increased employers’ national insurance contributions, but Office for National Statistics figures showed the economy had returned to growth in November with an expansion of 0.1%. Hardly a moment to hang out the bunting but IMF figures then forecast UK GDP would grow by 1.6% in 2025, well ahead of growth figures expected in France and Germany.
But according to George Lagarias, chief economist at Forvis Mazars, the new US president’s policy set makes the new regime “inherently inflationary”.
He has a simple message for corporate treasurers: “Higher inflation means higher yields. If you’re leveraged don’t be more leveraged.”
Fiona Crisp
Lisa Dukes, lead treasury adviser at Dukes & King, says treasurers should be monitoring financial markets and the way movements could affect their financial plans and strategic decisions. But they should not forget higher inflation could also offer opportunities.
“Whether rate moves are modest or extreme, it’s essential to stay vigilant and be prepared for any economic changes,” she says.
For multinational companies, this may mean keeping tabs on inflation across multiple jurisdictions.
Funding and liquidity
According to Crisp, funding and liquidity remains the core issues for the year. Cash flow and cash management – treasury basics – will acquire a heightened level of importance as companies work through the coming year.
Strong cash management bolsters liquidity, which helps companies handle rising costs. In countries under an inflationary environment, companies will move cash “straight away” back to the centre , says Crisp because of the risk of losing on currency rates.
But there are other reasons for placing cash and liquidity under strict control. As Lisa Dukes says: “Ensure there’s enough [cash] to meet operational needs and manage cash reserves effectively. Focus on working capital, where it’s significant, and see if there are financial working capital levers that can help derisk the planning cycle and help with commercial decisions for the operational teams.” Accounts receivable, payables and inventory management will figure heavily in these considerations, especially if US trade tariffs come to affect supply chains.
“Some companies will carry a lot of fixed rate debt. Other companies are much more comfortable being exposed to movements in interest rates or inflation”
Dukes echoes the views of Lagarias – now is the time to consider refinancing options “early” while risk management exercises should include a focus on interest rates.
“Ensure that you are maintaining positive dialogue with credit stakeholders for both your existing debt and for future plans including potential M&A needs,” Dukes says.
However, approaches to interest rates may differ from one company to another, depending on their risk management policies. “Some companies,” says Boyce, “will carry a lot of fixed rate debt. Other companies are much more comfortable being exposed to movements in interest rates or inflation because they can pass that on to their customers relatively easily.” Some companies trade in goods and services that have more price elasticity, over the short-term, than others.
Sarah Boyce
Of course, no approach to cash management and liquidity is complete without a critical examination of debt provision. As any treasurer knows, there is a direct relationship between inflation and interest rates and it may be that for most, rates are the real issue. Sarah Boyce, associate director, policy and technical, at the Association of Corporate Treasurers (ACT), says rate rises create a concern about the cost of funds. This can have knock effects on business planning. “It makes investment decisions much harder to get across the line,” she says.
“Ensure there’s enough [cash] to meet operational needs and manage cash reserves effectively”
For Crisp there are two issues to address. First, certainty about accessing debt and, second, the interest rate. But managing either means the treasurer has to have a hotline into management’s plans for the business.
“You’ve got to know what the business is looking to do. Are you expansionary or are you stable? Or, are you looking to cut costs? You’ve got to know and understand the business and treasury needs to be very much part of that process,” says Crisp.
Hedging bets
As mentioned earlier, multinationals will need to keep watch over economic conditions in a number of jurisdictions. They will also need to manage exchange rate risk. In particular, they will need to be aware of the impact of interest rate fluctuations, and the importance of managing that risk.
Philip Stephens, head of corporate FX dealing at Argentex, says there is an “urgency” among corporate clients to plan their approach for foreign currency
Lisa Dukes
INFLATION: THE HIGHS AND LOWS
UK CPI:
0.2% (Aug 2020)
11% (Oct 2022)
1.7% (Sep 2024)
2.5% (Dec 2024)
US CPI:
0.1% (May 2020)
9.1% (Jun 2022)
2.4% (Sep 2024)
2.9% (Dec 2024)
EU CPI:
0.2% (Nov 2020)
11.5% (Oct 2022)
2.1% (Sep 2024)
2.7% (Dec 2024)
“It’s good to have a product mix that matches a more volatile situation and that is open forwards with FX options”
hedging given the volatility over recent weeks and potential risk of inflation. He recommends treasurers have a plan to provide guidance.
But the volatility means certain approaches are better than others. “Flexibility is super key for me,” says Stephens. “Because when the market is moving, if you’re not able to utilise your trades, then you’re at a severe disadvantage.”
He adds: “It’s good to have a product mix that matches a more volatile situation and that is open forwards with FX options.” Stephens also believes buying some
currency on “spot” is helpful.
For Dukes, treasurers need to consider a hedging policy that covers downside risk and aligns with the company’s business plan. “Be proactive in managing currency and hedging strategies,” she says The course of inflation in the coming year remains a matter for speculation. Nonetheless, statements and data so far have many business and economics observers worried. Best to be prepared.
Gavin Hinks is a freelance business and finance journalist
Philip Stephens
Hidden treasure in critical minerals funding
Finding finance for critical mineral operations can be complex, even for the smallest start-ups.
Permjit Singh FCT digs into the detail of raising finance in this globally important sector
Acritical mineral (CM) has two defining characteristics: high supply risk and, if supply is disrupted, high economic vulnerability. As such, CMs can present challenges for governments, society and the planet. However, the benefits of using CM-alternatives – recycling, repurposing, and using CMs more efficiently – could lessen some of these challenges.
Even so, the risk profile of CMs has been raised by geopolitical tensions triggered by some governments using their political might and wealth to execute long-term supply contracts with countries that are long on CMs but short on money to mine them. Some are accelerating their domestic CM processing and refining capacities to a level where they have a near-monopoly over such activities, or they are adopting protectionist policies, such as restricting CM exports.
To counter these developments, the Minerals Supply Partnership of 14 countries and the EU (including their export and development finance agencies) offers diplomatic, financial, and economic support so strategic CM projects are more likely to succeed.
The evolution of CM finance
To increase the chances of successful project
completion, treasurers would do well to keep in mind the guiding principles of matching assets to liabilities, form to function and risk to reward.
Fraser Gardiner, chief executive of Aberdeen Minerals, helps trace the funding path a CM company might follow as it moves from concept to production.
According to Gardiner, a small start-up looking to prepare a business plan might be self-funded –loans or shares purchased by its founders, friends and families. It might then raise equity from angel investors and/or receive government grants to undertake research, testing or geological surveys. If these prove to be positive, then it might progress to raising greater funds via equity financing, a listing on public markets or via joint ventures, perhaps to drill test holes.
At this early stage, such investments are typically considered to have a high risk, high reward profile, suitable for specialist funds or sophisticated investors with an understanding of the sectoral risks. Multiple rounds of financing are typically necessary to de-risk a mineral resource project through the discovery, exploration and feasibility phases until resource extraction can be shown to be commercially viable.
“If a round of funding adds value to the business, the next round of funding could reflect that higher
valuation, thereby reducing dilution for the original investors,” says Gardiner.
Project financing to fund the construction of a mining and processing operation is typically achieved through a balance of debt and equity finance, perhaps supported or match-funded by government investment or government guarantees. It might also raise funds via offtake and/or royalty financing agreements with end-users or traders.
For larger developments, a junior exploration company may seek a joint venture with a larger mining company or look to sell the business to a company with the financial capacity and technical experience to build and operate a mine. As the company’s credit risk falls (perhaps because of government guarantees or simply on its own commercial merits such as revenue from sales), then the company might obtain a variety of bank loans and facilities such as secured and unsecured term or revolving credit facilities (RCF), an overdraft or invoice financing, to fund its working capital or fixed assets. Non-bank finance could be in the form of leases or trade creditors.
To refinance early-stage, anchor investors, venture capital and private equity investors, or perhaps to expand its operations or fund other long-term assets, the company might tap public or private equity markets and/or issue bonds (publicly or privately).
CM financing partnerships
The Cornish Lithium co-investment (see box) illustrates how significant government support is to overcoming the strategic and commercial challenges faced by governments and by CM entrepreneurs, respectively. In addition to matched-funding, government support may also be in the form of grants, guarantees (such as underwriting startup off-take agreements), tax incentives and funding (such as the UK’s Automotive Transformation Fund) to encourage research and development into recycling CMs, or to produce them in environmentally and socially responsible ways.
Supranational development banks and export credit agencies could co-invest or otherwise financially support projects. For example, the US’s International Development Finance Corporation invested $80m as equity in projects in Brazil and South Africa to support investments by private asset manager TechMet for the supply of nickel, cobalt and rare earth oxides. UK Export
CRITICAL MINERALS FUNDING CASE STUDIES
Two small UK CM early-stage exploration companies illustrate the parallel and interdependent evolution of their capital structure and commercial structure.
The first company, Aberdeen Minerals, was incorporated in the UK in 2019 and initially financed by its founder shareholders to explore for nickel, copper and cobalt in North East Scotland. Prior to May 2024, the company had raised around £2.7m in equity financing through private share subscriptions to the founders, management, family offices, sophisticated investors and investment funds. This included £174,000 at a share price of 7.5p from its management team, directors and founder shareholders for working capital in December 2023.
In October 2023, it received a £294,000 government grant that covered 70% of the cost of a minerals-processing feasibility study. It had planned to list on the Australian Securities Exchange but decided to remain private following an equity commitment worth £5.5m from a mining company.
The second company, Cornish Lithium, started off with self-funding, proceeded to angel finance, and then to crowdfunding.
Finance can now provide credit guarantees to overseas companies, helping them access debt financing for projects that supply UK exporters with critical mineral products.
Another example – precious metal stream and royalties manager Royal Gold’s royalties transaction for the supply of nickel from mines in Brazil – illustrates the multitude of instruments, structures, and investors that can come together in mutually beneficial CM deals.
The financing package included senior term and RCF debt (from banks), a subordinated RCF under a royalty finance agreement (from a specialist fund), and equity and a prepayment facility (both from end-users in the car manufacturing and metals trading sectors, who also entered into long-term nickel offtake agreements with the producer).
Permjit Singh FCT PhD
A reverse enquiry from 600 potential shareholders led to a tax-efficient crowdfunding offer that resonated with investors. “It worked extremely well for us,” says chief executive Jeremy Wrathall.
Cornish Lithium went on to raise a total of £53.6m, plus up to £168m of committed second-stage funding for commercial production of lithium in a public-private partnership. Its initial funding package comprised £24m from what was the UK Infrastructure Bank (UKIB), owned and backed by the UK Treasury, and now transformed into the National Wealth Fund (NWF); £24m of matched-funding from US-based private equity fund The Energy & Minerals Group; and £5.6m from existing investor TechMet, bringing its total investment to £24m.
“Our investment has already crowdedin private sector financing that will greatly accelerate domestic production… this model of investment is fundamental to the success of the UK’s transition to net zero,” said NWF chief executive John Flint.
Cornish Lithium later complemented its institutional investor fundraising by raising £5.1m from retail investors with another crowdfunding equity offer.
(Un)happy returns?
In the first of two articles, Ben Walters explains why return on capital employed, or ROCE, is widely adopted as a key performance indicator by many firms. But is it fit for purpose?
Ben
“ROCE is a valiant attempt to apply the economic concept of value to accounting numbers”
Firms concentrate on a handful of KPIs when presenting their financial performance externally. Commonly, these include revenue growth, operating profit growth and margin, earnings per share (EPS), and return on capital employed (ROCE). The first four metrics look at key items from the income statement and, to many people, these really are the KPIs that count. But in a nod to the concept of value, cash and the balance sheet, ROCE also often gets reported on. Indeed, ROCE is now a common metric in remuneration schemes and longer-term performance plans. But while the income statement KPIs are often explained and analysed in great detail, ROCE is almost, without exception, left to speak for itself. But what exactly is ROCE trying to say?
Speaking to equity analysts about their valuation approaches, none of them identified ROCE as a metric that plays into the share price targets they set. Many look at multiples of income statement elements such as net operating profit after tax (NOPAT) or EPS. All of them triangulate these multiple-based valuations with a discounted cash flow calculation. ROCE is noticeable by its absence.
So, why do so many firms insist on reporting ROCE? The straight-bat answer is that it is accepted that returns on capital are the underlying driver of value creation, they are higher in well-run firms with good strategy and execution, and this, in turn, feeds the profit-related metrics
that most people actually focus on. What I mean by that is that good underlying returns on capital drive revenue because they represent good market positions. They directly drive operating profit because the depreciation charges are lower (more cash profit per £ of capital invested). However, an alternative, more cynical, answer is that ROCE almost always looks impressive when put alongside the firm’s weighted average cost of capital (WACC). This is for two reasons:
1. The ‘return’ part is based on NOPAT and, very often, this is a higher value than the cash equivalent number (EBITDA less capital expenditure and tax).
2. The ‘capital employed’ part is based on balance sheet book values. These book values are out of date, depreciated, and often bear absolutely no relationship to a true replacement value.
So ROCE invariably benefits from a higher numerator, profit being greater than the cash equivalent, and a lower denominator, with the balance sheet amortised and based on historic cost, when compared to a value-based analysis which would prescribe the cash equivalent of NOPAT and replacement, not book, asset values. Attempts to address these shortcomings result in a plethora of potential adjustments, such as the 150 plus attributed to Economic Value Added.
Walters FCT is deputy treasurer of Compass Group
Table 1 shows a fictitious business, Reditus plc, which invests £100 a year in a project that produces an internal rate of return (IRR) of 15%. It repeats this year after year, and the life of each project is exactly 10 years. Once in steady state, after 10 years of repetitive investing, the firm reports a NOPAT of £100, and has a balance sheet book value of £450. Reported ROCE drops out at 22%, and this is much higher than the IRR of each project. If we also assume that the WACC of the firm is 10%, we can derive a theoretical enterprise value of £1,000. When reporting the results of the business, management can claim amazing returns on capital of 22%, “way in excess of our cost of capital”. But if you are confused as to what the ROCE value of 22% is telling us, then join the club. It doesn’t really tell us anything.
Fundamentally, ROCE is a valiant attempt to apply the economic concept of value to accounting numbers. Unfortunately, ROCE doesn’t really work, and this leads to a number of drawbacks:
1. The absolute value of ROCE does not relate to the economic rate of return.
2. It deters investment over and above anything other the ‘run rate’ level of growth.
3. There’s no meaningful way of setting a target if it is to be used in executive awards.
Let’s develop the Reditus plc story further, with the addition of some M&A activity. The firm takes up the opportunity to acquire another business for £1,000, £450 of which is underlying PPE, £550 is goodwill – i.e., the premium paid to book value to acquire the business. This new business is forecast to generate an IRR of 11%, so it is value accretive compared with Reditus’s WACC of 10%.
The firm is correct to take this opportunity. However, unfortunately, ROCE drops to 15% after this acquisition. A bit of a conundrum
to explain externally, and worse – if ROCE is part of the executive award programme –potentially quite unpopular. Table 2 shows the balance sheet and NOPAT of Reditus under this M&A scenario.
But all is not lost. I want to introduce the concept of ‘organic’ ROCE to you. Organic ROCE strips out M&A-related balances to at least get back to an unadulterated figure. Table 2 illustrates this. The organic ROCE of Reditus after the acquisition has risen from 22% to 24%, reflecting a deal that has added value. Without carving out organic ROCE, reported ROCE shows a decline to 15%. Organic ROCE does allow for some comparability across sector peers to gauge who might be generating higher returns from capital. Many caveats persist to this analysis.
There is another indirect source of affirmation for ROCE to which I want to draw your attention. Joel Greenblatt, in his book
The little book that still beats the market (2005), describes an investment rule that incorporates ROCE. His method is to rank firms according to ROCE and earnings yield (taken to be earning over market value). He then scores each ranking, one being highest, combines each firm’s score, and chooses the top 30 (the 30 firms with the lowest score) as an investment portfolio.
Back-testing this portfolio produced a return of 189% over a 10-year period. This is an annual capital gain of 11%, which, when combined with dividend yield, far outperformed the equivalent return from the whole market. Indirect proof that ROCE does have some bearing on value creation and, ultimately, enterprise value.
In my next article, I will introduce a concept that, when applied to ROCE, transforms it into a much more useful, transparent and explainable metric. This very simple change can make ROCE fit for purpose after all.
Table 2: Reditus’s reported ROCE falls after its acquisition, despite this being value accretive. ‘Organic’ ROCE, however, reflects this value enhancement, increasing to 24%. Reditus
Tariffs imposed by the new Trump administration will set the stage for financial disruptions, requiring proactive hedging and other mitigation efforts
Even before the recent flurry of on/off tariff threats, major US companies, including Walmart, Stanley Black & Decker and Columbia Sportswear, have already announced their intentions to raise prices if and when President Donald Trump follows through with his tariff threats. So amid this ongoing uncertainty, corporate treasury should be preparing for a range of possible outcomes.
Tariffs will, potentially, impact imports, exports, inflation and the strength of the dollar – risks that multinational companies’ treasury departments will play a key role in mitigating. Tax cuts and deportations of undocumented immigrants may further fuel inflation and introduce additional financial challenges that companies will have to address.
“Corporate treasuries have to wait and see how this plays out, but also plan ahead based on scenarios they see as likely, as well as adverse scenarios, so they’re ready for all contingencies,” said Joseph Neu, CEO of NeuGroup, which provides a platform for corporate finance executives at multinational companies to exchange information about issues they confront.
Tariffs up first Trump threatened 25% tariffs on goods from Mexico and Canada soon after taking office, and gave them a 30-day reprieve to meet certain demands. New 10% tariffs imposed on China remain in place, and China has retaliated with targeted tariffs. In all three cases, the Trump administration is using the International Emergency Economic Powers Act (IEEPA) as a basis for the orders, according to law firm White & Case, which provides the president with wide authority to impose tariffs after declaring an emergency under the National Emergencies Act.
“A national emergency can be based on a threat to the US national security, foreign policy, or the economy,” the law firm says.
In 2019, Trump threatened to levy 25% tariffs on all goods imported from Mexico under the IEEPA, unless
“There’s an opportunity to think about the currency ramifications of where you’re moving supply and the cost base, and create natural hedges that way”
the country addressed border immigration issues –echoing his current threat. The law had previously been used to sanction adversarial nations and deter terrorist financing, and before it could be tested regarding tariffs the Trump administration announced the two countries had reached an agreement.
The IEEPA requires the president to “consult” with Congress before taking action and subsequently transmit a report to Congress, according to law firm Holland & Knight, but it does not require what could be a time-consuming investigation by a federal agency prior to action. Similarly, there are no procedural requirements to impose additional tariffs under Section 338 of the Tariff Act of 1930, if the president finds that a foreign country has taken unreasonable or discriminatory actions that disadvantage US commerce.
“Where such unreasonable or discriminatory actions continue following the imposition of tariffs, the president may block imports from that country,” the law firm says.
Prepare for volatility
Such moves are clearly problematic for US companies importing goods and their non-US exporters, disrupting supply chains, and they’re likely to prompt US trading partners to retaliate by increasing tariffs on US imports and/or following the traditional response of devaluing their currencies, which could strengthen the already strong US dollar (USD).
Neu noted that Trump’s history of changing policy direction introduces significant uncertainty and potential market volatility that could soon adversely impact interest rates, foreign exchange rates, and other financial factors under corporate treasury purview.
“That uncertainty tends to play into more options-based hedging, so some treasury executives are looking to build more optionality into their companies’ hedging programmes and for opportunities in various options markets to put on positions,” Neu said.
He added that some companies are accelerating the “decoupling” with China they initiated after the first Trump administration imposed tariffs, as well as the “natural hedging” they’ve pursued in the wake of the COVID-19 pandemic.
“There’s an opportunity to think about the currency ramifications of where you’re moving supply and the cost base, and create natural hedges that way,” Neu said.
That can take the form of exploring the costs and risks of “local funding, rather than multinationals’ traditional path of borrowing in the US’s deep and liquid capital markets and lending internally to their various affiliates around the world”. Not only can local funding
reduce the cost of funds, but it can also help hedge currency risk and reduce the need to repatriate funds from countries with currency transfer barriers.
“There are a lot of companies looking at local funding options in China because of that, but it’s probably the case wherever companies have direct foreign investment in countries with currency controls,” Neu said, “as a trade war could exacerbate those [repatriation] challenges.”
Customs bond increases
In addition to the costs imposed directly by tariffs, all companies that import goods into the US – domestic and foreign-owned – will probably have to increase their customs bond limits to account for increasing tariffs. A customs bond ensures that the importer complies with customs regulations and that the US Customs and Border Protection agency is paid for import duties, taxes and fines. When tariffs increased in 2018 under the first Trump administration, said Dan Swartz, tax principal at accounting and consulting firm Crowe, the surety companies underwriting those bonds scrutinised bond applicants more closely. “If tariffs and the effective duty rate suddenly increase, now everybody has to go back and look at raising the bond limit,” Swartz added.
That prompted companies to make changes to their supply chains, so instead of controlling the goods from their vendors’ facilities for delivery into the US, they told vendors to become the importer of record and deal with the new duty burden before delivering the goods. Such foreign, non-resident importers often had to present audited financials, a challenge especially for nonpublic companies. And, in a lot of cases, Swartz said, the bond underwriters required up to 100% collateral of the bond limit presented as a letter of credit.
Trump has threatened instituting tariffs across a much broader range of imports than during his first term, a move that would not only increase sureties’ client scrutiny, but also financially challenge many importers.
“The company may have to pony up $250,000 to $500,000 just to procure a bond, and that could be a real challenge for some companies,” Swartz said. “We will see a lot of notices sent out by bond sureties, letting clients know their bonds are insufficient.”
Interest rate uncertainty
While tariffs during Trump’s first term had little inflationary impact, a much broader and deeper implementation probably will, as would the deportations of undocumented immigrants, even if those deportations, initially, are relatively limited. The promised tax cuts, ranging from dropping the corporate tax rate to 15% to lowering or eliminating taxes on tips, overtime and social security income, are expected to be pursued later in 2025, and they, too, could flame inflation.
If inflation does pick up again, the Federal Reserve could pause or even reverse its anticipated rate cuts, which it recently reduced to two in 2025, down from the earlier anticipated four.
Amol Dhargalkar, managing partner and chairman at Chatham Financial, specialising in financial risk management, said that companies’ CFOs, boards and treasurers – especially
“If you’re a UK or EU corporate and have not already thought about re-evaluating your treasury staffing and organisation in the US, it’s probably overdue to start doing that”
in leveraged firms that rely more on floating-rate bank debt –have been waiting for interest rate cuts to take a more definitive direction before applying hedges. Now, however, the direction of rates is uncertain.
“There are a lot of possibilities,” Dhargalkar said. “We’re in a different world now than before the election, and companies need to take a much more robust approach to analysing that risk and, potentially, making decisions to mitigate it.”
That approach requires timely analysis of how rate changes could impact a company’s capital structure, leading to different hedging or financing decisions.
“Some firms might say, ‘spreads are at an all-time low, so even if rates currently are a bit higher, better to issue now than wait a few months’,” Dhargalkar said.
Hedging FX
Dhargalkar added that a similarly proactive approach should be taken to hedging FX risk, given that companies often take a “robotic” approach to currency hedging based on historical exposures. While the dollar appears likely to strengthen under Trump policies, that’s far from certain, and it could move in the opposite direction.
“So, first, taking a deeper look at your FX exposures and, second, to the extent the company has not started an FX hedging programme or has just dabbled, it’s important to understand the impact of a continually strengthening dollar,” Dhargalkar said.
Should Trump succeed in launching his ‘America First’ strategy, which makes exporting goods to the US more difficult, non-US companies may want to consider beefing up operations and treasury operations in the US. Neu noted that multinational companies are currently analysing how to make their businesses more dynamic and agile, moving decision-making and accountability outside of headquarters to the businesses’ front lines.
“If you’re a UK or EU corporate and have not already thought about re-evaluating your treasury staffing and organisation in the US, it’s probably overdue to start doing that,” he said.
John Hintze is a US-based financial writer covering corporate finance and Wall Street
FUTURE TRENDS
What lies ahead for the treasury professional?
PAYMENT VISIONS 2025
Organisations in the UK and Europe are preparing for technology-empowered new payment systems in the coming years
FINANCIAL INSTRUMENTS REVISITED
Recent amendments to IFRS 9, the accounting standard governing financial instruments, are set to have an impact on treasury
ISO 20022: FUTURE-PROOF YOUR TECH
As the adoption of the new cash messaging system picks up speed, now would be a good time to invest in new technology
Visions of the future
While many organisations are preparing for technologyempowered new systems in the UK and Europe in the coming years, the use of technology is also helping to extend the life of legacy payment methods
On 14 November 2024, the UK government published its long-awaited National Payments Vision (NPV).
A year after former Nationwide CEO Joe Garner’s Future of Payments review – which called for more leadership and direction from government –and after a consultation period, HM Treasury has now published a policy that recognises the importance of payments to the UK economy and the need to change the status quo.
the banks, card companies, payment companies, fintechs, trade associations and consumer groups are represented on the Vision Engagement Group (VEG). The Payments Vision Committee, which sits above the VEG, has been established to ensure coordination between the regulators and to provide a mechanism to facilitate prioritisation decisions on initiatives.
Every minute, more than 91,000 payments are made in the UK. According to Bank of England statistics, the average daily value of electronic transfers for 2024 (as reported in the Bank’s real-time gross settlement service figures) stood at £747bn. This figure includes CHAPS, CREST, FPS and Bacs, as well as Visa Europe, Mastercard and Link. There was even £44m of cheque images made every day.
That is a lot of money moving through the system, but the expectation is that this will move more to instant, real-time payments, a move that will have implications for treasuries. While the vision is expected to create more choice for payers, it will also create more complexity for those handling inbound payments and with implications for cash management.
The future of payments will be a key topic at the ACT’s upcoming Cash Management Conference on 19 March, in London. Scan the QR code for more details
There will be a detailed analysis of the UK's National Payments Vision by experts at NatWest in the next issue of The Treasurer.
The Treasury’s vision is for the UK to have “a trusted, world-leading payments ecosystem delivered on next-generation technology, where consumers and businesses have a choice of payment methods to meet their needs”. It is seen as very much part of the government’s overall growth agenda.
Two key foundations need to be in place to deliver this ambition: a clear, predictable and proportionate regulatory framework, and a resilient payments infrastructure that supports innovation.
With this in mind, the NPV sets out clear actions to achieve the above ambition. These are broad-ranging, demonstrating the wide impact of payments in the UK and the complexity of the payments ecosystem. The NPV acknowledges what hasn’t gone well in the UK and where things need to change, calling out a need for clearer direction from government and a less complex regulatory framework.
The NPV aims to bring together the whole payments ecosystem – regulators (including the Bank of England, Financial Conduct Authority and Payment Systems Regulator),
As Ritu Sehgal, head of transaction services and trade at NatWest Commercial & Institutional Banking, says: “We are moving into a universe where treasuries are increasingly assessed on efficiencies and more and more are a critical, strategic part of a firm’s business. As well as managing basics like ensuring rent and payroll are paid, they play an essential role in the risk management and profitability of a business.
“As payments become both real-time and instant globally, new opportunities and risks will emerge, because money touches every part of an enterprise. In due course this will mean always-on real-time monitoring of cash positions 24/7, for domestic payments and cross-border payments too.”
European Payments Initiative
Change is not only happening in the UK. The European Payments Initiative (EPI), previously known as the Pan-European Payments System Initiative, is a unified digital payment service backed by 16 European banks and payment service providers. Its aim is to allow European consumers and merchants to make next-generation payments for all types of person-to-person
transfers and retail transactions via a digital wallet, called Wero. This wallet, launched in July 2024, is based on instant accountto-account payments and will eliminate intermediaries in the payment chain and their associated costs. The service is a European mobile payment system intended to replace Giropay in Germany, Paylib in France, Payconiq in Belgium and Luxembourg, and iDEAL in The Netherlands.
In December 2024, EPI announced the first successful end-to-end Wero e-commerce transaction with a German merchant – between the end of November and mid-December, several transactions were successfully carried out on the online store of German football club 1. FC Kaiserslautern, as part of a proof-of-concept exercise. Further trials will be conducted throughout the first half of 2025, before an official launch in Germany over the summer. Belgium will follow in the autumn and France at the beginning of 2026.
Also during 2025, Wero’s service will be extended to online and mobile shopping payments, and then near-field communication-enabled point-of-sale payments in 2026. Additional transaction types are planned to be supported later, including one-off payments, subscriptions, instalments, payments upon delivery and reservations. Additionally, value-added services will be incorporated into the solution, including ‘buy now, pay later’ financing, digital identity features and integration of merchant loyalty programmes.
Technology transforming older payment instruments
While rumours about the death of cash may be exaggerated, it is clear that technological advances have been driving the shift to digital payments. It is, therefore, ironic that technology is also extending the life of more traditional payment methods.
This is borne out by official statistics. Figures recently released by trade association UK Finance and consultancy Accenture found that 85% of people in the UK now use contactless payment methods on a regular basis. But, according to the survey, cash remains the second-most frequently used method of payment. While cash will probably continue to fall in popularity over the next 10 years, the researchers expect the rate of decline to slow as its use becomes
concentrated among people who strongly prefer it.
In the US, increasing use of digital payment methods, such as digital wallets and virtual cards, has led to a decline in the use of cheques, but they remain a prevalent form of payment. The reason behind this lies in technology. Cheque processes have been fine-tuned over decades by companies that adopt an ‘if it’s not broken, there’s nothing to fix’ approach. Banks and other financial institutions have invested heavily in solutions that mean lockboxes have come a long way since they were remote collection boxes. They can now offer capabilities such as scanning remittance information and converting the cheques into ACH transfers. Nevertheless, treasurers would be well advised to look at what is happening elsewhere in the world to understand how payment systems are changing, either through government initiatives or consumer behaviour. For instance, Singapore had originally planned for cheque payments to be phased out by the end of 2025. This has now been extended to the end of 2026 to give corporate entities and businesses more time to adopt e-payment methods, the Monetary Authority of Singapore and the Association of Banks in Singapore announced in December last year. At the same time, the Singaporean authorities said they would also launch two new electronic deferred payment methods in mid-2025, to support the transition to e-payment methods for corporate entities and individual, or retail, cheque users.
Philip Smith is editor of The Treasurer
“Treasurers would be well advised to look at what is happening elsewhere in the world to understand how payment systems are changing”
Plan ahead for derecognition amendments
With less than a year to prepare for reporting requirements that will impact how electronic payments affect the derecognition of financial liabilities, Passarinho MCT unpicks what’s changed
Recent amendments to IFRS 9 Financial Instruments include a new exception that allows early derecognition if certain conditions are met, such as there being no ability to cancel the payment, among others. Corporate treasurers are advised to review payment systems, and the terms and conditions of the relevant contracts, and adjust processes where necessary to comply with the changes, effective from 1 January 2026.
the contractual obligation is discharged, cancelled, or expires. As for financial assets, these should be derecognised when the contractual rights to its cash flows expire, or when the asset is transferred (and the transfer qualifies for derecognition).
David Passarinho MCT is a senior financial reporting expert at Huawei
Electronic payment systems have expanded significantly over the past few decades to become the most common means for settling transactions in the corporate world. IFRS 9, the accounting standard for financial instruments, provides principles for the recognition and derecognition of financial assets and financial liabilities.
However, a diversity of practice regarding the timing of derecognition, particularly for electronic payments, was brought to the attention of the International Accounting Standards Board (IASB). As technology evolves, financial reporting should adapt accordingly. In its latest improvements to IFRS 9, the IASB clarifies when financial assets and liabilities should be recognised and derecognised. More specifically, the amendments introduce an exception for the timing of derecognition of financial liabilities settled via electronic payments, which is the focus of this article, together with its implications for corporate treasurers.
At first glance, the requirements seem straightforward and based on legal principles. However, the situation becomes more complex when electronic payments are involved. There is often a time lag between initiating the transfer and when the funds are actually available to the payee. The time lag can vary depending on the payment system used and the amounts involved.
The IASB observed that many entities have been derecognising financial assets or liabilities settled electronically when the transfer is initiated by the payer, rather than when the funds are actually available to the payee. This has led to inconsistencies in practice.
What are the amendments to the derecognition of financial liabilities?
The recent amendments clarify that a financial liability should be derecognised on the settlement date, which is the date on which the liability is extinguished – i.e., when the cash is available to the payee. However, an exception has been introduced for financial liabilities that are settled via electronic
following conditions are met:
• The entity has no practical ability to withdraw, stop or cancel the payment instruction
• The entity has no practical ability to access the cash to be used for settlement as a result of the payment instruction
• The settlement risk associated with the electronic payment system is insignificant. It is important to note that this exception applies on a system-by-system basis, meaning the terms of each individual electronic payment system used must be considered.
The exception is not applicable to other payment methods (e.g., cheques) and is not available for financial assets. Consequently, an entity with a receivable can only derecognise the financial asset (such as an account receivable) when the cash has actually been deposited into its bank account.
What will be the key considerations for corporate treasurers?
Corporate treasurers are generally responsible for managing cash and understanding the payment systems used by their organisations. They will play a critical role in implementing the new amendments. Here are some key considerations for treasurers:
Review all electronic payment systems
It will be necessary to review each electronic payment system, including its terms and conditions, to determine whether the exception to the derecognition of financial liabilities applies. Key to this analysis is understanding the exact moment when the entity can no longer cancel the payment or access the transferred funds. Engaging with each system provider (typically a financial institution) is recommended, as entities using the same system will be expected to reach a consistent conclusion.
Assessing the settlement risk
The exception can only be applied if the settlement risk is deemed insignificant. This assessment requires a thorough understanding of the payment system provider and the settlement process.
Review processes
Consider how the amendments may impact internal reporting processes, such as bank reconciliations, liquidity reports and cash plans. It may be necessary to update procedures to reflect the new derecognition timing.
Review accounting systems
If the payment systems are integrated with the entity’s accounting systems, it is crucial to assess whether the generated accounting entries are consistent with the derecognition requirements.
Determining the settlement date
If the exception is not applicable, or if an entity chooses not to apply it (the exception is permitted – it is not compulsory), determining the exact settlement date may become more challenging, because it depends on when the cash is available to the counterparty. It might be necessary to implement new processes to accurately track and record the settlement date, which determines the derecognition date.
• Documentation
Auditors will require appropriate documentation to support the entity’s conclusions regarding the derecognition of liabilities. Therefore, the assessment of each payment system and its impact on financial reporting should be thoroughly documented.
When will the changes come into effect?
The amendments to IFRS 9 are effective for reporting periods beginning on or after 1 January 2026, with earlier application permitted. As the timing of derecognition is critical for accurate financial reporting, entities should carefully assess the impact of these amendments on their payment systems and accounting processes. Early assessment and proactive adjustments to systems and processes are highly recommended to ensure compliance and a smooth transition.
“A financial liability should be derecognised on the settlement date, which is the date on which the liability is extinguished”
Use the QR code to read the announcement from the International Accounting Standards Board
How to avoid ISO-lation
Corporate treasurers are best positioned to lead the transformation to the new ISO 20022 payments system, but they need to be proactive, argues Jerald Seti
ISO 20022 was a pre-eminent theme for corporates and banks alike in 2024, but the project’s initial steps began more than a decade ago. The first seeds in the concept of adopting a global standardised messaging format were planted in about 2008. Over the years, this initiative has gained momentum and urgency because of the growing need to harmonise the vast array of disparate payment systems across the world into a single messaging standard. Now, as we look to 2025 and a wave of ISO deadlines fast approaching, the pace of this transformation project has accelerated.
already use a common messaging structure, are easier to onboard, eliminating the need for corporates to learn new systems, such as moving from ACH to Swift.
“The ISO 20022 transition is not simply about adopting a new messaging standard; it represents a broader transformation of treasury operations”
The deadlines for ISO 20022 adoption are varied across markets and stakeholders. While financial institutions have until November 2025 to migrate to the new messaging standard for interbank cross-border payments, corporates are not required to make the change. But with the US Federal Reserve and Swift planning their migrations in 2025, corporates and their payment flows will undoubtedly be affected and should take a proactive approach to ensure that their organisations are prepared for the transition. Outside of payment and reporting flows, ISO 20022 also opens the door to treasury transformation, providing an enriched data foundation for enhanced real-time treasury and cash forecasting.
Forging the path
Corporates that have begun migrating to ISO 20022 payment structures are already reaping rewards. One key advantage for early adopters is that their new banking partners, which
However, overhauling digital infrastructure has proved daunting for corporate treasurers, given the competing standards and bank proprietary formats to be interpreted. The lack of a clear deadline by which to mandate a companywide change is a compounding factor. Many corporates still use legacy formats that are not compatible with new messaging standards. With the increased complexity of the data collected via the ISO messaging format, companies must be ready to support the additional data and structure, moving away from bespoke CSV-based formats, and ensuring end-to-end processing chain readiness.
Updating and replacing these formats is an important task for treasurers as they embark on their transition projects. It should be undertaken as soon as possible; those who are not trying to get ahead now may find it difficult to catch up later. Early adopters will be better positioned to undergo rigorous testing and mitigate the risk of disruptions and failed payments before their banks impose deadlines, especially where significant system or technological overhauls are required.
So, what steps should treasurers take to set up an ISO 20022 transition project?
Given the complexity of the ISO 20022, corporate treasurers are best positioned to lead the transformation project proactively, ensuring external alignment with banks and advocating for system changes internally. It
is vital to remember that banks are free to make changes ahead of the November 2025 deadline, and can decommission legacy Swift, CSV and other messaging formats that they use to communicate for corporates.
As a result, the corporate treasury transformation stakeholder should be responsible for managing the flow of communications between banks, vendors and internal teams. To ensure the project remains on track for corporates with less clearly defined timelines, it is useful to set an internal deadline, which allows for testing and adjustment ahead of bank-imposed schedules.
Treasury transformation
The ISO 20022 transition is not simply about adopting a new messaging standard; it represents a broader transformation of treasury operations. Beyond compliance, ISO 20022 offers multiple benefits that will assist with endto-end processing and enable richer data via more detailed cash management statements and enhanced remittance information. This can be a powerful selling point when ISO stakeholders make the business case for a digital overhaul; the new data structure offers significant advantages for data analysis, real-time treasury management, sanctions screening, and improved compliance.
A primary advantage of ISO 20022 is the readability of its messages compared with the often-cryptic Swift messaging format. The new messaging format uses clearly defined fields with identifiable tags and values, such as name, settlement date, and account numbers, which are easier to interpret. For example, data previously captured as free-form text in Swift messages, such as name and address information, is now structured in designated fields, making it more usable for downstream applications, including compliance and AI systems.
The new format allows for more effective cash forecasting. With ISO 20022, treasurers can use the rich, granular data in payment messages to make better-informed projections of future cash flows. The data also enables real-time updates and generation of more accurate liquidity forecasts, helping companies manage their cash more efficiently.
Another significant benefit of ISO 20022 is its ability to streamline compliance and regulatory reporting. The new messaging format includes dedicated tags for regulatory reporting, such as LEIs, tax codes, and universal identifiers, which will help regulators track payments more effectively as they move across borders. ISO 20022 can also
TRANSITION PROJECT: KEY STEPS
1. Define payment types and affected systems
Determine which payment types and systems the ISO 20022 migration will affect. Treasurers should assess which systems will require updates and prioritise these changes according to their migration rollout schedules.
2. Engage with banks and vendors As payment types and systems migrate, treasurers should speak to their banks to understand the latter’s specific ISO 20022 migration plans. To avoid disruptions, treasurers must request clear timelines for when different payment types will require ISO 20022 data. Ensuring that vendors and banks are aligned on strategy is crucial, as this can prevent potential roadblocks.
3. Validate systems with tech partners Treasurers must engage with their technology partners so that necessary updates and integrations are done in time to support the updated ISO
messaging framework. To ensure compliance, this may include introducing purpose codes, including Legal Entity Identifiers (LEIs), and updating data systems to support enhanced remittance information, and detailed name and address information. These system changes, including database updates and user interface modifications, must be assessed early, as the ISO 20022 stakeholder may need to make a business case to CFOs and wider teams for investing in an updated digital infrastructure.
4. Test and adjust by your own deadlines
Once the necessary infrastructure changes are implemented, rigorous testing is required to ensure the smooth flow of payments. Training may be needed to ensure all relevant employees are confident with the new messaging ISO 20022 formats, and how best to collect, store and analyse the new, standardised data collected.
improve sanctions screening by facilitating more accurate comparison of beneficiaries and parties in payment to government lists. The move away from approximate matches to exact data fields reduces the risk of false positives, improving the efficiency and accuracy of screening processes, and minimising time bottlenecks in cross-border payments.
Ultimately, the transition to ISO 20022 presents a significant opportunity for corporate treasurers to transform their treasury operations. Early adopters will be best placed to reap the advantages of enriched payment data. Given the complexity of the project – both in communicating and implementing updates internally, and coordinating competing deadlines with external stakeholders – treasurers must lead the charge by ensuring their organisations are fully prepared for the future of payments.
Jerald
Seti is vice-president of product management, financial services, at ION Treasury
“Another significant benefit of ISO 20022 is its ability to streamline compliance and regulatory reporting”
GenAI and geopolitics dominate forum debate
At the ACT Treasury Forum, attendees heard expert commentary on the growth of generative artificial intelligence, and how global political upheaval and economic uncertainty would continue in 2025
“With great power comes great responsibility,” HSBC’s Lucy Wilcox told the audience at the ACT Treasury Forum, held in London in November. This wasn’t a comment on the US presidential election result that had been declared a few days earlier. As the current leader of generative AI training and adoption in HSBC’s Office of Applied AI, Wilcox was in fact referring to the proliferation of genAI uses, many of which presented both business opportunities and threats.
New content
“We’re seeing a number of issues emerge from the deployment of generative AI,” Wilcox said. “Traditional AI is designed to understand patterns in data… Generative AI understands the structure of data. It really thinks about the likelihood of the input and the output, and will predict the next word in a sentence. So, the generative capability can actually create new content based on the relationships of the data that it’s been trained upon.”
However, as a result, there are legal issues around copyright and what this means from an intellectual property perspective, warned Wilcox. “We are navigating uncharted waters,” she said, adding that institutions are restricting the use of ChatGPT “because it’s uncontrolled, we don’t fully understand what’s happening with the data, and we don’t fully understand how our users are using that product. It really underpins the importance of control and monitoring when leveraging these technologies within the workplace.”
Deep-fake risks
Wilcox warned of the dangers of fake information: “We are seeing some really terrifying issues
around the proliferation of ‘deep fakes’, such as the example of how an individual broke into a bank account using an AI-generated voice. These technologies are becoming more common and easier for bad actors to get their hands on. It’s something of which we, as an organisation – as well as our customers – need to be aware, and that we need robust security controls to prevent.”
She added that controls were necessary to moderate the output of generative AI models, especially where there is a risk of ‘hallucination’, where the output is “wildly inaccurate but incredibly plausible”.
Open-minded
However, as Yasemin Artar, HSBC’s managing director of global markets corporate sales in Europe, said, group CFOs and corporate treasurers remain “open-minded” about their willingness to engage with AI within treasury.
“Around two-thirds said they are open to trying [AI] and are even extremely eager to use the technology,” she said, referring to the bank’s recent risk management survey.
“57% of the treasurers in the UK and globally expect AI to be relevant either today or in the next five years,” she added, saying that, as a comparison, only 8% thought the same about the use of cryptocurrencies.
There was also good news on job security – the survey results confirmed that the technology is expected to be supplementary, more than disruptive to treasury. “80% of the participants expect AI will take over less than 25% of their current tasks over the next five years. So, the companies are feeling the positive impact of AI, but clearly – for strategic decision-making – humans are needed,” Artar said.
Cash-flow forecasting
Chet Patel, associate director in HSBC’s treasury solutions group, highlighted three use cases for AI in treasury – cash forecasting, FX management and fraud detection. Much will come down to identifying patterns.
“Treasurers can improve the accuracy of their forecasts because AI models would be able to ingest and analyse large amounts of historical data and real-time data from past cash flows, payment trends, sales data and market data,” Patel said. “AI will be able to identify the patterns, allowing treasury teams to adjust forecasts and then their cash position.”
He also highlighted the need to be constantly on the look out for fraudulent transactions. “You need to be 24/7 with fraud detection at the moment.
Yasemin Artar
Helen Belopolsky
REACHING FOR THE STARS
Astronaut Helen Sharman CMG OBE (above) was the guest speaker at the ACT’s Annual Dinner, held at the JW Marriott Grosvenor House in London. Sharman became the first British astronaut in May 1991, spending eight days orbiting the Earth. She impressed the audience of treasury professionals with stories of space, STEM, and the rigorous training she underwent. The evening also raised money for charity, Hand in Hand International.
These systems will be able to pinpoint and identify suspicious activities. If you’ve got for example, transactions that are happening from multiple devices from different areas in the world – or if they’re happening in various short spaces of time, or even the volumes and the amounts of these transactions are not in keeping with those clients –the AI will be able to identify those and send alerts.”
Global uncertainty
Attendees at the forum also heard how geopolitical and economic uncertainty are set to continue into 2025. Helen Belopolsky, HSBC’s global head of geopolitical risk, told the audience that the world faces “no end of geopolitics in the months and years ahead… a whack-a-mole in the international system of crisis after crisis”. The uncertainty, she said, is “affecting everything, from trade to foreign direct investment to business sentiment”.
Looking ahead to the Trump presidency in the US, Belopolsky urged the audience to be prepared for immediate change: “He’s already crystallised the focus in terms of the economy, foreign policy and immigration, and we have to be prepared for a
day-one agenda that includes swift moves towards raising tariffs, cutting taxes, and cracking down on undocumented migrants.”
However, she saw positive opportunities for corporate businesses. “A lot of political risk consultants are talking about navigating political risk, but I would suggest it’s not about navigating; it’s not about avoiding the obstacles; it’s about adapting to the new realities and seizing the opportunities.”
HSBC’s chief European economist Simon Wells said he expected consumers to spend more in the future, which would help fuel economic growth. However, economic growth across Europe remained low compared with other regions, particularly the US, in part as a result of uncertainty caused by the proximity of the war in Ukraine, and the ongoing impact of energy shocks.
Wells also warned that the UK budget could add an economic stimulus, which might slow the rate of interest-rate cuts.
“The market has the interest rate flattening out at about 4%, which seems quite high to me for a UK neutral or equilibrium interest rate,” he said.
AccessPay survey of finance trends for 2025 reveals manual processes continue to dominate, while ISO 20022 transition remains under the radar
According to the survey, seven out of 10 finance teams still manually retrieve bank statements from one or multiple banking portals, a statistic that highlights an efficiency gap within the treasury function. At the same time, the survey suggests half of finance teams are aware of ISO 20022, the new payment messaging standard, but haven’t yet made any preparations to ensure a smooth transition. However, regulatory compliance remains a critical area for finance teams, with 42% saying it is a key challenge. These trends are leading corporates to focus on finance
transformation in a bid to fulfil their business objectives of cost optimisation and driving business growth.
According to AccessPay: “Migration to the ISO 20022 standard for financial messaging represents an ideal business case for moving to bank integration solutions.” However, the indications are that businesses have made limited preparations.
As AccessPay CEO Anish Kapoor says: “The technical nature of ISO 20022 and a very protracted rollout means the changes have bypassed many businesses, but they will eventually affect all corporates.”
BEST PRACTICE
Seizing the opportunities of
Peter Murrell, head of
When it comes to climate
there are three types of treasurer, argues Marc Lepere, ESG lead at King’s Business School
ESG in transition
The recent ACT ESG Conference highlighted how sustainability finance is evolving. These are just 10 of the key points made on the day
1. Understanding sustainability strategy
Treasurers need to understand their organisation’s sustainability strategy in order to find ways of attracting capital, said Harry Stokes, commercial finance director of property giant Segro. “It is unlikely that you will need to know in any great detail, to five decimal places, what the carbon emissions are in Scope 1, 2 or 3, or anything like that. The question rarely gets that detailed,” he added.
“The main thing is to weave the sustainability narrative into the financial narrative. It could be putting a slide in the investor pack that shows how you do business. That will cover 90% of what you need to talk about.”
2. Enhancing the ESG skill set
For treasurers needing to improve their ESG skill set, there are plenty of channels available, said Darius Zemrieta, treasurer of Arqiva, a telecommunications group.
When it came to addressing questions from the telecoms group’s board on whether an ESG label should be issued following completion of a sustainability strategy, Zemrieta turned to David Willock, managing director, sustainability advisory, Lloyds Bank, who was facilitating the session.
“David gave me a download of what’s required to establish a single financing framework. He explained it’s not a quick thing. You can’t just bolt it on. It’s a process that requires thought and consideration, but that’s how you start your journey,” said Zemrieta. “As a minimum, I would recommend understanding your company sustainability agenda, because that gives you confidence that you understand it, which is an additive to your credit story and helps you with the roadshow.”
Segro’s Stokes added that, if you’re an accountant, the ACT and other bodies will help. “These organisations offer dozens of different
training opportunities, from a one-day conference to a nine-month training course,” he said.
3. Short-term interest
Demand for integrating ESG principles into commercial paper issuance is growing, with around 23 use-of-proceeds-linked and 10 sustainability-linked CP programmes identified by Katie Kelly, senior director, market practice & regulatory policy at the International Capital Markets Association (ICMA).
Kelly suggested corporates have a dedicated CP programme that includes conventional CP issuance and sustainable CP issuance. “We’d recommend having two separate programmes, just for ease of identification if nothing else,” she added.
In the session – entitled ‘Short-term ESG issuance: the overlooked sibling of sustainable bonds?’ and facilitated by TreasurySpring’s head of corporate origination, Nigel Owen – Kelly emphasised the need for better marketing of ESG-focused CP and consideration of penalties versus rewards.
4. ESG CP pushback
Royston Da Costa (pictured, top left), assistant treasurer at US building products distributor Ferguson, highlighted a lack of yield and standardisation in ESG-linked CP as a potential barrier. “I believe that it is still not attractive. When we look at these instruments, we’re not just looking at the fact that it is the right thing to do; it’s about yield as well, which we’re not seeing,” he said. “There’s also a problem of standard validation. In terms of the packaging, I think it’s still not right.”
5. The ACT’s sustainability certificate
Details of the ACT’s new Certificate in Sustainable Finance for Treasury were unveiled at the event by Janet Legge, the association’s deputy chief executive.
The qualification is structured into five units, covering ESG fundamentals, sustainable finance, ESG data, assessments, and investments. Legge said the certificate, which will be achievable in three months, had the goal of providing treasurers with a comprehensive understanding of sustainable finance.
Carel van Randwyck, senior adviser, sustainability and impact, at Rodford & Partner, who helped develop the certificate, said it would better equip treasurers to lead within their organisations, especially when dealing with sustainability-linked bonds or loans.
Royston Da Costa
Vanessa Harvard-Williams
6. On interoperability
The challenge of dealing with various sustainability reporting requirements across multiple jurisdictions, and specifically the UK, EU and US, was highlighted in a session conducted by Rory Robinson, head of UK sustainability at consultancy d-fine.
He assessed ways of managing the divergent standards and regulations across different regions, covering strategies for achieving international consistency, harmonisation efforts, and best practices for compliance in a fragmented regulatory landscape.
Robinson recommended treasurers undertake detailed analysis to identify comparisons and gaps between standards. “The first step is to think about your road maps in terms of your regulatory reporting now, and what it’s going to be in the future, in accordance with your requirements, but also your voluntary standards,” he added.
7. Transition on
Vanessa Havard-Williams (pictured, bottom left), chair of the Transition Finance Market Review, expressed the scale of the global transition to net zero, referencing research house BloombergNEF’s estimate of $6.7tn a year.
She said: “Fifty per cent of the world’s largest businesses are now committed to net zero, and they’re starting to be driven by national emission-reduction targets. So there’s a private sector need to unlock capital to deliver on those strategic commitments.”
Havard-Williams emphasised the need for credible transition finance classification, strategic public finance use, and the development of sectoral transition plans. She also stressed the importance of collaboration between the public and private sectors, and the role of treasurers in navigating these changes.
8. Treasurer opportunities in transition finance
Asked by Joanna Bonnett, the ACT immediate past president and treasurer of dental products giant Straumann Group, about the opportunities for treasurers in transition finance, Havard-Williams said: “Transition finance is about transition rather than a new product. Treasurers will see this through engagement with financial institutions and financial disclosure processes.”
She added that awareness of market shifts and policy connections will be important to treasurers.
9. Supply chain ESG integration
Regulatory, investor and other stakeholder pressure is mounting for firms to embed clear environmental and social standards for their supply chain, driving new initiatives. This is because sustainability considerations are expanding beyond a company’s own operations, said Dr Arthur Krebbers, head of corporate climate and ESG capital markets at NatWest.
In a session delivered by the banking giant, Krebbers – along with Helen Ferguson, NatWest’s director, ESG advisory, and Roze Farmer, associate, ESG advisory – said treasury teams play a critical role in this effort.
“To support these new initiatives, there is a growing range of supply chain-focused financing products and solutions,” said Krebbers.
10. Future of ESG financing
In a session devoted to assessing sustainable finance loans and bonds, speakers were asked by Tariq Kazi, group treasurer of housing association Peabody and the ACT deputy president, what constitutes a good product.
Alessandra Mogorovich (pictured, top centre), assistant treasurer at Anglian Water, said: “If you embark on any sustainable finance, you need to make it as flexible as possible.”
Will Jones, director, sustainable capital markets, SMBC, expected to see “an evolution in terms of the range of products and assets that can be considered sustainable in nature”.
Kathrine Meloni (pictured, above right), special adviser and head of treasury insight at law firm Slaughter and May, recommended “the ability to cut through what can be a very complicated area, to make it simple”.
Lawrie Holmes is a freelance business and finance journalist
Alessandra Mogorovich (centre)
Katherine Meloni
Treasury functions are increasingly recognising the relevance of supply chain initiatives. When surveyed during a presentation at the recent ACT ESG Conference, 46% highlighted the relevance of supply chain ESG goals to their business strategy while 32% noted investor questions on this topic and 28% regulatory pressure.
Business and regulatory pressures
This is not surprising. As more firms and indeed financial institutions set net zero goals, they grapple with the importance of Scope 3 emissions (the indirect emissions that occur in the upstream and downstream activities of a company). According to the Carbon Disclosure Project (CDP), corporates’ supply chain emissions (Scope 3 upstream emissions) are, on average, 26 times greater than their operational emissions (see Fig 1) –meaning that companies must work with their supply chains to drive meaningful emissions reductions. Even those without a clear decarbonisation pathway should take heed as there are many associated financial risks; CDP
How treasurers can support their companies’ supply chain sustainability goals
banks, a large component of their Scope 3 emissions will come from financed emissions. Many will be seeking opportunities to support their customers and suppliers in the transition, in part to meet their own decarbonisation and sustainability targets. In Fig 2, we set out several key solutions available to treasury teams. Pending the overall strategy of a treasury function, a subset of these will be suitable.
Improving the sustainability impact of one’s supply chain is no longer a nice-to-have. As regulatory and stakeholder pressure mounts, treasurers can play a pivotal role in this transition
estimates that climate-related risks in supply chains could cost nearly three times more than the actions needed to mitigate them.
Legislators in the UK and Europe recognise the need to push for supply chain accountability. Legislation – such as the European Union’s Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive – is driving an expectation from regulators for greater transparency on the actions businesses are taking to identify, manage and mitigate sustainability-related risks in the supply chain.
Range of solutions available Treasurers are becoming cognisant of the important role they can play in addressing supply chain sustainability topics in tandem with other functions, such as procurement and sustainability. Of those surveyed at the ACT ESG conference, 68% were open to embedding ESG KPIs in supply chain finance programmes and 40% wanted to look at bank partnerships to support their suppliers’ sustainability ambitions.
For many financial institutions, including
Asset finance can be a useful product if companies or suppliers need to invest in specific assets to support their transition. In 2023, McCain launched a first-of-its-kind partnership in the UK with NatWest, which provided asset finance directly to farmers to finance the equipment needed to move to more sustainable agricultural practices.
Similarly, Use of Proceeds financing can be used towards projects with clear environmental or social benefits, and this can be applied at the purchaser or supplier level. For example, EDF issued a social bond where the proceeds were focused on expenditure with small and medium-sized suppliers in areas of low employment.
Sustainability-linked instruments support a company’s commitment to transition by linking pre-agreed ESG KPIs and associated targets to a pricing incentive mechanism applied at either the purchaser or supplier level. At the purchaser level, these instruments can be used to advance supply chain sustainability by using KPIs such as Scope 3 emission reductions. Sustainability-linked supply chain finance programmes adopt the same pricing incentive mechanism with KPIs applied at the supplier level. Alongside these financing products, many banks offer additional tools and solutions to support their customers’ transitions, many of which will also be relevant to suppliers.
Treasury cannot be a bystander While no single financing solution will drive supply chain sustainability and reduce Scope 3 emissions, many tools can be considered as part of a treasury plan. Treasurers cannot afford to be bystanders. It is important for them to be involved in the delivery of the business’s sustainability strategy and to engage with their banking partners to find the right sustainable finance solutions.
Dr Arthur Krebbers is Head of Corporate Climate and ESG Capital Markets, Helen Ferguson is Director, ESG Advisory, and Roze Farmer is Associate, ESG Advisory, all at NatWest
Source: CDP and BCG: Scope 3 Upstream
Fig 1: Average ratio of supply chain Scope 3 emissions to Scope 1 and 2 emissions
Sustainable finance can help treasurers take the next steps to becoming CFO
LEADERSHIP & CAREER
“By investing more time in analysis and developing contacts within the organisation, treasurers can enhance their roles and gain higher exposure”
In our regular work with treasurers and CFOs on their climate finance strategy, we have frequently encountered examples of treasurers who advance the sustainable finance agenda for their organisation benefiting in terms of career growth. Sustainable finance provides an opportunity for treasurers to help their organisations gain advantages such as enhanced reputation, access to sustainability-focused investors and a reduction in cost of capital. Additionally, setting up sustainable finance frameworks and instruments can serve as valuable training grounds for treasurers aspiring to become CFOs.
Treasurers are central hubs of information within their companies and towards external stakeholders. Also, treasury is one of the few roles to benefit from a bird’s eye view of the activities of the whole organisation.
By engaging in sustainable finance activities,
treasurers can deepen their understanding of the company and increase their managerial roles.
From routine to value-added
Traditionally, treasurers handle day-to-day tasks such as cash forecasting, cash management and communication with banks. These activities involve significant information about the company, which is often processed quickly because of time constraints. However, by investing more time in analysis and developing contacts within the organisation, treasurers can enhance their roles and gain higher exposure within the company.
Usually, the treasurer provides the company with the funding plan. In the context of the low carbon transition, given the capital needs, CFOs (and their treasurers) need to be innovative to attract funding at an attractive price. Companies will rely on the treasurer to determine the transition funding plan and to assess whether it will be better to work on a project-by-project basis (and look for green loans or bonds) or in other ways to optimise the cost of capital – for example using grants, tax credits, joint ventures, partnerships, or special-purpose vehicles.
Issuing sustainable finance instruments broadens the treasurer’s role and exposure to new, non-typical corporate information. Green bonds or sustainability-linked bonds (SLBs) and loans (SLLs) require project selection or KPI selection, communication skills with internal
“Treasurers are the guardian of the corporate reputation on the debt markets, acting as an intermediary between the corporate and the debt investors”
stakeholders and investors, and monitoring of various non-financial parameters linked to ESG targets and covenants. This expands the treasurer’s role beyond traditional economic and financial variables, providing an enriching opportunity and better overall control of the company’s risk.
Treasurers will encounter new areas of the organisation and external experts, including:
• Collaborating with engineers, supply chain stakeholders, controllers, HR departments, board members, environmental specialists and ESG managers.
• Engaging with external experts and auditors, such as second-party opinion providers and NGOs, to validate information.
In the context of a green bond or SLB issuance, the treasurer will usually act as a conductor, chairing the working group related to the green bond or SLB issuance, ensuring that the selected projects or KPIs will be well understood by the investor community, and striving to keep the momentum of the internal stakeholders for meeting the objectives of the bonds over their duration. It is a question of leadership and credibility for the treasurer and, therefore, excellent preparation for a CFO role.
As the corporate representative towards the debt investors, treasurers should be aware of the regulations and trends around sustainability so they are able to explain the choice of the projects in the case of a green bond, and KPIs in the case of a SLB issuance. Treasurers are the guardians of the corporate reputation on the debt markets, acting as an intermediary between the corporate and the debt investors.
Fabrizio Palmucci is managing director of Impactivise, Marco Toselli is a CFO, and Michel Pinto is a senior adviser at Impactivise and a former group treasurer and subsidiary CFO
INNOVATE TO ATTRACT ESG INVESTORS
Every company and sector has unique opportunities and challenges. If we take the climate transition as an example, it is safe to say that transitioning to a lowcarbon economy requires significant adjustments across sectors. Different approaches are needed for different industries. For example, assessing the credibility of a company approach to Scope 3 emissions needs to differ greatly depending on whether we are looking at a chemical or cement firm. In the first instance, these emissions are extremely material, though really challenging to deal with, while in the second example, the cement manufacturer, Scope 3 emissions are mostly non-material. These differences beg for different financing approaches, as well as different opportunities.
Sustainability is evolving quickly –investor preferences, our understanding, technology and regulations are changing rapidly.
The combination of the uniqueness of every company and the evolving landscape is a source of opportunity for companies and their treasurers. The key is for treasurers to work on solutions that fit their company’s business model and strategy while gathering consensus from sustainability-driven investors.
This is how sustainability-linked bonds were created and launched in 2019. At the time, it was realised
that green bonds had their limitations and that more flexible, yet ambitious, instruments needed to be created.
Examples of where treasurers can create value in the current market
• How companies get investor credit for the credibility of their climate-transition plan in the Corporate Sustainability Reporting Directive (CSRD) and International Sustainability Standards Board (ISSB) contexts.
• How companies manage the unsolicited ESG ratings from influential not-for-profit organisations.
• How companies access supplychain financing.
• How companies structure sustainability-linked loans and bonds.
• How companies get grants and funding from development banks or public organisations. Ultimately, it is up to the treasurer. While it is not uncommon for a treasurer to be identified as a potential future CFO, using sustainable finance often depends on the treasurer’s motivation to take the initiative and assist CFOs in delivering additional value for their organisation, thereby improving their career opportunities (see table below). In our experience, by increasing the significance of the treasurer’s role sustainable finance can expedite this progression.
Select actions required for issuing a green bond
Leadership competencies
Completion of the ESG framework.
Get company alignment on the broad ESG strategy, including C-suite and the board.
Train internal staff on the ESG framework and on the concept of green bonds. Get on board and train internal stakeholders on the sustainability, green bond concepts and the benefits for the organisation. Agree
A green bond committee must be formed with the relevant heads of business.
Gather and align a cross-functional team.
The client must select the impact measures that will be reported to investors.
Go beyond the business as usual; look at impact across stakeholders.
HOW A GREEN BOND LAUNCH PREPARES A TREASURER FOR A CFO ROLE
Commercial cards can work for suppliers and buyers
Linda Weston, Lloyds’ head of commercial card products, explains why new and innovative commercial card solutions are delivering efficiencies for both buyers and suppliers
TREASURY OPERATIONS
Commercial cards as a payment solution have developed a lot in recent years. More and more businesses of all sizes, across all different sectors, are seeing the value in using commercial card solutions in both day-to-day and business critical transactions.
For businesses looking to streamline their payment processes, support their working capital and achieve greater efficiency, commercial cards can be a smart solution. If your business has used commercial cards in the past for travel and expenses, for example, but hasn’t considered them as a broader payment option, you might be surprised.
Far from being just a physical card, commercial cards can deliver real business value in a number of ways, including:
Working capital efficiency: by giving access to a period of interest-free credit, commercial cards make it easier to manage liabilities conveniently and cost effectively.
Additional protection: card payments come with chargeback protections. Any issue with receipt of goods is covered. Security of payment is also enhanced.
Freeing up time: by simplifying and automating payments and reconciliation, and working alongside existing accounts payable processes, back-office efficiencies can be achieved and more robust management information provided.
Securing supply chains: card payments can reduce suppliers’ days payable outstanding without impacting cash flow.
Overcoming payment challenges
With so many commercial card solutions available, it’s important to choose one that works for your business, your circumstances, and your supply chain. While many suppliers are happy to accept card payments, some might have restrictions on the type of payments they accept, or transaction limits. Others might view accepting card payments as an extra cost or burden on their own processes. But that can be a missed opportunity.
If that’s the case for your business and parts of your supply chain, finding a commercial card solution that overcomes that issue can deliver important benefits for both parties. As commercial cards have developed, some of the latest – such as Lloyds’ new eOptimise solution (see boxout opposite) – offer more sophisticated and flexible solutions that address many of the pain points that have previously deterred suppliers from accepting credit card payments.
For example, by ensuring that the processing costs of transactions are borne by the buyer rather than the supplier, and that the supplier still gets paid as quickly as possible, these solutions eliminate the perceived downside for suppliers. Even if they don’t take regular card payments, with such new solutions, suppliers simply process payments as they would any other type of payment. This allows buyers using these commercial card solutions to enjoy the benefits of commercial card payments even when trading with suppliers who don’t accept card payments.
Allowing more seamless transactions helps reduce friction for businesses. And in an environment where supply chains and costs are being squeezed, it
“It’s an exciting space for us to work in because it’s very much driven by business need and opportunity”
can support working capital and help secure supplier relationships, managing a key business risk.
Looking to the future Commercial cards are a rapidly evolving area and there’s new technology and innovation coming through all the time. It’s an exciting space for us to work in because it’s very much driven by business need and opportunity.
Using cards to support business-to-business relationships is an evolving landscape and, as an industry, card issuers are working hard to specifically address the needs of businesses operating in that space. It’s about enhancing capability and reducing friction, which Lloyds’ eOptimise service demonstrates.
It sits within an even broader range of businessto-business solutions, too, of course. But it’s really just the start and we’re going to see more and more innovation in the coming years. Our commitment to innovate will mean that we improve data analysis, make price points more competitive, and deliver greater value than ever before.
Looking ahead, Lloyds is committed to innovation across the whole business, and in commercial cards we see a fantastic opportunity to deliver value at both ends of the transaction by enhancing the seamlessness of processing.
Linda Weston is Lloyds’ head of commercial card products
LLOYDS’ e OPTIMISE COMMERCIAL CARD SOLUTION
Alongside the overall benefits that commercial cards offer, the key difference of Lloyds’ new eOptimise solution is that it’s available to use with suppliers who might otherwise have been unable or even unwilling to accept card payments. eOptimise means:
• Shifting the processing of the transaction, and the cost, from the supplier to the buyer, or even allowing that cost to be shared.
• Enabling buyers to achieve early payment discounts. Providing payment amount certainty by putting the buyer in control of the amount being paid, rather than giving a card number to a supplier, who could then net off the invoice value with a credit note.
• A win-win solution, with credit terms that help buyers keep their cash for as long as possible and suppliers to get paid as quickly as possible.
• No process change, because eOptimise works with existing systems, avoiding the time, effort and money associated with change.
• No limits. Whether it is paying a £20 or a £20m invoice, it works the same.
As an extra layer, Lloyds’ Optima tool is a data analysis solution that overlays business goals and data with Lloyds’ commercial card technology and working capital solutions to provide a smart payment strategy that’s tailored to your business.
For more information, visit lloydsbank.com/cardsolutions or email lbgcommercialcards@lloydsbanking.com
Trendsetting
As 2025 progresses, trends witnessed over the past 12 months will continue to have an impact on treasury recruitment, while new factors will also come into play. Paige Philip explains how
LEADERSHIP & CAREER
Over the past year, businesses have had to consider various macroeconomic factors that could impact their operations, from global elections and conflicts to UKspecific events, such as the Autumn Budget. As a result, companies are looking to strengthen their treasury and risk frameworks in response to volatility in interest rates, foreign exchange or commodities that can have a significant impact within their particular industry or sector.
Hiring trends
While recruitment in the UK has generally been subdued, 2024 saw bursts of activity coinciding with elections either side of the Atlantic. Across commerce, industry and financial services, there was a significant increase in mergers and acquisitions activity, which allowed C-suite executives to review headcount and strategies to ensure developing company needs and priorities are addressed. We have also seen a rise in private equity investments in UK firms, increasing their complexity and resulting in some businesses hiring treasury professionals for the first time. As firms mature, so do their needs; in such scenarios, it is typical for team structures to be revisited within the first 18 months, to ensure evolving requirements are catered for.
Candidate point of view
Additionally, there is an emerging talent gap in the adoption of artificial intelligence (AI) within treasury. An important area for treasurers to focus on for professional development is coding, to support in-house modelling. Over the next 12 months, I expect firms to continue exploring the use of AI to support risk management, especially within cash flow forecasting.
Numerous functions are pushing ahead with treasury management system implementation, with Kyriba among the preferred platforms for many businesses. When discussing with clients, it is widely agreed that lifting budget restrictions for automation projects has significantly improved long-term operational efficiency and enhanced cash forecasting, thereby reducing liquidity stresses for many businesses.
From a candidate perspective, we are increasingly seeing a focus on role requirements, rather than job titles, which is an encouraging sign when considering their longer-term career focus. Key considerations often include moving into different industries or larger businesses, where titles may differ from smaller companies. Also, there is a growing emphasis on wider-role focus, such as company values and reporting lines. Hiring managers need to ensure they emphasise desirable skills on job descriptions, to guarantee they are interviewing the right profiles.
Desirable skills
As with other finance and specialist disciplines, there is an ongoing skills shortage in treasury. To address this, senior treasurers often need to upskill junior team members and provide learning opportunities.
Trends to watch
As 2025 unfolds, developments and trends affecting treasury recruitment strategies will be worth following. These include: Regulatory changes: Compliance with new financial regulations and standards, with the insurance sector likely to be significantly impacted. Recent changes aimed at maintaining the UK’s competitive insurance sector have shifted treasurers’ goals; with increased exposure to credit and concentration risks, treasurers are now focusing on investing in long-term productive assets.
Environmental, social and governance (ESG): In response to cost cutting, it appears sustainability has taken a back seat for many companies. As inflation decreases, it will be interesting to see whether firms readopt their ESG-based frameworks.
Return to office mandates: It was anticipated that hybrid working would be the new ‘normal’ following the COVID pandemic, yet it appears many businesses are now pushing people back into the office. A flexible policy allows businesses to continue attracting the best talent, but may hinder development (especially for junior team members). Finding the right balance is likely to be increasingly important.
Paige Philip is a treasury consultant at Brewer Morris. Contact her on paigephilip@brewermorris.com for a confidential chat about your career or any hiring needs you have
The ACT’s Annual Conference is one of the highlights of the year
DIARY DATES
ACT EVENTS
19 MARCH | LONDON, UK
ACT CASH MANAGEMENT CONFERENCE
Hear from expert speakers to gain insights into emerging challenges and discover practical strategies to optimise cash and working capital management. treasurers.org/cmc25
20-21 MAY | WALES, UK
ACT ANNUAL CONFERENCE
Join 1,000+ treasury and finance professionals to explore five core pillars of treasury: funding availability, investments, sustainable finance, treasury technology, and the talents and skills needed for growth. treasurers.org/actac25
25 JUNE | LONDON, UK
ACT DIVERSITY & SUSTAINABILITY AWARDS
Submit your nominations by 28 March to recognise the contributions that treasury professionals and teams are making to champion positive Equity, Diversity and Inclusion (EDI) and sustainability. treasurers.org/ediawards25
12 NOVEMBER | LONDON, UK
ACT ANNUAL DINNER
Join us for our flagship networking event of the year. Attended by more than 1,300 guests representing 417 organisations, the ACT Annual Dinner is the longest-standing and
largest social gathering of the treasury and financial community in the UK. treasurers.org/annualdinner25
ACT TRAINING COURSES
Join one of our virtual training courses and expand your treasury knowledge in a week or less.
18 MARCH
TREASURY IN A DAY
Gain the perfect introduction to corporate treasury in just one day. Follow the lifecycle of a new business and what key treasury questions arise throughout. learning.treasurers.org/training/treasury-ina-day
20 MARCH
THE NUTS AND BOLTS OF CASH MANAGEMENT
Discover the future of cash management at the ACT Cash Management Conference
Explore the principles and practices of cash and liquidity management and its importance to the business and treasury function in this one-day course. learning.treasurers.org/training/cashmanagement
31 MARCH-4 APRIL
THE A-Z OF CORPORATE TREASURY
Gain an in-depth introduction to the corporate treasury function in international markets. This course is delivered in partnership with Zanders over two sessions per day for five consecutive days. learning.treasurers.org/training/corporatetreasury
The importance of good governance
Following a review of the ACT’s own governance structures, ACT president Malcolm Cooper outlines what this will mean and how it will affect the association
REGULATORY & ACCOUNTING
If you search for a definition of governance, the Cambridge English Dictionary tells us it is “the way that organisations or countries are managed at the highest level, and the systems for doing this”.
The Chartered Governance Institute gives a more detailed description: “Governance is a system that provides a framework for managing organisations. It identifies who can make decisions, who has the authority to act on behalf of the organisation, and who is accountable for how an organisation and its people behave and perform.”
Governance enables the management team and the board to run organisations legally, ethically, sustainably and successfully, for the benefit of stakeholders, including shareholders, staff, clients and customers, and for the good of wider society.
However you define it, its importance to organisations continues to increase.
The interest in corporate governance has risen significantly over the past 30 years, for several reasons:
• Corporate scandals and failures
• Regulatory changes: the introduction of regulations (e.g., Sarbanes-Oxley in the US) has mandated stricter governance practices to ensure transparency and accountability
• Stakeholder demand: customers and investors are increasingly demanding better governance practices to ensure their contracts/investments are managed responsibly and ethically. Good governance is seen as a way to reduce risk and enhance long-term value
• Social responsibility: there is a growing emphasis on corporate social responsibility and environmental, social and governance criteria. Companies are expected to act ethically and contribute positively to society. In addition, globalisation has exposed companies to an increasingly diverse range of regulatory environments, and
effective governance frameworks are one of the best ways of managing this complexity. Technology developments have also made it easier to monitor and report on governance practices (30 years ago, who had even heard of a governance, risk and compliance – GRC – tool, let alone had one?).
All of this means that governance receives a very high level of focus in the boardroom: I searched the 2023/24 annual report and accounts of a FTSE-20 company for the word ‘governance’, and it occurred 143 times. I can’t repeat this exercise for the accounts from 30 years ago because I can’t find a searchable PDF version, but I’m fairly certain that it would be a lower number!
Governance at the ACT
The ACT is incorporated under Royal Charter so the Companies Act does not apply to us, nor do the requirements for listed companies. However, all organisations – whatever their nature or size – should aspire to the best practices of governance that are commensurate with their size. The ACT had a major external governance review in 2001 and there was an internal review in 2018 – but given the speed of change in this area, we decided it was time for an update in 2024. We were very grateful to the generosity of Linklaters (partner Lucy Reeve and associate Kayleigh Ansell) in agreeing to undertake this piece of work for us. The process had four stages:
1. Discovery
• Familiarisation with current ACT governance
• Interviews with key individuals
• Agreement on priorities
2. Research
• Insights from discovery phase
• Comparative study against 16 other comparable organisations
• Exploration of options and opportunities
3. Report and recommendations
4. Implementation
Linklaters undertook phases 1 to 3 with input from the ACT Executive and Council. They started work early last year and delivered a 77-page report in the summer. We have now entered the implementation phase. The report gave 41 recommendations (split into high, medium and low priority) and we have had two sessions of Council and the Executive to consider them and agree the actions that we are going to take. The recommendations fell into a number of areas:
• Size, composition, role and operations of Council
• Elections to Council and elected members
• Co-opted members of Council
• Officers
• Audit, Risk and Appointments Committee (ARAC)
• Honorary Fellows.
We have agreed actions on most recommendations. Many require very little change: updates to terms of reference, ways of working, etc. There are two big changes that we will be implementing from 1 May 2025:
• Restructuring the number of officers, their roles and responsibilities, and terms of office
• The number of elected members on Council. We have agreed to remove the roles of the vicepresident (VP) and the immediate past president (IPP), and extend the terms of the deputy president (DP) and the president to two years for each. The old and the new models can be seen in the tables.
The current duties of the VP will be absorbed by the DP. The key duty of the IPP is to chair ARAC. Going forward, we will appoint a chair of ARAC who is not an officer or a member of Council; they will also have the right to attend Council meetings, but will not have a Council vote.
The main advantages of this model are that it will give greater continuity to the role of president, it will simplify the current model, and it does not extend the officer term beyond four years – although, at this point, I should thank the current vice-president, Stuart Case, who will uniquely see his term as an officer extended to five years as we transition to the new model.
In relation to elections to Council, we have agreed that, in the next set of elections, we will increase the number of elected members from six to eight. This will leave the overall size of Council unchanged, as we will be losing two officers and there will be four vacancies in total: two existing
members reaching the end of their three-year term and the two additional positions.
These two changes, together with the smaller ones, mean that we have addressed substantially all of the recommendations in the Linklaters review. The items that still require further work are:
• The overall size of Council and the election process.
We will address these in the summer, after we have allowed the changes described above to take effect
• The recommendations in relation to ARAC, which will also be addressed by ARAC and Council over the summer.
It only remains for me to thank Linklaters for their very generous support in undertaking this exercise, and the Executive and Council for their effort. I believe these changes will assist the operation of the ACT as it moves into the next stage of its strategic development.
Malcolm Cooper is the president of the ACT
New model going forward
A day in the life: Peter Murrell, British Land
As head of treasury operations at the FTSE 100 property group, Peter Murrell FCT spends his day managing British Land’s liquidity position and all operational aspects of the group’s debt, interest rate derivatives and cash book
TREASURY OPERATIONS
Our day starts by reviewing the liquidity management position across British Land and for our joint-venture entities. This can vary in complexity, from a day with only a few transactions through to the more detailed operation of our secured debt structures, or where we are managing the cash flows of large corporate or property transactions.
As part of this liquidity management process, we plan ahead over the next few weeks, ensuring we have capacity to deal with anything unexpected that arises on the day. Once the liquidity management is complete, the team moves on to wider treasury management work and projects.
The four-strong treasury operations team covers the operational aspects of our debt, interest rate derivatives and cash book. This includes the operation of our bank facilities, covenant compliance and reporting. We sit within the wider group treasury function, made up of seven individuals, and together we work to cover all debt and treasury aspects for the group, including lender relationships, debt origination, and input into property and corporate transactions.
As a property company with contracted leases, we have good visibility of our near-term cash inflows, which offset outgoings on debt interest costs and dividends to shareholders, and capital expenditure on our committed
developments. Our bank revolving credit facilities (RCFs) provide liquidity, and our approach is to minimise cash held where possible through debt repayments.
Debt management
British Land finances its portfolio through a mix of equity and debt. The debt book is managed by the group treasury team and totals around £6.6bn (of which the British Land share is £5.3bn). £3.7bn of this is drawn. We look to manage our refinance risk by refinancing debt ahead of planned maturities, so that we maintain debt capacity to cover our commitments for at least the next two years.
As part of our debt arrangements, our bank revolving credit facilities, of which we had £1.6bn undrawn as reported in our September results, provide the business with valuable flexibility for investment activity execution, whether sales, purchases, developments or asset management initiatives.
Stakeholder relationships
We regularly look at lender relationships, loan compliance and reporting, working with teams across the business – including asset managers, sustainability, financial reporting and company secretarial – to coordinate, review or produce the required deliverables. Maintaining good internal relationships and having a proactive approach is key to meeting these external requirements, which can often have tight deadlines.
Daily treasury work can be varied and includes management of our exposure to market risk, which, for British Land treasury, is predominantly interest rate risk. The interest rate management policy is set by the board, and ongoing oversight of the exposure against policy sits with the derivatives committee, of which I am a member, along with other senior treasury and finance team colleagues.
I also support the wider group treasury team in financing activities, which can be quite varied
“Maintaining good internal relationships and having a proactive approach is key to meeting these external requirements”
Peter Murrell was speaking with Philip Smith, editor of The Treasurer
across finance markets, including unsecured bank facilities and capital markets debt raised by British Land, or secured finance raised by our joint ventures.
A consistent approach to financing, with good access to debt markets, provides flexibility and capacity to deliver the business strategy, which, in the past year, has included the recycling of capital into our development pipeline and retail parks.
Supply-constrained market
British Land’s pipeline of best-in-class offices on campuses will be delivered into a supplyconstrained market with strong demand for new and newly refurbished space. Our campuses are located close to major transport nodes and have great amenities, and high-quality, sustainable buildings, and allow occupiers to grow and cluster close to other businesses. Vacancy across our campuses is only 4% compared with 9% in the wider London office market.
British Land recently committed to a new 750,000 sq ft development at 2 Finsbury Avenue, on our Broadgate campus, where occupancy is 98%. It is currently the only significant committed new development in the City to be delivered in 2027 and followed the signing of a pre-let with hedge fund and financial advisory firm Citadel for 33% of the building pre-let at a minimum, and 50% pre-let if the option space is taken.
We also continue to see strong demand for our retail parks because of their affordability, adaptability and accessibility. Underlying vacancy on our retail parks is just 1% compared with the UK retail market vacancy of 14%. In early October 2024, British Land completed the acquisition of a portfolio of UK retail parks for consideration of £441m. At the same time, as part of the financing of this acquisition, British Land completed a share placing that generated net proceeds of £295m. These transactions were led by other teams in the business, but the treasury team works with them, including to plan for and manage all types of cash flows.
New RCF syndicate
I also recently supported the group treasurer Sarah Barzycki on British Land’s £730m syndicated bank revolving credit facility with a group of 14 banks, including two new relationships to British Land, signed in October last year. This facility included sustainability KPIs linked to Building Research Establishment Environmental Assessment Method (BREEAM) ratings and energy
ABOUT BRITISH LAND
British Land is a UK commercial property company focused on real estate sectors with the strongest operational fundamentals: London campuses, retail parks, and London urban logistics. It owns or manages a portfolio valued at £13.6bn (British Land share: £8.9bn) as at 30 September 2024. Its purpose is to create and manage ‘places people prefer’ – outstanding places that deliver positive outcomes for all its stakeholders on a long term, sustainable basis. It does this by leveraging our best in class platform and proven expertise in development, repositioning and active asset management.
It has both a responsibility and an opportunity to manage our business in an environmentally and socially responsible manner. Its approach to sustainability is focused on three pillars: greener spaces, thriving places and responsible choices.
performance certificates (EPCs), and is aligned with our sustainability strategy.
British Land has a sustainable finance framework that aligns with the business sustainability strategy and we would always consider the merits of sustainable or green finance as part of any finance activities. Including our recent new £730m RCF, British Land now has a total of £2.6bn, of which £2.3bn is the proportionate share of green and sustainability/ ESG linked loans and facilities.
Retrospective review
Towards the end of the day, the team always has a retrospective review of the day’s liquidity management process to ensure all transactions have occurred as expected, while there is still time to resolve any outstanding issues. This is also a good time to attend bank seminars, watch webinars, read research articles and keep up to date with market activity.
Then it’s home to cook dinner, put the kids to bed and, finally, play some electric guitar!
Risk or rhetoric?
REGULATORY & ACCOUNTING
TProfessor Marc Lepere leads Sustainability & ESG at King’s Business School, King’s College London
“Prudential treasurers manage and mitigate risk to ensure the company has access to the broadest possible funding pool on the most advantageous terms”
he continuous growth in the Actuaries Climate Index since 1991 (an indicator of exposure to insurance payouts) is diametrically opposed to a growing political chorus that casts doubt on climate change and promises to overturn new sustainability regulations. Observing corporate demand for sustainability services in the UK and EU over the past three years, I want to paint three treasurer portraits and explore how each might react in 2025.
1. The prudential treasurer
Prudential treasurers anticipate potential impacts of physical risks, such as flooding, subsidence and sea level rise, on real estate assets and values. They consider external market risks such as potential tariffs, trends in insurance premiums or shortage of skilled labour, which may disrupt business models (known as transition risks).
Prudential treasurers manage and mitigate risk to ensure the company has access to the broadest possible funding pool on the most advantageous terms. For example, they are aware that banks operating in the European Economic Area (EEA) must now report green lending as a proportion of their total loan book via the Green Asset Ratio.
Beyond their capital market responsibilities, prudential treasurers’ strategic advice weighs short-term costs against what they judge to be mid- to long-term commercial benefits and potential competitive advantage.
Their work will be greatly assisted by new IFRS Sustainability Accounting Standards and EU regulations, which aim to help companies prepare and report material sustainability information, risks and opportunities consistent and comparable with financial information.
2. The compliance treasurer
Compliance-minded treasurers focus on de facto accounting rules, tax and regulations. They do not seek to anticipate how proposed or scheduled regulation may affect their organisation, preferring
to wait until the effective date before complying. For example, a compliant-minded treasurer in the UK will wait until the effective date for the new sustainability accounting standards is published before embracing them.
Compliant-minded treasures act when, and on what, is mandatory. This can minimise costs in the short-term, but may limit access to the growing pool of sustainability finance (e.g., green, transition and social bonds). It can also result in higher operational costs and greater disruption in an emergency, or as systems need to be rapidly re-engineered to catch up with commercial expectations and regulatory evolution.
3. The hopeful treasurer
Hopeful treasurers argue that climate change is better tackled by governments and should not be a concern of business. This position is bolstered by the growing political chorus that frames climate change as a distant, overblown problem; unnecessarily costly today and readily solved by tomorrow’s technologies.
Hopeful treasurers will look to such politicians to turn their rhetoric into action and overturn sustainability regulation. They will hope that policy is rowed-back at every level: local, national, regional and international and that the adoption of IFRS Sustainability Accounting Standards falters, despite being unanimously endorsed by IOSCO (a global network of securities regulators in 130 jurisdictions).
If policy is indeed overturned, they will have guessed right. If not, hopeful treasurers may struggle to align capital requirements with a market in which managing physical and transition risk is a prerequisite for preferential terms or even, as many anticipate, access.
Which one will you be? Take your pick. President Trump claims climate change will result in oceans rising by “one-eighth of an inch over the next 400 years”. The current rate of sea level rise (a core metric in the Actuaries Climate Index) is more than one-eighth of an inch per annum. Your choice.
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