Role of credit manager in implementing ESG policy

Many companies strive for sustainability in their business activities. Their reasons for doing so may vary. Some feel it as a necessity engrained in their purpose; for others good practice or risk-avoidance are the main reasons. The question is, however: ‘How do you do that?’ And what role can the credit manager play?

ESG (environmental, social, governance) topics are becoming increasingly important for companies. Regardless of the countries in which they operate, their sector or size: a growing number of companies is taking ESG into account in their positioning.

Both in- and external factors are driving their motivation to do so, Carine Cavallier, Head of ESG at Atradius, explains. “First, there is a growing awareness of climate change and environmental issues prompting companies to focus on sustainable practices to mitigate their impact. In addition, stakeholders´ expectations are evolving, pushing companies to address social and environmental issues such as diversity, employee well-being and community engagement or circular economy. Companies are also more and more requested to provide their ESG policies and strategy for consideration or as part of due diligence checks for partnerships. Finally, investors are recognizing that strong ESG performance often correlates with long-term financial success and reduced risks.” Therefore, in addition to the belief that business should be conducted in an ethical way, most companies integrate ESG in its management and practices because it can offer a competitive advantage.

Next to this, regulatory frameworks can and will probably also accelerate the integration of ESG principles into business practices. “On the one hand the increasing development of regulations related to social and environmental aspects can drive companies to reduce their carbon emissions and adopt cleaner energies and might influence their diversity and labour practices”, Cavallier continues. “On the other hand, disclosure requirements related to ESG, especially with the Corporate Sustainability Reporting Directive in force since the beginning of 2023, will increase transparency and accountability allowing stakeholders to make more informed decisions.”

According to the new Corporate Sustainability Reporting Directive, not only large companies but also medium-sized companies (with more than 250 employees) will have to report on key ESG KPIs based on the double materiality analysis. This will lead to more companies structuring their ESG activities if not yet place and developing these if they have not yet embarked on that journey.

Make more impact

The question yet to answer is: how you do that? As a starting point, sustainability should be incorporated into a company´s purpose and vision not only to align with sustainable development goals but also to bring tangible benefits that can contribute to its success. Atradius has made sustainability central to their vision by anchoring it into their purpose of managing risk and enabling trade. "We believe in a future built upon sustainable global trade with positive outcomes for people and the planet", as Cavallier puts it.

“As goes for the market in general, Atradius has just taken the first steps on a ‘long journey’”, she emphasises. “We started by formulating ambitions and objectives based on three pillars (planet, people and prosperity), related to the ESG framework. In relation to our environmental initiatives for example, Atradius is developing programmes to minimize the environmental impact of our facilities and with the view of achieving carbon neutrality in our operations in the future. As an example we recently installed 112 Solar Panels on the roof of our Belgium Head Office that enable the production of the equivalent of 30% of the energy consumption of the building.”

“In terms of social aspects, our goals focus on the promotion of gender equality, diversity and inclusion. In terms of gender equality we aim for a more balanced gender distribution at senior level; our actions to get there include for example a succession plan and specific targets at different levels of management."

"Furthermore, we have also developed a mandatory sustainability training for all employees, to create a common language and awareness. Since Atradius operates worldwide, it is vital to ensure that everyone understands what sustainability means and how it can affect ourselves and the companies we do business with.”

“Next we implemented appropriate governance structures, such as installing an ESG committee”, Cavallier concludes.

Sustainable together

As a first step, focusing on its own sustainability is crucial for a company because it sets a credible example and foundation for the company’s commitment to responsible practices. By demonstrating sustainable practices, a company can build trust and credibility with its stakeholders, including customers, and engage with them to support them in their own transition to a sustainable business model. That is the second step in making business and trade more sustainable: looking beyond your own position in the value chain and helping business partners in becoming more sustainable as well.

“As a credit insurer, the way we can support our customers is twofold”, Head of Commercial Rik Broekman says. “Firstly, we need to develop knowledge, understanding and insights in-house how ESG drivers and topics translate themselves into credit risks, and to which degree ESG performance of companies is linked to their creditworthiness. Once we have this insight we can support our customers to navigate through the ESG linked credit risks. Secondly, we can support our customers by sharing the ESG insights which we gather about them through external ESG reports or self-reported data and then have an open discussion about their sustainability journey and transition plans to a more sustainable company, by also providing the best practices. Staying engaged with our clients is the key to success. For example, customer surveys and interviews we have done with our customers have already resulted in several sustainability pilots. To support both developing ESG linked credit risk insights and running customer pilots Atradius started working with one of the ESG rating providers of beginning this year.”

“On the other hand”, Broekman continues: “considering the limited availability of ESG information, reports and scores in the market at the moment, it is safe to say that we are at the beginning of this journey. It will take time before we can take concrete underwriting decisions or come up with a solid methodology since we and other credit insurers need the ESG data on more companies. Our expectation is that more companies will start publishing sustainability disclosures and reports following the Corporate Sustainability Reporting Directive, and this information will become available in a standardized and audited form, so we can build reliable data models.”

In addition, customers can expect from Atradius in the coming period that the company will provide them with information and guidance, especially with regard to credit management. “The need for this among credit managers is enormous”, says Broekman. “Customers are increasingly aware of the importance of sustainability. It is a topic of discussion, not only in larger companies but also in smaller ones. At the same time, they struggle with questions on ESG issues: What should they do themselves on ESG issues to be seen as a sustainable trading partner? What should they pay attention to when assessing other companies? We want to help them answer those questions and make it easier for them to make responsible decisions about who they want to do business with. We want to become sustainable together.”

The most important recommendation that Broekman and Cavallier have for customers at the moment is to clearly define their vision and objectives on ESG issues and draw up a clear roadmap to achieve these. Then they can start with internal initiatives that promote sustainability, and look at partnerships that contribute to the goals in terms of sustainability. In short, don’t randomly take some measures, but use the same systematic approach as Atradius itself has done.

Source: Creditexpo.nl