New role for the Treasury in the transport and logistics sector

Sustainability is becoming increasingly important in financing and borrowers need to demonstrate a clear ESG strategy. A well-integrated treasury can offer significant added value in this respect.

These are challenging times for companies: Alongside the ongoing risk of recession, far-reaching structural changes are afoot. The increasing geopolitical tensions worldwide and the growing rivalry with China in particular are prompting global supply chains to be restructured. And above everything else, there is the impact of climate change and the energy transition – which are bringing about political interventions in the economy, increasingly calling the legitimacy of global economic cycles into question, and generating growing demand for new sustainable services and goods.

The challenges are particularly apparent in the transport and logistics sector, which forms the central nervous system of the global economy. They are giving rise to new requirements in all business divisions, including the Treasury. Firstly, there is a growing need for investment. In the automotive and aviation sectors, future product ranges will need to be energy efficient and produce low emissions. For the automotive sector, this is not just about switching to electric vehicles – significant amounts of funding are needed to develop batteries and build a complete charging infrastructure.

Alongside such investment in the core business, new automotive-related business models are emerging. Potentially using car batteries to store energy is creating new billing and payment models such as "pay per use" and "in-car payments". The Treasury must find ways to model cash flows that can sometimes fluctuate considerably. The aviation sector is likewise seeing a shift to more energy-efficient aircraft, and this shift requires funding. Fuel costs are rising too. Sustainable synthetic fuels can significantly reduce pollutant emissions, but they are currently several times more expensive to produce than fossil kerosene. Offsetting schemes such as the European Emissions Trading System (EU ETS) are likely to drive costs up as well. This means that the price of airfares will probably rise. In the long term, airline business models will no doubt be affected too, and other financing structures used. 

Sustainability gaining importance

Focusing on sustainability does more than just drive up costs, however. When it comes to refinancing, improving the sustainability profile can cause costs to fall. To optimise the carbon footprint of their credit portfolios, more and more banks are combining their financing conditions with achieving sustainability targets. Whether green loans, green bonds or green promissory notes to finance specific ESG-related projects, sustainable KPIs are gaining importance in the transport and logistics sector.  In ship financing, for example, it is becoming apparent that in the future, financing commitments and conditions will increasingly depend on whether borrowers can present a clear strategy for reducing their carbon emissions.

But how can KPIs be developed that are actionable and that drive real change? Beyond their role as moneylenders, banks can help set appropriate KPIs from the volume of data available and monitor compliance with them. By integrating different areas of expertise, the Treasury can also offer significant added value within the company.

Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate.