Corporate treasurers build resilience, agility into debt strategies amidst challenging times

• Despite the majority of businesses reporting a neutral to negative business outlook corporate treasury has remained resilient in these challenging times, having built robust processes and debt strategies off the back of a number of economic shocks over the last few years. For many, dealing with uncertainty is now BAU.
• In spite of this, there are signs that corporates are in a bullish mood and respondents are anticipating higher organic investment in capital expenditure and are also projecting higher dividends and share buybacks for the year.
• Sustainable finance faces a number of headwinds. These vary from the pressure to get the deal done in uncertain times, the very real challenges in completing sustainable finance transactions from a multitude of angles, and questions as to whether sustainable finance really moves the needle on a corporate's ESG journey making it a worthwhile pursuit.

Kristen Roberts, Joint Managing Partner of the firm's global Finance practice and the UK/US and EMEA Regional Head of Practice, says: "Corporate treasury teams remain resilient to macro-economic challenges and nimble in taking advantage of opportunities in the debt markets. Some treasury teams are challenging the role of debt finance in driving the sustainability agenda in the light of the need to get financings done in the current environment. "

Published by Herbert Smith Freehills and the Association of Corporate Treasurers (ACT), the Corporate Debt and Treasury Report captures the trends and outlook for corporate debt and tracks the growth of ESG and sustainability in corporate debt finance amongst other trends.

The vast majority of respondents (almost 80%) cited a neutral to negative outlook for this year, an increase from 70% in 2022. Concerns over the effects of the COVID-19 pandemic have been replaced by a multitude of issues including the ongoing invasion of Ukraine, geo-political tensions, fear of bank failures and inflationary pressures.

Contrary to predictions last year where 70% of respondents expected to enter into sustainable finance, fewer respondents this year reported having a sustainability framework (26%, down from 29% last year) or sustainable finance (18%, down from 20% last year) in place.

"This seems to suggest a stalling in what many had anticipated would be a persistent continual upward trend for sustainable finance. Even so, it remains the case as it was last year, that ESG and sustainable finance is the topic of conversation in corporate treasury circles and is likely to be discussed in any financing," adds Kristen.

Unsurprisingly, the increased cost of debt was the most widely reported impediment to raising debt with almost twice the number of respondents saying so this year (79%, up from 45% last year). Despite the increase in borrowing costs, almost half (47%, up from 36% last year) plan to increase their net debt this year, to the highest level in five years. Respondents said this is likely to be driven by working capital increases, particularly where corporates are unable to pass on higher costs to customers and the need to cover supply chain inefficiencies.

View the report here