Your Treasury is Infinite. Or at Least it Has the Potential to Be.
With a growth rate of 4.1% in 2022, as reported by the African Development Bank, North Africa offers a fertile ground for circularity, surpassing Sub-Saharan Africa by 0.5 points, according to the World Bank. This assertion is all the more true, given the number of companies operating in these regions, with over 800,000 enterprises recorded in Tunisia alone in 2022 (Tunisia Statistics). The main challenge is then to identify, characterize, and exploit these trends to strengthen one's treasury.
Forms of Circularity
Identifying internal opportunities can be easily conducted by relying on international models or standards. White papers, such as the "Circular Transition Indicator" provided by the World Business Council for Sustainable Development, are valuable resources for anyone looking to conduct a circularity diagnosis. Once the diagnosis is established, characterizing opportunities requires a simple and uniform methodology. We can thus opt for two central categories:
- Mutualization opportunities: Mutualization involves combining the resources of two companies to benefit from economies of scale (financial or environmental). For example, joint storage and treatment of hazardous waste from two nearby industrial sites.
- Substitution opportunities: Substitution involves using an output flow from one company as an input flow for another. For example, recovering fatal heat from a steel mill to heat nearby administrative buildings.
Circularity to Boost Company Treasury
From an accounting perspective, circularity will take two forms: direct and indirect. In the context of a mutualization operation, the primary objective will be to optimize a joint cost or profit center between the two companies. In the context of a small-scale collaboration, this can involve renegotiating supplier contracts, redefining on-site circulation plans, or sharing logistics flows.
For larger-scale agreements, it may involve service level agreements, joint ventures, or the acquisition of joint fixed assets. The substitution operation, on the other hand, aims to transform a loss into an economy or source of revenue. In this approach, collaboration can be more asynchronous.
We can then implement a specific operating contract with different financing and administration solutions. For example, in the context of a fatal heat recovery operation between emitting company A and operating company B, the initial investment could be financed by company B. Company B would then reimburse itself through energy savings on its site. Company A could even offer to ensure long-term maintenance of the system in exchange for a percentage of the savings made. In this configuration, company B has made a substantial long-term saving by reducing its treasury outlay for the current year, and company A has generated a new source of revenue without ever having to touch its treasury.
We realize that the circular economy, in addition to its environmental interest, can be a direct vector of capital and treasury growth for companies. Beyond its direct impacts, the true financial power of circularity lies in its indirect impacts. Let us now position ourselves downstream of mutualization and substitution operations and analyze the treasury optimization opportunities that are now open to us. The first opportunity we can consider is the renegotiation of debt claims.
Optimizing Treasury through Circularity
Indeed, in the context of negotiations between a company and a banking consortium, one of the constituent elements of the final file is the Environmental, Social, and Governance (ESG) impact study. This file consists of a set of criteria based on the Sustainable Finance Disclosure Regulation (SFDR) adapted to the company's sector of activity. A company that has conducted circularity operations can thus justify a positive environmental impact (energy consumption, exposure to fossil fuels, waste treatment, etc.) with high-assurance data, co-constructed with the partner of the circular projects.
A second opportunity is the diversification of debt claim options. A company can then use circularity actions to try to claim a green debt claim or apply for public finance programs. Finally, if the risk study allows it, a company can consider circularity as a financing option. An industrial consortium can thus decide on a joint project portfolio in a defined geographic area, whose synergies would contribute to reducing the overall costs of the project through substitution or mutualization.
By Antoine Grondin Responsible for RSE/ESG of an industrial group, Moderator of the ComEx ESG