In a time of multiple forecasts, transformative disruption and macroeconomic variables, how do you find solid ground to build your treasury strategy? Finding the treasurers’ North star can be difficult, and recent volatility in the energy sector makes it doubly so. How can you leverage a deeper understanding of industry practice to deliver an effective treasury and cash management strategy?
When we undertook a first-of-its kind treasury benchmarking analysis it was with the objective of uncovering the simple truth of where the energy industry sits today on core, practical treasury topics. There is a natural tendency for companies in the same sector to feel that they are at a consistent point in their evolution, but as we observed globally, this is not true. Many companies are at very different stages in treasury practices, technology, liquidity and even organisational evolution. This understanding is crucial in allowing for a baseline to open up a meaningful and specific conversation that can help map the future of the industry.
Treasury Strategy & Transformation
Traditionally, a treasury strategy evolved once a need was identified to become more efficient. From there, you would set a plan, go through a process and spend between two and four years implementing it. That was workable.
Then, but not now.
The reality is that the industry is now moving too fast for this: the best practice from three years ago has been superseded on many levels. What is needed now is a design that is can help you move forward - you need to question what brilliant and resilient will look like, as opposed to what brilliant was yesterday.
Our benchmarking analysis sets the scene in a landscape where many treasurers are managing stakeholder pressures (for example, around ESG, data management, and digitization). Beyond the numbers, what is the real impact for corporate treasury?
Energy Transitional Challenges
In gathering insights from 67 energy players around the world, we have level-set a current foundation as the basis of planning a strategy for the future. Central to that is the accelerating path towards energy transition. The resultant pressures for change in organizational structure, asset mix and speed of execution have already had different results in different geographies – and the approach is inconsistent around the world. For example, there is no doubt that ESG agendas are more progressed in Europe compared to North American counterparts. What we have seen is the need for treasury divisions to become more agile, and respond to these challenges in a way that doesn’t impact scale, cost, liquidity or other factors.
Historically, we were solving for best practice. Now, companies need to not only be excellent in treasury execution, but also help guide the business through these enormous changes.
The best practice from three years ago has been superseded on many levels. What is needed now is a design that can help you move forward – you need to question what brilliant & resilient will look like, as opposed to what brilliant was yesterday.
Tristan Attenborough
Head of Global Energy Industry Coverage, EPRM, J.P. Morgan Payments
Technology Advancements for Energy Industry
In conducting this research, one of the aspects we focused on is the technology set up: how connectivity works, what systems and innovations are used, how liquidity is handled. These are now – and always will be – important parts of treasury. I think the results hold a mirror up to energy players: the technology shift reflected in the numbers is fascinating, as we witness the opportunity of these tech advancements to become real game-changers for the industry.
Treasury Services Integration
Corporate Treasury traditionally (and in some cases, still) doesn’t have the dedicated resources in people, time and budget to swiftly up their game. They could benefit from a bank that could help to provide support at key points in their evolution. We are well positioned to provide insight as the largest US Dollar clearer in the market, and a significant provider of treasury services to the global energy industry. While individual companies may have a specific focus, with their own view on best practice, our unique positioning allows us to bring an objective view and a broader perspective.
In reviewing the conclusions of our energy benchmarking research, it’s clear that there has been great progress, but it’s also clear that factors such as energy transition, demands from shareholders and stakeholders, add pressure on even the most sophisticated treasury service function will be a challenge to support the companies evolution.
We do not believe that an energy company that is serious about that change can do it in isolation – they need to do it by optimizing their banking relationships. It’s a collaboration. This research is a guide to help navigate the challenges that are with us today, and in the years to come.
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The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such.
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