Stewardship: Environment, Finance, and the Community

Announcer  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym or wherever you decide to tune it.

Craig Jeffery  00:18

Welcome to the Treasury Update Podcast. This is Craig Jeffery. Today we are talking about stewardship, stewardship of the environment, finances, and the community. And I’m here with Christy Wright from Southwire. Welcome to the Treasury Update Podcast, Christy.

Christy Wright  00:32

Hi, Craig, it’s great to be here with you.

Craig Jeffery  00:36

Maybe we could begin before we get into the stewardship discussion, maybe you just give us a little bit of background about your role and your career, where you’re at with Southwire now.

Christy Wright  00:47

Sure, so I have been with Southwire for about 15 years. Southwire is North America’s largest Wire and Cable manufacturer. So we are primarily in the business of electrical wire and cable, as well as we have a business and tools components and assembled solutions. Our revenue in 2021 was north of 8 billion. And we have about 7000 employees across North America where are North American focused company. My role is Senior Vice President of Corporate finance. And so I lead the corporate accounting, corporate treasury, corporate finance, the financial shared services groups like payroll payables, receivables, and real estate. So those are my areas, I spent many years in treasury kind of growing through my career, I have worked for a couple privately held companies. Southwire is a privately held company spent, as I said many years in Treasury and then in 2016, rotated into business unit CFO role, and held that as through a couple of different business units within South wire, eventually leading one of the largest business units in in our company. And then in 2020, taking this role, leading the corporate finance group for Southwire. So had the opportunity to work within the business and then also at a corporate level.

Craig Jeffery  02:20

So the move in 2016 to be the business unit CFO, what brought that about and how how was that position, you figure your current role, or perhaps a broader financial set of responsibilities?

Christy Wright  02:34

So I really wanted the opportunity to not just be seen in as a corporate type of person sitting in the corporate area and not being as responsible, responsive to the business as I could be. And my aspiration to grow my career would be to be a CFO, or, or be prepared for a CFO. So being a part of the business allowed me for four plus years to really roll up my sleeves, understand more FP&A. understand more how operating, operating a business looks on the day to day getting more intimate with pricing, understand how certain activities drive the business, be more operational, focused with our manufacturing, understanding the cost side of our business, our plant operations, our distribution operations, really more intimate with the day to day operational nature. And I thought that that would be important skill for me to have to be able to have perspective around different things that you see in in the core overall Corporation, and just be a better business partner. It was an important, important rotation for me, and definitely is the leading reason why I was considered for the role that I’m in today.

Craig Jeffery  03:58

The FP&A responsibility, the chat there, I assume there was some tie there as well on the p&l side, or perhaps those are synonyms in in some sense, how would how did that impact not only your career, but your view of the organization beyond what you just said?

Christy Wright  04:16

Well, it made me more sensitive around even in the role that I am today around how our group is really supporting the business and being closer either to the customer or to the supplier to the value chain, which within the business. So making sure that our customers are a priority. And being a part of the business, you understand that they’re the lifeblood, making sure that their orders are on time or that they have visibility to their orders in a production cycle. Bringing those capabilities and understanding how those things are key to operating a business and I felt like today in my Each role that I have now I can take this more strategic view of the overall operations and understand where each of the roles whether it’s tax, that is in my group and helping get incentives in, help the help property tax or help, whatever growth incentives that we can get, and be strategic about how we plan also, within our treasury group as well, making sure that our supply chain programs are optimized for both our customer side and our supplier base, and understanding what really how important they are to the overall function of our business, having been in that business unit CFO role in the beginning of the pandemic, just understanding how critical these relationships are. And when you sit in corporate, a lot of times you’re not as intimately familiar. Also, just understanding how day to day decisions are made around prioritization of of capital, and deploying that. Understanding why the business needs to needs to have somebody who can help translate numbers to them, not everybody is a financial expert. And so being able to articulate and tell a story with numbers, and really help people build their financial acumen is super powerful, and something that I really enjoyed and being that business unit CFO was building that financial acumen and helping people understand. Well, why why did this not work this way? Or why why did this, you know, AR collections item going to impact my my p&l this month? Those types of things?

Craig Jeffery  06:45

Yeah, that’s, that’s excellent. Yeah. Thanks for Thanks for for diving into that question. I know, it seems like some of the top finance people and top people in organizations have stepped into the like a business unit CFO role or had direct p&l responsibility. So great bone a few days for the the role you’re in now, you talked a little bit about South wire, a privately held company north of $8 billion. And when we were doing the prep call, you mentioned part of the 100 year plan and stewardship. Could you fill in the audience a little bit about what that is? Because I want to use that and then talk about the E and ESG.

Christy Wright  07:21

Sure. So Southwire is a privately held company, we are second generation going into third generation ownership. But our ownership has a very long term view on the impact that Southwire will have in the communities that it serves, and around all of its stakeholders. So when financial partners or people asked Well, do you think they’ll ever go public, the one thing that I can tell them is that our share owners, our family ownership, has 100 year plan to keep the company sustainable, and growing and strong, financially strong, but also a good steward to the communities and customers supply chain, and partners within its ecosystem. And so it is very conscious and and has a strong background and continues to be very forward looking at sustainability strategy and the footprint that it leaves within the communities it serves. That just is something that is an added value of being a part of South wire is this focus towards being a having a long term commitment, and making decisions that will be impactful for not just this year or next year, but that are really looking forward down the road on how we will help power and electrify the economy.

Craig Jeffery  08:51

So is this just on this this long term view? It’s it’s not focused solely on quarter by quarter, but is there? There’s a focus on the long term and how is that balanced with the the shorter term, maybe maybe on a quarterly basis or annual basis? How do you balance those, those two things together? Because it can’t be just one right?

Christy Wright  09:11

Right. So fiscal? We definitely are fiscally responsible. We operate with a fiscal Plan and Annual Plan monthly results Business Business Unit reviews, so we’re definitely have all of the guardrails and rigor that a company has around its financial performance. Certainly, we’re in the business of being financially profitable. We’re not a charity, but at the same time, we want to make sure that we’re a good steward of the community and we’re very long term focused so that our employees can rely upon their that commitment. The company makes a commitment to their employees. The company makes a commitment to its community. It wants to serve it also believes that I’ll stand behind its products. So it’s also making a commitment to its customers, and some of our customers are huge utilities, we’re in many of people’s homes we put provide the wire behind their walls, in schools, in institutions and office buildings in stadiums, and then generating and distributing power. We’re in all of those different areas of the of the electrical wire industry. And so for that, we want to be around a long time because our products are around a long time. And so we take that commitment to our customers, to our communities and to our employees very seriously. But we definitely have a fiscal view on meeting our numbers, meeting quarterly numbers, meeting our annual plan, having having longer term strategic plans, and understanding how we’re going to grow. The big thing is that we can also make investments that might not meet every hurdle rate, but they’re good for the long term. So maybe this year, they’re not going to have an impact or next year, they’re not going to have an impact. But we really can take a long term view on that.

Craig Jeffery  11:11

As we think about ESG, this is a big topic, environmental, social governance. This is this is either top of mind, middle of mind, or companies are considering that. And just as we look across across regions of the globe, environmental tends to be the top and in Europe, governance tends to be the top in the US. And I thought it was quite interesting that the the example that we’re talking about is, is environmental focused with a with a wiring company, you had described a bit of your asset back loan, maybe you can talk about the loan, how it was structured, how that ties into both the environment and fiscal, stewardship, fiscal and environmental stewardship.

Christy Wright  11:56

We take our sustainability footprint very seriously. We’ve had over 15 years of sustainability reporting that we’ve done to the community and published on our websites. So we felt that it was important to as sustainable financing started to evolve, that it was something that we already had made commitments to in reducing our greenhouse gas emissions. And that we felt like there was a financial incentive that we could potentially say capitalize on or take advantage of that we’ve already made some commitments in reducing our scope one and scope to greenhouse gas emissions with scope. One is our existing emissions that we produce from our manufacturing processes and scope to our from the energy that we would procure. So we had already thought about those. And we started back 2018 2019 on a plan to reduce greenhouse gas emissions and offset them by 2025. And we thought, okay, this sustainable finance industry is developing, it’s starting to see green bonds. And so we took advantage and 2021 of partnering with our financial institutions to issue a sustainability linked asset based loan. So we have a $1 billion line of credit that is, that is an ABL, but it has a sustainability linked performance factor. So a lot of pricing grids have debt to EBIT da in different types of ratios. And we introduced our greenhouse gas emission reduction goals be tied to our pricing metric. So if we achieve a certain reduction of already stated reductions to those goals, then we will get a pricing concession. And if we miss it, we will have an incremental pricing. And so if you can imagine a just a grid that requires that we reduce our goals incrementally each year on to our 100% goal and 2025. Each year, we have a goal that we have to attain, we have a third party that we depend upon that comes in and and works in, basically signs off on audits to a certain extent, what we have said we committed to reducing, we have a sustainability certificate and a sustainability agent that we work with and within our ABL. And that pricing concession or incremental is is effective from that annual testing period, because it is an annual type of testing. So, but we’ve been very pleased with it. We met our first annual metric. We’re going into our second year of our annual metric. And so we’re getting you know, John are undrawn pricing concessions. And we’ve been very happy with the way that it has worked out and it’s been a financial incentive for us to be more Green, it will be over $200,000 of savings and 2022 for Southwire and borrowing costs. And so that’s, that’s incremental and in helps us goes to the bottom line.

Craig Jeffery  15:15

Right, so, so north of $200,000, in financial savings for meeting your carbon zero goal attainment for the year, that’s, that’s excellent. How common has this been, you know, from, from an asset backed loan?  We’ve seen some environmental activities, I think, a number of years ago, with some of the large data center providers where they’re, they’re doing solar and wind and then selling things back, that seemed to be an earlier wave, and very different from what you’re doing, how early is, is this asset back loan with the environmental, I’ll call it the environmental kicker.

Christy Wright  15:56

So I think Southwire was the second in North America to do this deal. Or have this in in we we launched in the middle of summer 2021. I am not aware of that many other parties that have gotten into it, it’s newer, the greenhouse gas emissions goal was something we were going to do. And we already had, that it was our treasury group taking advantage and looking at what the company was already committing and working with our financial partners to, to implement it. So we there are certainly other companies that have already made commitments, it’s being able to take the commitments that the company has made and working with the sustainability team internally, and then working with your financial partners to find a good solution that works for the company and has an appetite for for the financial community. But there’s definitely an appetite out there. And we’re even seeing it and other products now and other programs that we can potentially start to link other type of sustainability initiatives. But in the manufacturing area, there’s a lot of companies, a lot of the big, big global companies have made greenhouse gas emissions, and you’ve seen them do this more in their maybe green bond. But in the lines of credit, I think it’s still just in the early phases of, of developing these products for customers.

Craig Jeffery  17:27

Yeah, that, that certainly, certainly makes sense. It’s not like you don’t have to produce you have to generate a lot of power to make those products, these crucial products for electricity communication, everything.

Christy Wright  17:39

Right, we do we are we are a very significant consumer of power, we need power to run our lines. Wire is made through a can through with using metal that is continuously casted, that is heated to a certain extent, and then cast it into rod and then drawn and stranded, it’s a process to make wire. And all of that is energy intensive. And so one of the big one of the big initiatives we have coming up in 2022, is we have a new copper rod mill coming online that will be produced, we’ll be using a electric renewable energy for its electricity source. So you can imagine this is a big furnace that is going to have a copper put into it and heated and then drawn and extruded into into copper rod. And we’re this is a brand new 100 million investment for South wire capital deployment for us. And we’re going to power it through renewable electricity. And so I know people will say, Well, what do you mean, you’re going to run it? 24/7? What what does that mean? Well, we have purchase power agreements and carbon power agreements with renewable energy sources to help power and offset if we’re using any kind of non renewable, but we feel really positively that using renewable energy will will help at a great cost at at very competitive costs. That’s also important. So when you use these renewable energy sources, you want to make sure that you’re also getting at a great cost. And we are and so we really feel that making these big investments and turning to renewable energy to power them is is part of our sustainable footprint and part of how we believe that we can really make a difference in and make sure that we’ll have a rod mill that will be around for 50, 60 years.

Craig Jeffery  19:40

So Christy, you would describe the three scopes, the energy you use, the energy you procure, and then the entire lifecycle. I thought that was extremely helpful to think about how someone goes about, you know, looking at the, you know, the environmental side of stewardship. That’s how we often look at At the cash conversion cycle, right, you can look at a single section of it, you can look at everything within your company, or you can look at your trading partners as well to look at what what makes the whole process most efficient. So to on the environmental side, you had talked about how this is not just what Southwire does, but you are looking or considering how to extend this out to some of your trading partners. Where are you in that process? And what what might that look like?

Christy Wright  20:30

So what you’re describing is the scope, scope, three carbon emissions, which is the carbon that is in the entire lifecycle, where it comes from your supply chain through to your customers and use of your product. And so we are starting to really think about what our scope three impact is. And one of the areas that we feel very positively around is our society, supplier sustainability programs in our use of Supply Chain Finance, as a manufacturer, or supply chain finance tools are very important to us. And cash conversion cycle is very important. And so as we think about our value chain, and where we can help make an impact, we’re looking at new programs that help incentivize our suppliers to become more more green or where they’re looking at their greenhouse gas emissions. So as we start to turn towards scope three, and that lifecycle we’re thinking about, is there an opportunity to partner with our suppliers, and where we can add potentially financial incentives for them and reducing their greenhouse gas emissions or having their environmental stewardship programs and going from x to y improvement potentially can help us and them have better pricing or be more fine, have a financial advantage, in addition to their overall sustainability improvement targets that they’re setting. And this is just to help them start to think about it. And sometimes when you have a financial incentive, that will, you know, spur your supply chain, because certainly, most companies are going to have to think about this over the next few years. Some are working on it right now, some haven’t started on it. But we want to be forward thinking. And we’re in the very early processes of just kind of understanding what that would mean, maybe finding some partners that would want to try it out. It’s just very early for us. But again, it’s something that resonates something that really, we thought about being the next step in our evolution around supplier sustainability, or introducing sustainability into Supply Chain Finance.

Craig Jeffery  23:00

Thanks for that. I think it’s helpful to view what what’s coming, you know, as we have talked about stewardship, particularly with the environment and finances in this coupled environment, you know, along with the community outlook, what, what are some final thoughts that you would leave with the audience?

Christy Wright  23:19

Well, particularly, because there’s a lot of treasury people in your audience, and on the practitioner side, really thinking about how you’re focusing across the business around different areas that potentially you see, but maybe you don’t interact with all the time, I think that there’s opportunities out there for treasurer’s to bring a lot of value and visibility to some of these initiatives that are sustainable, but also have a financial a positive financial impact for their company. And I think that’s an area where we can really add value. That’s one of the things that I like to make sure that I’m able to bring value to the business and that from a corporate type of function that we’re really showing our value and those types of initiatives, like the supply chain working capital focused type of, of opportunities that we’re bringing those forward. And even if everyone doesn’t stick up or work, you’re still kind of generating those ideas and and have an appetite for bringing more there. So I would, I would definitely encourage the practitioners out there to really renew, you know, evaluate what’s going on with inside their business and look at some of the different pockets of areas that you are that your company may be focused on, and maybe partnering with them, because for us for South wire, we strongly believe in sustainability, and it’s been something that we’ve championed, and for our finance group to really take the initiative look at it broadly across the areas that we touch within the business and looking how we can be that partner to the business is really been helpful and and have brought value to the overall organization.

Craig Jeffery  25:08

Thank you so much, Christy and really appreciate you sharing that of your story and Southwire thank you for joining. Joining me on the Treasury Update Podcast.

Announcer  25:21

You’ve reached the end of another episode of the Treasury Update Podcast. Be sure to follow Strategic Treasurer on LinkedIn. Just search for Strategic Treasurer. This podcast is provided for informational purposes only, and statements made by Strategic Treasurer LLC on this podcast are not intended as legal, business, consulting, or tax advice. For more information, visit and bookmark StrategicTreasurer.com.