Deutsche Bank, Primetals Technologies agree on hedging concept linking FX options to ESG goals
Deutsche Bank and Primetals Technologies today announce that they have reached agreement on the world’s first hedging concept that links currency options to sustainability goals.
According to the framework agreement signed today, Primetals Technologies will be able to hedge its currency risk with FX options with the bank over a period of four years. If Primetals Technologies fails to meet the agreed sustainability targets, the company must pay a predefined sum to a contractually defined non-governmental organisation.
Any currency hedges the company executes comply with the criteria of the new Sustainable Finance Framework that Deutsche Bank published at the end of July. In doing so the bank has devised criteria for the classification of ESG financing which are aligned on a best-effort basis to the new EU Taxonomy Regulation.
Gerald Podobnik, Chief Financial Officer of Deutsche Bank’s Corporate Bank, comments:
“Our bank seeks to play an active role in achieving the targets of the Paris Climate Agreement. That is why we plan to develop more and more financial products that are linked to sustainability targets. In so doing we will assist our clients in implementing their sustainability strategies and monitor their achievements over the longer term as well. This worldwide completely new structure helps us link Primetals’ sustainability efforts with the need for currency hedging – and it’s something many of our internationally active clients will be interested in.”
The currency hedge is linked to several sustainability targets. This includes, for example, the proportion of total sales of projects sold that aim to reduce greenhouse gas emissions for customers. One ratio measured is revenues relative to research and development expenditure that result in improved resource efficiency. Another metric is the promotion of a safe and healthy work environment for all staff at Primetals Technologies.
Deutsche Bank and Primetals Technologies have taken advice on selecting their targets from Environmental Resources Management (ERM). The independent consultancy appraises and certifies whether the targets are adhered to for the entire life of the option.
In June 2020, Deutsche Bank and Singapore-based agribusiness giant Olam International announced the successful execution of Asia’s first FX derivative linked to environmental, social and governance (ESG) key performance indicators (KPIs).
The ESG-linked foreign exchange (Thai Baht/US dollar) forward enables Olam to lock-in a discount when it meets pre-defined ESG targets which supports the United Nations Sustainable Development Goals (SDGs).