A rush by companies to boost their sustainability claims has reached foreign exchange markets in the form of currency hedging products where the cost is tied to a firm’s environmental, social and governance (ESG) goals.
Sustainable finance to date has mostly centred around the issuance of debt to fund ‘green’ environmental or climate-related projects, or with interest payments linked to the achievement of social and governance targets.
Keen to promote their own sustainability pledges, banks selling the derivatives, which lock in a future exchange rate, tout them as a way for companies to tap into demand for ESG finance, a market that has soared in popularity but which critics say is often more marketing gimmick than a true incentive for change.