Unicredit Brings ESG Offering to FX Hedging

Loans with ESG links are now widespread. But in derivatives, linking with sustainability factors is still rare. Unicredit is now expanding its offering in FX, and a first company is already using it.

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Industrial companies from a wide range of sectors are now active in the green finance market

There are also repeated transactions from the chemical sector. The latest example is Matsen Chemie. The Hamburg-based company has set itself the goal of being able to offer all of its products and services in a CO2-neutral manner by 2030 through a compensation mechanism. Now the company is using its own sustainability ambitions in currency hedging as well.

To this end, Matsen Chemie has agreed with Hypovereinsbank (Unicredit) that in the future all of the company’s foreign exchange transactions will be hedged using ESG-linked FX derivatives. For Unicredit, this is the first transaction of this kind in the currency area. However, the bank already has ESG-linked derivatives in its portfolio elsewhere: HVB already concluded an ESG-linked interest rate swap with the mechanical engineering company Dürr in 2020.

Unicredit and Matsen develop ESG-linked FX derivatives

The bank has jointly developed a model for ESG integration in currency hedging. Specifically, the price of the hedge is partly dependent on whether Matsen has met previously agreed sustainability targets. This is reviewed annually by an external rating agency. In this case, it is the rating agency Ecovadis. Exactly which provider is commissioned with this is decided by the customer, HVB explains when asked. If the company does not meet the targets and has to pay a malus, the amount is donated to a social or environmental organization.

“With the addition of currency hedging, SMEs now have another instrument at their disposal,” says Patrick Haak, head of Corporate Treasury Sales at Unicredit. The tool is available to all MiFID professionals, according to the bank. The bank is not the first to add an ESG-linked FX derivative to its product portfolio. Back in 2020, for example, Deutsche Bank entered into a similar agreement with metals equipment maker Primetals Technologies.

ESG-linked derivatives are spreading slowly

Matsen Chemie sees it as “another consistent step in the implementation of our sustainability strategy to now link exchange rates to the achievement of our sustainability targets,” commented Jan Hansen, the company’s CEO.

But although ESG-linked derivatives have been on the market for some time, they have yet to make a breakthrough. Hedging products are even more complex than traditional financing products such as loans or promissory bills, where ESG links are now commonplace. In addition, some treasurers also express reluctance because the financial swings in such a construct are usually small. How high they are or could be on the cost of currency hedging at Matsen Chemie is not known.

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(Featured image by Massimiliano Donghi via Unsplash)

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First published in DerTreasurer, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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