Deutsche Bank and Primetals Technologies Establish First Ever ESG-linked FX Derivative Framework

Deutsche Bank and Primetals Technologies have collaborated on the world’s first hedging framework linking currency options to sustainability goals. The agreement will see UK-based international engineering and plant construction company, Primetals Technologies, hedge its currency risk using ESG-linked FX options with the bank over a period of four years.

Currency hedges executed by the company as part of the agreement must comply with the criteria of the new Sustainable Finance Framework published by Deutsche Bank in July. This framework aligns on a ‘best-effort’ basis with the latest EU Taxonomy Regulation which entered into force on 12 July 2020 with the aim of establishing a framework to facilitate sustainable investment.

A spokesperson from Deutsche Bank told TMI that assessment will be yearly, over the life of the contract, and that depending on whether Primetals Technologies matches its ESG KPIs or not, a pricing advantage may be achieved. Failure to meet sustainability targets will make the company liable to a fee to be paid to a pre-agreed non-governmental organisation.

The agreement links Primetals Technologies’ currency hedges to a number of sustainability targets. One ratio measured will be revenues relative to R&D expenditure resulting in improved resource efficiency. Another will be based on the promotion of a safe and healthy work environment for all the company’s staff.

Both partners were advised on ESG target selection by Environmental Resources Management. This independent consultancy will validate each option for the life of the agreement.