Is forex hedging next in the front line of sustainable finance?

Siemens Gamesa's novel €174m forex hedge linked to sustainability scores is another example of how finance can help align incentives. Here's how it works.

2 min

The growth of the Green Bond market is traditionally considered as the driving force behind the sustainable finance market momentum. But does a major new forex hedging mandate – from Spanish energy specialist Siemens Gamesa – open the door for corporates to think differently about incorporating sustainability into their other financial risk management activities? Delphine Queniart, Deputy Head of Global Sustainable Finance & Solutions for Global Markets and Securities Services at BNP Paribas, believes it does.

Hello Delphine! This forex mandate looks unlike anything we’ve seen before. How does it work?

Delphine Queniart: Siemens Gamesa’s ground-breaking €174m FX hedging facility is the first of its kind: the rate on the facility will be linked to its sustainability rating.

Siemens Gamesa’s forex hedging mandate opens the door for corporates to think differently about incorporating sustainability into their other financial risk management activities.

This means that, depending on whether the Spain-based energy engineering company reaches its sustainability targets, BNP Paribas will reinvest any premium into reforestation projects. The incentives are aligned on all sides to drive forward the United Nations Sustainable Development Goals.

To accompany SGRE’s sustainable journey we have hedged the company’s FX exposure related to a windfarm construction project and committed to reinvest premium from the hedge in a reforestation project. The premium is calculated using a metric assigned by third party sustainable finance specialists RobecoSAM. If SGRE misses annual minimum ESG score, it pays a ‘sustainability premium’, which BNP Paribas reinvests in forestry projects. In this way, BNP Paribas not only actively hedges FX risk but also simultaneously supports climate action sustainability projects.

What role do you think innovations in sustainable finance can play in supporting the energy transition?

D.Q.: It is about creating the right incentives – and ensuring everyone’s interests are aligned. In order to tackle the most pressing sustainability challenges – including climate change – we must think outside the box. This requires us to go beyond the realm of the financial ecosystem, to really understand how we can collaborate with our clients, sustainability experts and communities to create tangible positive impact. Developing sustainable finance that draws on our capital markets structuring expertise is another instrument in the toolkit of positive banking – and this deal demonstrates how financial innovation can support sustainability outcomes.

Do you expect to see an increase in sustainability hedging over the coming months?

D.Q.: Addressing sustainability issues requires a collective effort from multiple stakeholders, and we believe banks can play a key role in using their structuring capabilities for positive impact.  Now that a benchmark has been set, we should certainly hope that corporates will look more into this kind innovative hedging facility in the months ahead.

About Delphine Queniart
Delphine is Deputy Head of Global Sustainable Finance & Solutions for Global Markets and Securities Services at BNP Paribas. She is responsible for accelerating the creation and implementation of Global Markets Sustainable Finance Solutions, including Sustainable risk management and hedging Solutions for Corporates and Private capital.