Olam, Deutsche Bank close Asia's first FX derivative linked to ESG targets

MAINBOARD-LISTED agri-business group Olam International and Deutsche Bank on Friday announced the 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 support the United Nations (UN) Sustainable Development Goals (SDGs), said Olam and Deutsche Bank in a joint media statement. 

Olam has executed a one-year US dollar/baht FX forward to hedge its exports. The group exports agriculture products from farms in Thailand to the rest of the world. It buys these products from farms in Thailand in baht, and sells them to customers who pay in US dollars. This exposes the group to US dollar/baht currency risk. 

The latest FX risk solution marries the requirement to hedge the FX risk arising from growing a crop in one country and selling it to another country, and supports Olam's programme to strengthen its supply chain sustainability, said the group.  

The transaction KPIs will contribute to 10 of the 17 UN SDGs, which include alleviating poverty, alleviating hunger, improving gender quality, and improving clean water and sanitation, among others. 

"This innovative facility provides us with a hedge on our currency risk exposure and enables Olam to lock in a discount when we meet pre-set ESG targets that are aligned with our sustainability strategy and the UN SDGs," said N Muthukumar, Olam's managing director and group chief financial officer. 

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The sustainability-linked derivative follows concepts included in the Loan Market Association's sustainability-linked loan principles, as well as the EU Sustainable Finance taxonomy. 

Kamran Khan, Deutsche Bank's head of ESG in Asia-Pacific, said: "Green finance has to date largely involved sustainability-linked loans, bonds and equities, where market standards are becoming standardised. This sustainability-linked derivative transaction leverages Deutsche Bank's world-class execution expertise and commitment to ESG to open an important new path for the global sustainable finance market."