NAB Enters Sustainable FX Market
Posted by Colin Lambert. Last updated: May 31, 2022
NAB has joined the roster of banks offering sustainably-linked FX products, by entering into an agreement with The Renewables Infrastructure Group (TRIG) to link the latter’s FX hedging to sustainability performance metrics in a deal the bank says will deliver valuable returns to more than just its shareholders.
The new FX derivatives product developed with NAB Markets ties financial incentives to meeting environmental, social and governance targets, with TRIG reinvesting the proceeds in important community projects where the portfolio’s renewable assets are sited.
TRIG’s fund manager Richard Crawford is head of energy income funds at InfraRed Capital Partners and says the deal represents an important alignment to place communities at the heart of its sustainable infrastructure investing. “Infrastructure assets can be very significant within the communities in which we are operating, so, it’s really important that we consider all of our stakeholders, including our non-financial stakeholders,” he says. “We are engaging with communities on what they need for the long-term. The more ESG targets that we achieve with this arrangement the better financially it is for us and the more we can re-invest into our communities.”
The contracts involve ratcheting ESG targets for TRIG that cover environmental goals, measured by the number of homes powered by clean energy in the portfolio, social progress on the number of community funds developed, and important workplace safety metrics for governance.
Crawford says with many of the portfolio’s wind farms and solar parks located in remote areas in the UK and EU, this extra help in funding social projects for schools, swimming pools, mental health – and even schemes for reducing electricity bills as inflation bites – can really make a difference. “You can actually see a direct benefit coming back to our communities from this,” he says. “That’s a really great way to work and a great way to do business. It’s going that extra distance to really get some extra value and to feed that back.”
InfraRed’s head of sustainability Kate McKeon, adds, “This arrangement embodies what we’re trying to achieve at InfraRed in really making sure we’re pushing sustainability into every aspect of our business. We’re looking at hard metrics and targets and being held accountable for that performance transparently with our stakeholders.”
Meanwhile, NAB’s head of Markets, Drew Bradford, says speciality products like the ESG-linked FX derivative arrangement with TRIG provide an opportunity to incorporate sustainability objectives into every area of financing, rather than through using a small number of specific instruments such as bonds. “NAB worked closely with InfraRed to structure a mechanism for TRIG that not only promotes achieving KPIs but also reduces the overall cost of hedging through a sustainability-linked payment for when TRIG delivers against its established ESG goals,” he explains. “It’s great to bring this new product capability to market to deliver successful outcomes for our clients. Put simply, these products derive value from both financial markets as well as a counterparty’s ESG performance. They can be transacted when a client has entered into a sustainability-linked loan or bond or on a stand-alone basis.”
In addition to this first ESG-linked FX derivative, NAB has now closed six ESG-linked derivatives in the European market and one in Australia. “The ESG-linked derivatives market is still developing right across the world,” says Bradford. “The KPIs often go out to three or more years, so this is a long game and all about making sustainability core to business strategy.”