Incorporating ESG practices into FX: what factors are at play?

Cleaner and greener

clock • 4 min read
Hannah Baldwin, CME Group

Hannah Baldwin, CME Group

Over the last two years, investor concerns about climate change, natural resource depletion, supply chain management and corporate governance have caused record inflows to funds focused on environment, social and governance issues.

ESG integration is prevalent across asset classes - it is most common in equities through index funds, followed by fixed income through issuance of green/sustainable bonds. However, ESG processes have been somewhat harder to incorporate in other markets such as the global foreign exchange (FX) market. FX hedges can be used as a way for companies to promote themselves as cleaner and greener. They receive a more favourable rate if they hit environmental targets and receive a penalty if they do not; this could also be used in the same way for a social goal. Bill Winters: Pandemic and ...

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