NAB today announced it has helped another customer align its environmental, social and governance (ESG) goals with its financial goals, closing its first ESG-linked Foreign Exchange (FX) derivative with TRIG, a London-listed company that invests in renewable energy infrastructure projects.
ESG-linked FX derivatives are specialist products tied to ESG targets. They incentivise businesses to consider sustainability across their financial risk management.
NAB worked closely with TRIG to ensure the costs it incurs for its FX requirements are reduced when TRIG delivers against its established ESG goals, which includes clean energy, health and safety, and community targets.
NAB Group Executive Corporate and Institutional Banking David Gall said growing numbers of investors want to act on social and environmental issues and NAB is continuing to develop new ways to make that happen.
"It is our responsibility to keep innovating and broadening our products for customers, linking sustainability to all forms of finance. We are continuing to see growing demand for ESG-related products across many industries and sectors," Mr Gall said.
"We know delivering great outcomes for our customers can also achieve great outcomes for our communities and the environment, and we're committed to tailoring our products with a long-term view."
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.
In addition to finding new ESG financial innovation, NAB is:
- Aligning its lending portfolio to net-zero emissions by 2050. NAB is using the International Energy Agency's Net Zero Emissions (IEA NZE 2050) scenario and has joined the UN-convened Net Zero Banking Alliance (NZBA) as the reference points to guide our decarbonisation pathway. It is the latest science that is guiding our methodology.
- NAB is the leading Australian bank for lending to renewables. Renewables represent 71% of our total lending to energy. Since 2003, we've completed 150 renewable financing transactions and lent over $11.5 billion.
- NAB has set a cap on our Oil and Gas lending at USD$2.4 billion. We are the first Australian bank to do so publicly and transparently. This cap will reduce from 2026 through to 2050, aligned to IEA NZE 2050.
- NAB is training its bankers to ensure they understand this complex topic and can help our customers with financial innovation and advice. NAB wants the best climate bankers supporting these conversations with customers.
What are ESG-linked Foreign Exchange (FX) derivatives?
- The ESG-linked FX derivatives market is still developing. It is a risk management product that derives its value from both financial markets as well as a counterparty's ESG performance.
- In the case of an ESG-linked derivative that hedges FX risk, the exchange rate charged by the arranger (for example, NAB) decreases by an agreed amount if the client meets pre-determined sustainability performance targets (SPTs).
- An ESG-linked FX derivative can be tailored to specific preference but can include a range of improvements such as decarbonisation, energy efficiency, diversity of workforce or the electrification of infrastructure.
- If a client achieves its SPTs, the overall cost of the transaction to the client will be reduced.
