In today’s business landscape sustainability has emerged as a paramount concern. Since 2015’s Paris Agreement pressure has been mounting worldwide to mitigate environmental impact and adhere to stringent ESG (Environmental, Social, and Governance) standards. With the Copernicus Climate Change Service announcing 2023 as the hottest year on record, the push towards global net zero emissions targets seems more important than ever.
Since 2021 more than 160 companies, including the likes of Paypal, UBS and HSBC Holdings have formally committed to the World Economic Forum’s universal set of metrics and disclosures on ESG reporting. And as companies increasingly seek innovative strategies to align profitability with sustainability goals, carbon offsetting schemes coupled with currency hedging present an opportunity to achieve dual objectives: reducing carbon footprint while simultaneously managing foreign currency risk.
A greener business
Carbon offsetting works by investing in projects that counterbalance carbon emissions. Alongside vital efforts to reduce emissions, carbon offsetting helps companies, and individuals, further mitigate their environmental impact and contribute to global efforts to combat climate change.
However, if cross border payments play a role in your business the effectiveness of carbon offsetting can be amplified by leveraging existing or planned currency hedging strategies. At Convera, we have developed Green Hedging – a combination of carbon offsetting and currency hedging to not only address environmental concerns but also enhance financial resilience.
A primary advantage of Green Hedging lies in the economies of scale generated by currency hedging transactions. Businesses that operate in multiple jurisdictions are exposed to currency fluctuations which can have a negative impact on financial performance. By implementing currency risk management strategies, companies can mitigate this risk and, via Green Hedging, also make a substantial contribution to carbon offset projects which helps address both environmental and financial risk.
“Green hedging enables businesses to leverage an fx transaction they needed to make anyway, to generate a material contribution towards their ESG goals,” says Alex Lawson, Convera’s Director of Hedging, EMEA. “Rather than treating sustainability and financial risk management as separate domains, this integrated approach allows companies to streamline processes and allocate resources more efficiently.”
Carbon offsets and fx hedging: How does it work?
In the UK and Europe, Convera has partnered with Gold Standard, a Swiss NGO focused on sustainable development and environmental integrity to offer a green hedging product in the region*.
Customers who sign up for green hedging agree to have a set percentage of gross revenue from their trade sent to Gold Standard, who invest these funds into projects chosen by the customer, with carbon credits retired as a result. To maximize the benefit, a Green Hedging transaction will be slightly more expensive than a regular trade. However, Convera also matches the percentage of customer revenue generated through the green hedge and sends the entire amount to Gold Standard in the customer’s name.
Customers can choose which sustainable project types they want their funds directed to (including water filters, waste management and forestry) and receive a voluntary emissions reduction (VER) certificate in their company name as proof of the carbon offset.
Responsible corporate citizens
Research by McKinsey & Company suggests that most consumers show a preference for companies that demonstrate sustainable actions. Proactively adopting carbon offsetting schemes tied to currency hedging is one way that companies can enhance their reputation as responsible corporate citizens, strengthening brand value and competitive advantage. By following ESG standards businesses can also attract socially conscious investors, potentially unlocking new avenues for growth and expansion.
As governments around the world implement regulations aimed at reducing carbon emissions and promoting sustainable practices, businesses face increasing compliance requirements. The integration of carbon offsetting schemes with currency hedging can help to align environmental and financial objectives, while diversifying risk exposure and facilitating regulatory compliance. In doing so, businesses can not only mitigate their environmental impact but also drive long-term value, demonstrating the principles of sustainable business practice and contributing to the earth’s future.
*Green Hedging products are currently only available in Europe and the UK. The Green Hedging product offered by Convera does not qualify as a “financial product” as defined in the EU Sustainable Finance Disclosure Regulation (SFDR).
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