The role of derivatives in sustainable finance

The role of derivatives in sustainable finance

Mindy Hauman, professional support counsel at White & Case LLP and Banking & Finance Consulting Editorial Board member, discusses a new report published by the European Capital Markets Institute (ECMI) of the Centre for European Policy Studies (CEPS), in cooperation with ISDA, on the role of derivatives in sustainable finance. The report highlighting how derivatives can contribute to the EU Sustainable Finance Action Plan and play a significant role in the European Green Deal in helping to promote the EU’s transition towards a low-carbon economy.

To meet the ambitious targets set by the UN 2030 Sustainable Development Goals (SDGs), The EU must develop and utilise the finance markets to a much greater degree to provide private funding for Environmental, Social and Governance (ESG) projects and allow access to wider sources of capital. There are two key components to achieving this: greater transparency and greater risk management. This report highlights how the derivatives markets can: (1) enable the EU to raise and channel the necessary capital towards sustainable investments (2) help firms hedge risks related to ESG factors (3) facilitate transparency, price discovery and market efficiency, and (4) contribute toward an investing paradigm shift to long-termism.

What’s is the EU’s sustainable finance strategy?

By the European Commission’s own admission, the current size of the sustainable finance market is insufficient to meet even the EU’s environmental and climate action objectives by 2050, let alone the more ambitious global targets for 2030 enshrined in the UN SDGs. The current coronavirus (COVID-19) crisis will place huge strain on public and private finances but it has put ESG related investing in even greater focus.

Achieving the SDGs will only be possible by expanding ESG investment so that greater pools of capital can be accessed. The sustainable finance strategy in the EU is comprised of a wide range of proposals chief among them, (and the focus of the report), are the European

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About the author:

Emma is head of the Banking and Finance team and the Finance Group at LexisNexis®UK.

Emma has wide-ranging experience in derivatives and capital markets with a particular emphasis on credit derivatives and structured products. Emma qualified as a solicitor with Allen & Overy LLP, working in the derivatives and structured finance teams in both their London and Paris offices before gaining experience with Deutsche Bank AG (advising the foreign exchange prime brokerage desk) and Crédit Agricole CIB (advising the fixed income and derivatives desk) before joining LexisNexis®.