How ESG-aligned FX hedging shaped Primetals’ sustainability strategy

Clarissa Dann: Welcome to Trade Finance TV – your insight into the global trade climate for importers, exporters and their finances. I’m your presenter, Clarissa Dann.

As companies set out on their environmental, social and governance ESG transition journeys, there are opportunities to reshape cash management and trade finance tools. Today, I’m a huge pleasure and welcoming steelmaking equipment provider, Primetals’ Jeremy Hamon and Deutsche Bank’s Lukas Lambrecht. They’re here to talk about a rather special FX hedging.

Jeremy and Lukas, welcome to Trade Finance TV.

Lukas Lambrecht: Thanks a lot.

Jeremy Hamon: Thanks for having us, Jeremy.

Clarissa Dann: Jeremy, when Deutsche Bank first approached you with the idea of this hedging concept that links currency options to sustainability behavior. What did you think?

Lukas Lambrecht: Primetals Technologies is global steel engineering company. We work in creating and improving steel plants all over the world on all continents. We bear foreign currency risk pretty much on every project and have worked for years with Deutsche Bank as one of our main FX trading bank in both standard and as well structured products.

When it comes to financing and ESG product our financing is pretty much embedded in our group, since we belong to a larger organization listed in Japan and Evandale as engineers. The technology we developed send the trend in our markets. We’re not a natural client by definition for these financing products.

So when Deutsche Bank came and said, let’s create a new benchmark, we find currency trading, I said right away, let’s go for it. I’ve witnessed for many years how energy and greenhouse gas efficient our technology can be. Steel making, as you know, is one of the most polluting industry, contributing to eight percent of the total emission per year globally. And there is no real way around still. So the change must come from within. And I saw this opportunity as a chance to get acknowledged for that.

Clarissa Dann: Lukas, how did you come around to the idea of this and what made you choose Primetals?

Jeremy Hamon: As you know ESG is kind of like a key focus predominantly in the traditional finance space. But we as Deutsche Bank, we wanted to be an innovator also in different fields. So we said, OK, how can we combine the ETF components with the risk management perspective? We have a long lasting relationship with Primetals Industries and I think the industry is active is going through one of the most dramatic or kind of significant changes. And we decided to partner up with a company that is transitioning to a more ESG friendly industry.

Clarissa Dann: The deal was done last November, wasn’t it? And it’s been quite some months since then. Could you both between you walk us through how you got to that point and what’s been going on since?

Jeremy Hamon: There have been multiple geographic areas and both working on that transaction fully focused, starting from our colleagues in the investment bank that were all aligned, starting from trading, structuring to work on the entire you. We had legal, but we also had the easy competence team and group sustainability, together with a third party independent consultant to actually work on that transaction and also to figure out a way how we can, together with chromosomes, make it a benchmark transaction, a long lasting, a significant transaction, and also a transaction where we can really say, hey, it had an impact.

Lukas Lambrecht: The bank has been particularly supportive in allowing us sufficient time to get ourselves organized. We D2D reporting in the past, but not in a comprehensive way. So first of all, we need to reorganize our internal reporting. But second of all, we needed to agree and organize ourself to run key performance indicators that were meaningful and challenging enough.

Clarissa Dann: Does anything come out of the cases that you’ve been doing you could share with us what’s been going on here?

Lukas Lambrecht: First, we entered into a discussion with a third party consultant that the bank selected to discuss with them. What would they expect from us? What we want to show from two angles, really, first, from the social side, what kind of employer we want to be. So we selected KPIs in this area.

That is where we’re quite challenging on the environmental side, sustainable side. We had to make sure we agree on the definition, what technology fits into the definitions. Are we just helping reducing emission to the end products. Impacts on the environment matter as well, so do we do better than benchmark in our industry? At the end of the day, the objective for us is really to show how private security supports the transition in a sustainable manner.

Jeremy Hamon: What Jeremy just said is very key on what we actually try to achieve with that transaction. Partnering up to help our clients focus on ESG, helps to develop new structures within the company and also therefore really creating an impact when it comes to ESG measurement and also to assess how the company is evolving. Especially the last point is very key when we look at the framework because the framework is here for four years. So it’s not a single one of transaction, but we design the framework for four years to ensure that it has a long lasting impact. This is a tailor-made and a very intensive process of designing the strings.

Clarissa Dann: What is your message to other businesses considering this kind of instruction?

Lukas Lambrecht: Well, I have spoken with many fellow corporates interested in the scheme in the past month. In large corporates we’re not always talking every day to our research and development, to engineering or health and safety departments. They are not our first line peers. So I personally took this scheme as a personal challenge to break internal silence and to whoever is interested into following that path. I would really say they should just go for it.

Clarissa Dann: Jeremy, Lukas, that has been absolutely fascinating and thanks so much for explaining it to us.

Lukas Lambrecht: It’s been a pleasure.

Jeremy Hamon: Thank you very much, Clarissa.

Clarissa Dann: I’d like to thank Jeremy Hamon and Lukas Lambrecht for their insights and, of course, all of you for watching. For further insights on trying to help this ESG hedging deal, and catch our monthly reports on other markets or subscribe to our newsletter, do visit TRADEFINANCETV.NET

Published on August 4, 2021