Agri-business group Olam International and Deutsche Bank have executed Asia's first foreign exchange (FX) derivative linked to key environmental, social and governance (ESG) standards.

The ESG-linked FX (Thai baht/US dollar) forward enables Olam to lock in a discount when it meets pre-defined ESG targets that support the United Nations (UN) Sustainable Development Goals, said Olam and Deutsche Bank yesterday.

These goals include alleviating poverty and hunger, boosting gender equality and improving access to clean water and sanitation.

Olam has executed a one-year US dollar/baht FX forward to hedge its exports.

The group exports agriculture products from Thailand to the rest of the world.

It buys the products from Thai farms in baht and sells them to customers who pay in United States dollars. This exposes the group to US dollar/baht currency risk.

The latest solution resolves the need to hedge the foreign exchange risk arising from growing a crop in one country and selling it to another country, and supports Olam's programme to strengthen its supply chain sustainability, said the group.

"This innovative facility provides us with a hedge on our currency risk exposure and enables Olam to lock in a discount when we meet pre-set ESG targets that are aligned with our sustainability strategy and the UN Sustainable Development Goals," said Olam managing director and chief financial officer N. Muthukumar.

Mr Kamran Khan, Deutsche head of ESG in Asia-Pacific, said: "Green finance has largely involved sustainability-linked loans, bonds and equities, where market standards are becoming standardised.

"This sustainability-linked derivative... (opens) an important new path for the global sustainable finance market."

THE BUSINESS TIMES