Giesecke+Devrient invites to join the cause of saving the oceans.
Giesecke+Devrient (G+D) and the environmental organization Parley for the Oceans have concluded an agreement on the production and offering of environmentally friendly payment cards. By recycling plastic waste from the world’s oceans for the production of the cards, G+D intends to support clients in their sustainability strategies and promote eco-innovation through payment solutions.
G+D is committed to preserve a world fit for future generations. Beyond its own target to reduce direct and indirect CO2 emissions by 25 percent by 2022, G+D also wants to support its clients in achieving their own sustainability goals.
For this reason, G+D is now partnering with the environmental organization Parley for the Oceans, a movement committed to taking action to raise awareness for the beauty and fragility of our oceans and collaborating on projects that can end their destruction. Parley works closely with leading companies from various industries, by following the AIR strategy which consists in: Avoiding plastic wherever possible, Intercepting plastic before it reaches our oceans and environments, and Redesigning materials, methods, and products to be more in synchronization with nature. Parley’s hands-on efforts include collecting plastic waste from oceans, rivers and beaches for the purpose of upcycling and recycling.
The agreement between G+D and Parley includes the production of payment cards by G+D using raw materials provided by Parley. G+D will offer the cards under the name Convego Parley Ocean card. The new cards will be made from materials supplied by Parley, including plastic granules, bales and flakes obtained from recycled plastic waste from the world’s oceans. The cooperation primarily concerns payment cards, but the production of other products is not ruled out. In addition, G+D and Parley have decided to work closely together in the future to research and develop other alternative environmentally friendly materials.
With the new Convego Parley Ocean payment cards, G+D is addressing banks and card issuers that want to demonstrate their engagement towards social and environmental responsibilities. The new generation of customers – Generation Z – in particular, are looking for products and services that are driven by the eco-friendly agenda and demonstrate significant action towards delivering a genuinely sustainable suite of products and services. If a bank wants to fulfill its corporate social responsibility and encourage their customers to adopt a greener lifestyle, G+D’s eco-innovative payment solutions, and the undertaking of actions alongside Parley, will make a difference for the planet and future generations.
“It is exciting news for this little tiny plastic card we all carry around: You are up for redesign!” emphasizes Cyrill Gutsch, CEO and Founder of Parley for the Oceans. “Our partnership with G+D brings our Convego Parley Ocean card to millions of new users to serve as an everyday reminder that every single one of us has the power to change the world. By voting with our wallets. Purchase by purchase.”
Dr. Carsten Wengel, Global Head of Sales & Distribution of the smart card and digital payments security business of G+D, adds: “Consumers are looking for new ways towards a more sustainable lifestyle. That is why we empower banks with eco-innovative payment cards. When consumers place this card at the top of their wallet, it becomes their daily reminder of their own and their bank’s commitment to protect the planet.”
ACCELERATION OF DIGITAL TRANSFORMATION PUSHING ORGANISATIONS TOWARDS A MORE DATA-DRIVEN APPROACH
- 84% of businesses have seen more demand for data due to Covid-19, but nearly a third say data quality remains a fundamental barrier
New research from Experian reveals how the acceleration of digital transformation, through the Covid-19 pandemic, has led to greater demand for data insights to inform decision making and strategy.
The annual Global Data Management report, which surveyed 700 data practitioners and data-driven business leaders globally, found that changing customer behaviour has intensified businesses’ need for high-quality data. Eighty-four percent have seen more demand for data insights in their organisations due to Covid-19. In fact, 72% say that the rapid push to digital transformation is making their businesses more reliant on data.
Beyond underscoring its business value, the pandemic has also exposed data’s potential to be used for societal good – and business leaders are keen to explore this further. Seventy-eight percent see COVID-19 as a defining moment for organisations to set-up and use data for societal good where they can, while 86% would like to be able to use their data in some way to benefit society.
Increasing collaboration with other organisations to better support those in need, sharing talent and resources to develop and deliver products, or allowing their data practitioners to spend time on voluntary project were all highlighted as a potential approach to achieving this.
However, they will struggle to use data for either business or social good unless they can overcome endemic weaknesses in legacy data management practices. Experian’s report outlines key barriers that organisations must address:
- Data quality and maturity: On average, organisations believe a third of their data (32%) is inaccurate in some way. It’s unsurprising then that 55% of business leaders lack trust in data assets, and 51% say improving data quality is a ‘significant priority’.
- Data skills: Embracing the power of data is being stunted by a skills gap – 62% say a lack of basic data literacy skills impacts the value they get from their investment in data and technology, while 55% believe they lack skills/resources to leverage data assets fully.
- Agility: Sixty-two percent admit a lack of agility in data processes has hurt their response to changing business needs in the wake of COVID-19.
Andrew Abraham, Global Managing Director, Data Quality, at Experian, comments on the findings: “The pandemic has been a catalyst for long-awaited digital transformation. Businesses need to move fast to serve customers’ changing needs, and leaders know that data-based decision-making is key to evolving the right way.
“It’s also heartening to see organisations looking beyond the business applications of data, to how they can use it for societal good. However, if businesses are to succeed in either area, they must overcome fundamental barriers to effective data management.”
The paper also provides insight into businesses’ data priorities, as well as expert advice on how organisations can meet digital transformation objectives by making improvements in the following areas:
- People: With a data literate workforce, a business is armed with talent that can make timely, data-driven decisions. Reassuringly the report reveals that 85% of organisations are hiring data roles in the next six months.
- Technology: Technology has a critical role to play when it comes to modernising data management practices. Eighty-five percent of business leaders say sourcing more technology for staff is a priority.
- New ways of working: DataOps: DataOps aims to shorten development cycles, increase deployment frequency, and create more dependable releases of data pipelines, in close alignment with business objectives. This practice helps organisations adapt more quickly to changing conditions.
Getting back to basics: Before new initiatives complicate the issue, go back to basics – people, processes, and tools. To build resilience against future risk, invest in the right areas to recognise return on investment on data management more quickly.
SUSTAINABLE DERIVATIVES: THE “GIVING TREE”
Jennifer Kafcas, Lauren Blaber, Alvino Van Schalkwyk and Harry Polan
Momentum continues to gather pace towards building a sustainable economy, especially since the start of the pandemic. As a result, financial markets have seen a considerable increase in the focus on, and deal volume with respect to, sustainability-linked loans and bonds. It has been a logical progression that the sustainability tree sprouts a new leaf with the development of environmental, social and governance (ESG) linked derivatives. These products enable, among other things, firms and companies to hedge risks associated with sustainable investments including project risk, interest rate and currency risks. This will be all the more important given the need to hedge risks from any underlying loan and its related sustainability criteria.
While ISDA has outlined the broad range of derivatives in sustainable finance, furthering the development of this product type (including, among others, sustainability-linked derivatives, ESG-related credit default swaps, exchange-traded derivatives on listed ESG-related equity indices, emissions trading derivatives, renewable energy and renewable fuels derivatives, and catastrophe and weather derivatives), this article focuses on more conventional derivatives transactions, such as interest rate swaps (IRS) and Foreign Exchange (FX) transactions used by market participants to hedge the risk arising from green bonds and loans. Though these transactions are no different conceptually from a product standpoint than any other IRS or FX transaction, it is important to understand the inherent structural and deal term differences.
Finance-linked sustainable derivatives (OTC)
A number of sustainability-linked derivatives have been issued in recent years, which add an ESG pricing component to conventional IRS and FX hedging instruments. The table below provides examples of recently issued sustainability-linked derivatives. As this is a developing market, the transaction volume has been very low, but uptake is expected to increase over coming years.
|BNP Paribas & Siemens Gamesa||€174 million FX forward, under which Siemens Gamesa will pay a premium on their forward if they do not meet certain ESG targets. If paid, that premium shall be used to finance local reforestation projects in Spain. The premium shall be calculated using a metric assigned by a third-party sustainable finance specialist.|
|Société Générale & Enel||Cross currency swap, by which Enel hedged their euro-dollar exchange rate and interest rate risk under a $1.5 billion sustainability-linked bond. If Enel does not meet certain renewable energy targets, the swap will be re-priced to their detriment.|
|New World Development (NWD) & DBS Hong Kong||Interest rate swap linked to the United Nations Sustainable Development Goals, hedging interest rate risk under NWD’s HK$1 billion sustainability-linked loan. If NWD generates at least eight business-to-business opportunities that contribute to the Sustainable Development Goals, DBS will sponsor certain NWD social innovation projects.|
As evidenced above, ESG-linked derivatives can take on a number of characteristics and structures, including:
- Derivative pricing. One counterparty having a number of prescribed ESG targets which, if met, will lead to a downwards ratchet in the pricing of the derivative (with such pricing often increasing if the targets are not met).
- Fixed payments. If ESG targets are not met by the corporate, a fixed payment can be required to the issuing bank, which will be put towards a green project.
- Triggers linked to a company’s ESG rating. If the ESG rating of the corporate increases, a benefit can be awarded to them (e.g. interest rate discount).
- Both parties having ESG targets papered into their derivatives contracts. Corporates can receive a discount on the interest rate under the derivative if they meet their ESG targets, with that discount increasing if the issuing bank fails to meet its own ESG targets.
- Charitable giving requirements. A failure by the corporate to comply with its ESG targets can lead to it being required to make contributions to non-profit organisations, with the bank having to make such contributions if the corporate’s ESG targets are met.
As sustainability-linked products gain traction, a degree of care will be required to ensure ESG targets are finely balanced and verifiable. Verification is essential for market transparency, for ESG products to be considered credible and for lenders and corporates alike to avoid reputational risks. Furthermore, the ability of a corporate to verify reliable compliance with ESG targets could provide a significantly smoother path through their lender’s credit approval process and in turn the lender’s ability to verify will enable it to better monitor the performance matrix set by the underlying loan or bond.
Renewable Energy and Renewable Fuels
In addition to the above OTCs, renewable energy hedging transactions (including power hedge transactions) are important for market participants to hedge the risk associated with fluctuations in renewable energy production, and in doing so, encourage more capital to be contributed to renewable energy projects.
Typical documentation with respect to the above type of trades are Power Purchase Agreements (PPAs) which document the purchase of power and associated renewable energy certificates between a renewable energy generator (the seller) and a purchaser of renewable electricity (the buyer). PPAs do not require companies to contribute directly to enhanced ESG standards, however they can help catalyse a shift to clean energy sources as they reduce market price volatility for buyers, and reassure sellers that a buyer will purchase power generated from renewable energy assets, thus encouraging the financing of such projects. In an ESG-linked transaction, these types of arrangements can be replicated by covering the credit risk element in the intercreditor terms. As an alternative the market may develop such that in lieu of these structures the underlying risk with respect to market price volatility is documented under an ISDA and secured under the financing and intercreditor documentation. This structure is fast approaching.
Expected developments in 2021
Climate change and, therefore, a sustainable economy remain front and centre for governments and regulators worldwide. In 2020,countries like Japan, China, South Korea, Hong Kong and the UK set net carbon neutrality objectives and most recently the USA, following the inauguration of President Biden, announced plans to spend $2 trillion over four years to aid in the fight against climate change, all following the commitment already set by the EU.
Whilst the need for banks and corporates to develop and consider bespoke products to promote true progress in ESG compliance may hinder any radical uplift in ESG-linked derivatives volumes over the course of 2021, we anticipate that as banks and corporates continue to familiarise themselves with the requirements of such products, integrating ESG elements into derivatives trades will begin to be common practice.
In view of this, derivatives market participants will be eager to continue to drive ESG-linked derivatives volumes and to develop new and innovative ESG products facilitating the mobilisation of capital towards sustainable investments to ensure that they continue to significantly improve ESG standards, and to strengthen their contribution to the green finance drive.
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