Standard Chartered has executed its first commodity hedge linked to environmental, social and governance (ESG) benchmarks with Singapore-based commodity trader Trafigura. The transaction involves combining conventional derivatives risk management with key performance indicators (KPIs) that are linked to reducing greenhouse gas emissions – from owned or controlled sources – and sustainable sourcing in the base metals business.

A premium or discount is offered to Trafigura on its hedging rate based on fulfilling the pre-agreed ESG KPIs, which are independently monitored and reported on regular basis by a third-party provider, ERM Certification and Verification Services.

Chin Hwee Tan, Trafigura’s chief executive officer for Asia-Pacific, says: “We are committed to embed sustainability in our day-to-day operations in a consistent and coherent way. A key pillar of our responsible business practices involves minimizing adverse impacts on the natural environment. This sustainability goals-linked derivative transaction with Standard Chartered is an important step forward on our journey.”

Sharad Desai, global head of financial markets sales at Standard Chartered, says: “We are committed to getting capital to where it is needed to help our clients achieve their sustainability goals, and ESG-linked derivatives are among a number of solutions that we offer them. We’re proud to structure this first ESG-linked derivative transaction for Trafigura to help them execute both on risk management and sustainability targets.”