National Australia Bank (NAB) launched ESG-related derivative products on September 1 to push its Australian clients towards sustainable targets, according to NAB’s website on the same day. These new derivative contracts are interest rate swaps, inflation swaps, and cross-currency swaps, which enable clients to manage most of their financial risks tied to sustainability-linked loans (SLL). NAB targeted not only big companies but also expected more small and medium-sized enterprises (SMEs) to mitigate climate related impact via financial tools. With the ambition to extend ESG-linked products to the entire Australian market, NAB distributed products through its business bankers and offered a 20% discount on the bid price to local businesses.

Before issuing the new products, NAB has already delivered six ESG-related derivatives to European and UK markets. It acted as a joint sustainability coordinator to provide clients with derivatives contracts in sustainable financing projects. In its fifth derivatives projects, NAB collaborated with Anchor Hanover, UK’s largest housing association, to hedge risks of the sustainability bond. As the only Australian bank signatory of the United Nations Environment Programme Finance Initiative’s Collective Commitment to Climate Action, NAB committed to achieve net-zero emission by 2050 and contributes to sustainable economy development in other areas. It promised to provide AUD70bn environmental funds by 2025. Moreover, it has invested in over 130 renewable energy projects like solar parks and wind farms domestically and abroad since 2003.

Apart from those similar derivatives issued by NAB, a wide range of ESG-related derivatives have been launched in the past few years. Meanwhile, UK, US, and other countries also implemented regulatory initiatives to develop their ESG derivatives market. The whole universe includes other kinds of derivative contracts, such as ESG-related credit default swap (CDS) indices, emissions trading derivatives, power purchase agreements (PPA) on renewable energy, and catastrophe and weather derivatives.

Sources:

https://www.afr.com/companies/financial-services/nab-sharpens-up-climate-act-with-esg-derivatives-20210831-p58ne3

https://business.nab.com.au/sustainable-finance-update-august-2021-48116/

https://www.whitecase.com/publications/article/esg-derivatives

https://www.isda.org/a/qRpTE/Overview-of-ESG-related-Derivatives-Products-and-Transactions.pdf

https://news.nab.com.au/news_room_posts/nab-extends-offering-of-esg-derivatives-to-australian-business/#resources