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Industry roundup: 30 October 2020

Deutsche Bank draws up ESG FX derivative framework agreement for Primetals Technologies

Deutsche Bank and Primetals Technologies have reached agreement on what they say is the world’s first hedging concept that links currency options to sustainability goals. The framework agreement signed today enables Primetals Technologies to hedge its currency risk with FX options with the bank over a period of four years. Should Primetals Technologies fail to meet the agreed sustainability targets, the company must pay a predefined sum to a contractually defined non-governmental organisation. Any currency hedges the company executes comply with the criteria of the new Sustainable Finance Framework that Deutsche Bank published at the end of July. In doing so the bank has devised criteria for the classification of ESG financing which are aligned on a best-effort basis to the new EU Taxonomy Regulation.

“Our bank seeks to play an active role in achieving the targets of the Paris Climate Agreement," explained Gerald Podobnik, CFO of Deutsche Bank’s Corporate Bank and member of the German government’s Sustainable Finance Advisory Council. "That is why we plan to develop more and more financial products that are linked to sustainability targets. In so doing we will assist our clients in implementing their sustainability strategies and monitor their achievements over the longer term as well.” 

The currency hedge is linked to several sustainability targets. This includes, for example, the proportion of total sales of projects sold that aim to reduce greenhouse gas emissions for customers. One ratio measured is revenues relative to research and development expenditure that result in improved resource efficiency. Another metric is the promotion of a safe and healthy work environment for all staff at Primetals Technologies. Deutsche Bank and Primetals Technologies have taken advice on selecting their targets from Environmental Resources Management (ERM). The independent consultancy appraises and certifies whether the targets are adhered to for the entire life of the option.


Large corporates suffer US$17.5bn in Q2 FX losses 

The impact of currency volatility soared 44% in a single quarter, causing more than US$17.5bn in foreign currency exchange losses in Q2 2020, according to the latest Kyriba Currency Impact Report (CIR). The report details the impact of foreign exchange (FX) among 1,200 multinational companies based in North America and Europe. The spike in currency volatility marks the seventh time in eight quarters that the quantified negative currency impact has been more than US$10bn.

“FX losses are the consequence of companies not fully understanding, nor being able to actively manage, their global liquidity," said Wolfgang Koester, chief evangelist for Kyriba. "The pandemic crisis has forced finance departments to react quickly to reduce losses and shore-up cash flow by repatriating assets or taking on loans in different localities. It’s not surprising that companies that didn’t have complete visibility into their FX exposures suffered material losses. Couple this with intense currency volatility and you exacerbate a multi-billion-dollar problem.” 

North American companies indicated the Brazilian real as the most impactful currency for the second straight quarter, with 28% of companies referencing the real in their Q2 earnings calls, followed by the euro. The Canadian Dollar emerged as the third most impactful currency for North American companies, claiming a top five spot for the first time since Q2 2019.

The average earnings per share (EPS) impact from currency volatility reported by North American companies in Q2 2020 remained at US$0.04 - four times greater than the industry standard MBO of less than US$0.01 EPS impact. Healthcare equipment and supplies and the professional services industries experienced the greatest impact from currencies, as those industries continue to be affected by the global pandemic.

Publicly-traded European companies that qualified to be monitored in the Q2 2020 report indicated a collective currency loss of US$3.37bn. For the second quarter in a row, the euro was reported as the currency most mentioned as impactful by European companies during Q2 2020 earnings calls, followed by the Brazilian real.


Surecomp Marketplace adds AML solution

Surecomp, a provider of global trade finance solutions for banks and corporates, has announced ThetaRay as the latest fintech partner to be live on its Marketplace platform. Fully integrated with Surecomp’s back-office trade finance solutions, financial crime solution ThetaRay can now be accessed through open API connectivity to help banks and corporates mitigate the risks of trade based anti-money laundering (AML), fraud and automatic teller machine (ATM) security breaches. 

ThetaRay is built on big data, using artificial intelligence-based analytics to detect suspicious behaviour, real-time anomalies and to uncover previously unidentified risks. 

“As financial cybercrime continues to rise, banks and corporates need to deploy significant measures to protect themselves against fraud, money laundering and suspicious behaviour,” said Mark Gazit, CEO of ThetaRay. “Surecomp customers can now benefit from our intuitive artificial intelligence, machine learning-based platform to further strengthen their digital risk management strategy.”


ConsenSys adds two CBDC projects

Societe Generale - Forge, the digital capital markets platform of the Societe Generale Group, has selected blockchain software company ConsenSys to provide technology and services as part of its ongoing central bank digital currency (CBDC) pilot activities. As part of this partnership, Societe Generale - Forge will continue to build upon its recent achievements such as the issuance of a €100m covered bond on blockchain in 2019, and the issuance of a €40m bond that was settled with a CBDC in 2020, a joint project with the Banque de France, the French central bank.

ConsenSys will provide technology and expertise to this project, focusing in particular on CBDC issuance and management, delivery versus payment, and cross-ledger interoperability.

ConsenSys has also joined the Bank of Thailand to explore the potential of blockchain technology in the development of a proof-of-concept prototype for a central bank digital currency (CBDC) project, alongside SCG and Digital Ventures (DV).

The software firm joined the project as a technology partner to develop and test a prototype for CBDC. The private-permissioned network on Hyperledger Besu will be designed to meet both the functional and non-functional requirements of a retail CBDC. One of the business cases will test the use of a CBDC to simulate daily commerce, automate payments, and support procurement and financial management system called Procure-to-Pay (B2P) developed by DV. In the exploration, CBDC will be tested and issued using ERC20 smart contracts, which is the most adopted token standard worldwide, enabling digital asset issuance and transfers between network participants. In partnership with Thailand partner Atato, ConsenSys will architect a solution using its Enterprise Ethereum stack, including Codefi  and MetaMask.

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