This year, Deutsche Bank sold what it said was the world’s first green hedge, in the form of a derivative that hedges the currency exposure of renewable energy company Continuum Energy Levanter Pte.’s green U.S. dollar bond. The product is not to be confused with sustainability-linked derivatives such as the cross-currency swap JPMorgan created for Italian energy company Enel SpA, where the pricing of the product was tied to both counterparties meeting sustainability goals.
For ESMA, the concern is that the plethora of labels makes it hard to hold the market to account. The authority warns that a term like green hedge “could mislead investors into thinking that the green bond is somehow hedged against potential environmental risk, which is not the case since the underlying [asset] is just a currency.”
“Similar to ‘ESG derivatives’, new expressions such as ‘green hedge’ are primarily intended for marketing purposes without any legal meaning,” ESMA said. “This contributes to investor confusion and greenwashing risks.”
This article provided by Bloomberg News.