The global currency market is beginning to integrate the management of extra-financial risks (environment, social rights, governance) by companies.

The most virtuous are rewarded and the guilty punished.

Hit by a series of scandals over the last ten years, from the City to New York, with more than 12 billion dollars in fines linked to currency manipulation and hidden pricing, the currency market wants to turn the page and improve its image. Today, some banks are trying to promote more virtuous behavior among one of their customers, businesses

“Businesses are increasingly aware of the challenges and problems of SRI (socially responsible investment), notes Bruno Laurier, global head of foreign exchange sales and corporate investment solutions at Société Générale. In our hedge-to-pledge initiative, we offer companies that regularly trade their foreign exchange transactions with Société Générale to round up the rate at which they trade with us. We are committed to contributing an amount equivalent to this slight additional cost. The full amount will be paid to an association chosen by the company from among a set of associations selected by Epic, an external partner.

Bonuses and penalties

In another approach, Siemens Gamesa (renewable energies) through BNP Paribas, Enel (electricity) with Société Générale, Olam (food trading and brokerage), and Primetals (factory engineering and construction) through Deutsche Bank conducted foreign exchange transactions (hedging) with socially responsible investment (SRI) considerations. Respecting these precepts has reduced their costs. But if they fail, they have to pay penalties

For example, Primetals has signed a four-year agreement with Deutsche Bank for its foreign exchange options operations. If the metals group does not achieve certain objectives (reduction of greenhouse gas emissions, etc.), it will have to donate money to NGOs. The German bank also offered its client, Olam, preferential pricing conditions on Thai Baht derivatives thanks to the satisfaction of certain criteria (respect for the environment, labor law, etc.

Limited overall impact

However, businesses represented only 7% of the daily volume on the global currency market in 2019, behind banks (38%) and other financial institutions (55%) in the latest triennial survey by the Bank for International Settlements (BIS). Companies intervene in the currency market to cover their currency risks, and to have currencies for their daily functioning (cash flow)

In 2019, $6.6 trillion was traded daily on the global foreign exchange market, according to the BIS. Only a tiny fraction is likely to convert permanently to socially responsible trading. The spontaneous creation of a “virtuous” kind of Tobin tax (tax on financial transactions) for climate, social rights... is a very remote perspective on the largest market in the world