What impact is the ESG trend having on FX?

Driven by pressure from investors, governments and consumers, Environmental, Social and Governance (ESG) factors have become a key priority for the financial services industry and are now at the heart of multiple decision-making processes within many businesses.

The growing policy and regulatory momentum towards ESG means that it is now a fundamental precept of investing and a huge area of focus for the financial sector. Investors are looking to align themselves with fund managers who, at the very least have a clearly defined ESG policy.

There is growing evidence to suggest that ESG investing will be a genuine lasting shift rather than a short-term fad. A survey of more than 1,000 investment professionals revealed that 77% of institutional investors plan to stop buying non-ESG products this year and assets are poised to reach $41 trillion by the end of 2022.

ESG in FX

Much of the emphasis on ESG in FX to date has been on the first two letters of the acronym – ‘E’ (environmental) and ‘S’ (social), while the ‘G’ (governance) has often been left lagging behind as an afterthought.

In our view, establishing strong governance in areas such as regulatory compliance, transparency and implementation of industry best practices, are the bedrock for any business seeking to be a good corporate citizen. 

Strong governance can manifest itself in different ways, depending on the nature of an organisation and its priorities. For corporates, asset managers and other institutions trading currencies, improving the cost, quality and transparency of their FX execution should form a central pillar of their governance.

Organisations should also assess the ESG credentials of its partners, service providers and those operating within its network.

Supporting the ESG drive in FX

As ESG continues to influence decisions over investment strategy, corporate treasurers and asset managers should look to all the possible ways to which they can fulfill their ESG commitments.

As an independent FX marketplace, we help our clients achieve this through a two-part process. Firstly, we allow our clients, many of whom rely on a single bank or broker for execution, to compare institutional-grade rates from more than ten counterparties and execute with the provider offering the best price. This offers an unprecedented level of price competition and stops them from being overcharged for their currency execution.

Secondly, our independent transaction cost analysis (TCA) helps clients to assess the broader quality of execution. This is an important part of governance and is in line with MiFID II, the FX Global Code and other industry best practices.

We are strongly committed to our own ESG responsibilities. In addition to our pinpoint focus on improving execution quality and reducing operational burdens, we are officially carbon neutral and committed to further reducing our carbon footprint by ensuring our business practices are aligned with internationally recognised standards.

We are also an official signatory of the Principles for Responsible Investment (PRI), contributing to a sustainable global financial system. Dedication to these principles and access to PRI's knowledge base helps to ensure we are ESG compliant.Get in touch to find out we can help you meet your ESG criteria: contact us