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Risk hedging

Solutions for companies to address ESG challenges
fruition time: 9 min

Intesa Sanpaolo has developed a wide and diversified range of products in order to promote a more sustainable economy. These include risk hedging solutions dedicated to all types of clients, both in Italy and abroad, with features in line with the principles of Sustainability, Circular Economy and Green Financing.

These solutions have evolved over the past few years, with the afore-mentioned features being extended in various stages to risk hedging transactions for Corporate clients and are under continuous development.

More specifically in 2019, the Corporate Solutions team of the IMI Corporate & Investment Banking Division concluded the first hedging transaction of this type in Italy, characterised by an "asymmetric" derivative mechanism:  if the client achieves the ESG targets on the dates when the KPI included in the loan are checked, the fixed rate paid by the client is reduced, while otherwise the client continues to pay the predefined fixed rate.

Subsequently, the "symmetric" mechanism of the OTC hedging derivative was also introduced: if the ESG targets defined in the contract are met, the client saves costs and therefore pays a lower commercial margin during the lifecycle of the transaction. Otherwise, a penalty is applied, which directly affects the derivative cash flows. Alternatively, this penalty may also take the form of a commitment by the company to make a donation to a specific Corporate Social Responsibility initiative.

The characteristics of the OTC derivative are constructed in close correlation with the KPIs of the underlying transaction, or the KPIs can be negotiated specifically for the hedging instrument.

The IMI Corporate & Investment Banking Division, in line with the Intesa Sanpaolo Group, is committed to sustainability, promoting innovative financial solutions that meet the growing need for an offering increasingly in line with ESG principles.

The Division stands by companies as a partner, not only in providing loans, but also in  managing the market risks to which clients' business is exposed and offering them the opportunity to structure tailored hedging solutions in different asset classes of financial risk, such as interest rate, exchange rate, commodity, equity and credit.

Elisa Del Vecchio, Capital & Investment Solutions, Corporate & Strategic Solutions Sales, IMI Corporate & Investment Banking Division, Intesa Sanpaolo, illustrates risk hedging and its evolution over the time, also through some actual cases, and describes the role of the Division in such field and activities.

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