The transition to a sustainable economy will take a massive amount of long-term funding. The financial services sector will be an essential partner in providing this funding and managing the risks associated with sustainable investments, including project risk and interest rate and currency risks.
Derivatives markets can play an essential role in this process.
Derivatives enable more capital to be channeled towards sustainable
investments; help market participants hedge risk related to
environmental, social and governance (ESG) factors; facilitate
transparency, price discovery and market efficiency; and contribute to
long-termism.
This paper is intended to help market participants further understand
the potential role of derivatives in sustainable finance. The paper
outlines the range of product structures and transaction types that
comprise the universe of ESG-related derivatives, including
sustainability-linked derivatives; ESG-related credit default swap
indices; exchange-traded derivatives on listed ESG-related equity
indices; emissions trading derivatives; renewable energy and renewable
fuels derivatives; and catastrophe and weather derivatives.
Full paper
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© ISDA - International Swaps and Derivatives Association
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