9 in 10 fund managers across the US, EU and UK prioritise ESG when selecting counterparties, according to a new study from foreign exchange solutions provider, MillTechFX.
The findings come from the European Fund Manager CFO FX Report 2024, which surveyed 250 senior finance decision-makers and European fund managers in order to understand their opinions on best practices, risk management, and hedging strategies, alongside emerging trends like automation and ESG.
According to the research, Environmental, Social, and Governance (ESG) was considered a resounding priority when deciding what factors would impact selecting counterparties, with 96% of North American fund managers saying it was something they looked out for. Similarly, 94% of EU respondents and 89% in the UK said the same thing.
France and the Netherlands lead the pack, with 100% of fund managers prioritising ESG when choosing counterparties. Interestingly, even within organisations, ESG holds significant weight, with 100% of treasurers and 98% of CFOs acknowledging its importance.
A counterparty is simply any other parties involved in a financial transaction or agreement.
“European fund managers [are] diversifying their counterparties more than their UK and North American peers,” notes Eric Huttman, CEO at MillTechFX. “It also highlights that ESG is a global priority, with the vast majority of fund managers in Europe, the UK, and North America taking counterparty ESG credentials into account.”
The report offers valuable guidance for fund managers seeking to solidify their ESG commitment. It recommends adopting the FX Global Code (GFXC), which promotes best practices in the wholesale FX market and increasingly incorporates ESG principles. Partnering with FX providers committed to internationally recognised ESG standards, such as the Principles for Responsible Investment (PRI), is another recommended step.
The study also reveals a heightened desire for counterparty diversification, particularly in Europe. Following the banking crisis and the collapse of Credit Suisse in March 2023, 90% of European fund managers prioritise broadening their FX counterparty base, compared to 80% in the UK and 81% in the US.
This trend suggests a growing appetite for risk mitigation and a desire to minimise exposure to potential financial instability among European firms.
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