Clearing leads the way to sustainable financial markets

Responsible for the transaction processing, financial logistics and risk management of millions of securities transactions every day, global top three clearing house ABN AMRO Clearing chooses to wield its influence to boost financial market robustness and transparency. Vicky Sins, Global Director Corporate Hedgers, is helping to steer the sustainable transition on behalf of Clearing.

Managing transactions, logistics and risks

ABN AMRO manages the trading needs of clients in some 90 markets across the globe. Vicky says: “We give these clients access to the exchange and settle their transactions for them. These are not individual clients, by the way; we're talking about larger companies and institutions. ABN AMRO itself is one of our clients, as it's through us that they serve their investor clients. Before we assume financial responsibility for the transactions of our clients, we run them through a series of extensive screenings first, to determine their credit rating and professional integrity. And since 2012 we've also been checking sustainability risks. Currently, 70% of our clients have been screened on sustainability risks. Our goal is to have this risk analysis completed for all our clients before the end of the year. When a client has elevated sustainability risks, we explore improvement opportunities. And in specific cases we may start an engagement process, for instance targeting clients in the energy sector, so we can accelerate their energy transition.

ABN AMRO Clearing is a legally independent business unit of the bank, geared at serving three separate client groups. First of all, principal traders are specialists who trade with their own money and at their own risk, using their own trading strategies of choice. These parties play an important role in sustaining the liquidity of the market. After all, by choosing which stocks to buy and sell, they iron out differences between supply and demand. The second type of client encompasses all sorts of financial institutions such as banks, insurance companies, and pension funds. Last but not least, ABN AMRO Clearing also serves large corporates: companies whose international business operations or sectors mean they stand to gain from hedging price risks in their specific value chain. By trading in forward contracts (also known as futures), these companies secure their profits from the effects of unpredictable price swings. Such derivative financial contracts reflect the price development of the underlying commodities, such as oil, gas, cereals, coffee, and cocoa.

Hedging against price swings

Vicky explains why this matters to, say, a coffee manufacturer: “For proper management of company results, you need to have a solid idea of the price of your main commodity, which would be coffee in this case. But throughout the year, the price of coffee may fluctuate a lot. If you buy forward contracts, you'll receive future coffee deliveries at the currently known price, meaning you can safely set a selling price for your product and secure your profits. These types of international companies often buy coverage against foreign currency risks as well. After all, if the majority of employees receive their salary in dollars, it would be wise to buy those dollars at a pre-set price.”

ABN AMRO Clearing wants to facilitate the sustainable transition of financial markets. But being merely the executor of clients' investment wishes, what can ABN AMRO Clearing do in practical terms? Quite a lot, actually, Vicky explains. “Since we're a primary player in the global markets, our influence reaches far and wide. We believe that developing a financial market depends to a large degree on whether its infrastructure is stable and futureproof. That's why we actively seek to boost the transparency and robustness of the financial markets. We can achieve a lot of impact by initiating dialogues with clients, market organisations, regulators, and other stakeholders. For instance, we talk to our clients about sustainable products such as carbon certificates, products based on wind or solar energy, and how to structure such products for their benefit. We also use our influence to encourage more transparency and the introduction of environmental, social and governance (ESG) criteria in financial instruments such as forward contracts.” As a major international player, ABN AMRO Clearing is also a partner in several worldwide partnerships. Vicky: “For instance, we maintain close ties with the Sustainable Stock Exchanges Initiative.”

Positive impact with SDG 8 and 13

ABN AMRO Clearing is determined to play a leading role in the transition to sustainability and to accelerate it where possible. This is the transition phase for clearing companies, according to Vicky: “While seven years ago sustainability was most of all a factor in our risk assessments, we're currently looking at it as a way to make a positive impact. It's simple: within our sphere of influence, what can we effectively do to have impact? In terms of Sustainable Development Goals (SDG) 8, 12, and 13, the ones ABN AMRO is committed to in particular, we are especially cracking down on SDG 13 (Climate Action) and 8 (Decent work and Economic Growth).” Together, the SDGs comprise the sustainability goals of the entire world. Vicky: To be able to offer our clients expert advice, we start by gaining first-hand experience in our own organisation if at all possible. For example, a study is currently underway to estimate the carbon emissions of our worldwide data centres.”

Managing all those international transactions properly takes an enormous amount of data centre capacity. Vicky confirms: “Early in February we'll receive an exact figure on the carbon emissions of our data centres. Once we have the numbers, we can set concrete goals to decrease emissions. Then we will continue monitoring the statistics so we know whether we're successful – and so we can take appropriate compensatory measures if not. With the knowledge and experience of that project under our belt, we’ll be ready to start engaging with our clients.” ABN AMRO Clearing also plays an important role in facilitating emissions certificate trade. Vicky explains why these are key for the energy transition. “We don't stop at facilitating trade transactions. To encourage the transition to more sustainable energy generation, we maintain close links with energy and utilities companies. In the same vein, we develop financial products and solutions with the help of our banking colleagues. By making the transition to sustainable alternatives more attractive to clients, we’re accelerating and boosting the transition.”

Robust and transparent financial markets

Vicky speaks proudly of the recently announced cooperation with Frontclear. “Where we have a great deal of knowledge and skills in building financial infrastructures in Western countries, Frontclear is all about developing stable financial market infrastructure in developing countries. By joining forces, we can contribute to the creation of transparent and robust financial markets in those countries too. We're making it happen by launching four concrete projects, run by experienced Clearing employees from four different continents. What kind of projects? One of them involves establishing financial infrastructure in Nigeria, with the ultimate purpose of achieving a healthy money market and a stable financial system.”