You do NOT have to do it, only if you want

Embedded derivatives to (+meet the conditions).

An embedded derivative is simply a
component of a hybrid instrument that also
includes a non-derivative host contract.
Accounting of embedded
derivatives depends on WHAT the host
contract is:
Let’s say you try to protect your company
against foreign currency risk and you enter
into foreign currency forward contract. Even
if you meet the conditions for the hedge
accounting, you can still measure the
derivative at fair value through profit or loss
and not apply hedge accounting – up to you.

 If host = financial asset within the scope
of IFRS 9, then the whole hybrid
contract shall be measured as one and
not separated.
 If host = financial liability within the
scope of IFRS 9 OR a contract outside
the scope of IFRS 9 (e.g. service
contract, lease contract…), then you
should separate when the conditions are
met.
If you want to apply hedge accounting, 3
criteria must be met (IFRS 9, par. 6.4.1):
1. There are only eligible hedging
instruments and eligible hedged
items in the relationship;
2. You have the hedge documentation at
the inception of the hedge, in which you
designate and describe your hedging,
3. Hedge effectiveness criteria are met.

Separation means that you account for IFRS 9 sets the rules for 3 types of hedges:
embedded derivative separately in line with
IFRS 9 and the host contract in line with other 1. Cash flow hedge,
appropriate standard. 2. Fair value hedge, and
If an entity is not able to do this, then the 3. Hedge of the net investment in the
foreign operation.
whole contract must be accounted for as a
financial instrument at fair value through
profit or loss.

Hedge accounting
Hedge accounting is designating one or
more hedging instruments so that their
change in fair value is an offset to the
change in fair value or cash flows of a
hedged item.

If you’d like to see a simple illustration,

please watch the video below this article
(somewhere around the minute 17:43).

One very important remark:

Hedge accounting is NOT mandatory!