Net-zero shift spurs innovation in sustainable finance

“Sustainable financing products are the pipes that connect global capital associations with companies that are moving their business to more sustainable results,” he says.

“Our role in the CBA is to build efficient pipelines and provide capital to customers who want to change.”

The CBA deal with IFM Investors is one example of innovation in sustainable finance.

IFM was looking for a cash management product that would meet its net zero liabilities and its goals of protecting and increasing the retirement savings of working people. The CBA collaborated with IFM to develop the ESG (ESG TD) term deposit, completing a $ 200 million deal in December.

Like a traditional term deposit, investors receive a fixed interest rate on their investments for an agreed term.

The ESG mark has received the CBA because it undertakes to exclusively allocate proceeds from these deposits to its growing portfolio of sustainability-related loans (SLLs). ESG TD Commonwealth Bank is certified by the Responsible Investment Association of Australia as meeting the Australian and New Zealand standards for responsible investing.

“We see that this type of funding plays an important role in supporting significant assets in the community that are becoming more sustainable,” says Helen Toe, Treasury Services Portfolio Manager at IFM Investors.

“We are excited to work with the CBA, and we especially welcome their commitment to give us regular updates on the progress of initiatives funded through the SLL,” she says.

Global financial companies are also looking for new and innovative products to support global climate transition.

The Chicago-based Northern Trust, which also has offices in Sydney and Melbourne, recently concluded a $ 50 million greenback buyout agreement with the CBA – or Green Repo.

This innovative product serves as an additional source of funding to finance or refinance environmentally friendly assets such as energy efficient buildings, solar farms, low carbon transportation projects or green mortgages.

Like the traditional redemption agreement, a certified Green Repo of the Central Bank is an agreement between a bank and an institutional client to exchange a common pledge for cash and change these flows at a later date at an agreed price.

The money raised through the certified green repo is used strictly to finance the bank’s green loan portfolio.

Green Repo is valid for one to 12 months and has been certified by the Climate Bond Initiative (CBI), a non-profit organization that aims to promote large-scale investment to build a global low-carbon economy.

“As a global investment manager and corporate citizen, we not only have the opportunity but also the commitment to contribute to a healthy long-term environment,” says Leon Stavrou, head of Northern Trust in Australia and New Zealand.

Financing the global low-carbon economy. Getty Images

“As the first of its kind in Australia, participation in the Green Repo product reinforces Northern Trust’s commitment to sustainable investment and innovation,” he says.

The launch of products such as Green Repo and the ESG term deposit creates an important path for cash-rich organizations to support Australia’s transition to a more sustainable future, says Chris McLachlan, executive general manager for global markets at the Commonwealth Bank.

“By using wholesale cash to support sustainability and eco-labeled assets, we are creating a virtuous cycle by connecting the ESG investor with the CBA, which is linked to the ESG borrower,” McLachlan says.

Another way to innovate is to eliminate friction from established products. A striking example is green loans, as they are commonly used to recognize the sustainability of an existing building or project rather than what is being built.

CommBank has partnered with the Charter Hall Group on an innovative Green Development Loan loan – Australia’s first green building facility – to support the construction of the 480 Swan Street building in Richmond, Victoria.

The loan has been certified by the CBI based on the strong environmental credentials of development plans and design specifications, as well as Charter Hall’s commitment to meet strict and current commitments on reporting, assurance and verification.

“We are embedding ESG in all aspects of our business, and this facility with CBA is a great example of this plan in action,” says Carmel Hurrigan, CEO of Charter Hall Office.

The CBA believes that the rapid development of the sustainable financing market will only accelerate in 2022 as more customers use ESG financing to help with their own transition efforts.

“All customers are looking at how to move and how to demonstrate these commitments to their stakeholders – everyone, from employees and customers to investors and suppliers to regulators and government,” said Charles Davis, head of sustainable finance and ESG at Commonwealth Bank.

“Companies are turning to sustainable financial products to codify this commitment by directly linking their financing costs to the implementation of a critical strategy.”

Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit License 234945. This information is published for informational purposes only. Because this information has been prepared without regard to your goals, financial situation or needs, you should, before acting on the basis of the information, think that it is appropriate to your circumstances.

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