Recent Developments
- There are a growing number of labelled products that Banks offer such as Green Deposits.
- We expect this trend to intensify and for more and more transactional services such as payments & cash management and increasingly also trade finance to be structured as green and sustainability linked products by Banks.
- Green Deposits are deposits whereby the monies are matched and invested into and fund green loans or other green investment products.
- This is really a use of proceeds concept except not a bond or a loan.
What have we seen?
- We have seen Banks such as Standard Chartered launch green deposits, and these are supported by a Sustainable Banking Products Framework co-created with Sustainalytics to give clarity and credibility about where the monies end up and will be allocated to. (https://av.sc.com/corp-en/others/green-sustainable-product-framework.pdf)
- We have also seen Banks such as Westpac launch Green Deposits where the flow of the monies end up in investments and assets eligible from Climate Bond Initiative Taxonomy (https://www.westpac.com.au/about-westpac/sustainability/news-resources-and-ratings/westpac-launches-worlds-first-certified-green-tailored-deposit/)
- Some other examples include: Barclays and MUFG: https://www.barclayscorporate.com/solutions/corporate-banking-solutions/green-solutions/; and
What are the Structuring Considerations for Green Deposits?
- Banks have a number of issues to work through such as will the monies be allocated towards their own loans or else invested in other green investment products (hence might be issues of double counting with this).
- What happens if the inflows of green deposits exceed available green assets and investments to allocate to?
- Is the Eligibility criteria form what is green and where the deposit monies will flow to the same as other frameworks the bank has ie. Other green bond framework or government documents have in place so there is no mismatch.
- Should green deposits be priced with incentives for deposit providers or be priced the same?
- Does the bank have the internal ability and process to match their deposits and assets in a structured and clear way to run a program such as this?
- What process does the bank have to periodically or at least annually update its green criteria to ensure eligibility criteria remains at best market practice?
Advantages for Corporates and Deposit Providers?
- Know the money is doing good
- Supporting green
- Obtaining incentives or advantages from the bank on price and fees
Future Developments
- We expect this trend to intensify and going green is a great way to enhance the stickiness of deposits.
- We will see more types of deposits covered under these programs (term deposits as well).
- We do note though that these products have more flexibility if connected to Sustainability outcomes (Linked) such as ESG Ratings or else KPI’s (Key Performance Indictors).
- We are starting to see Sustainability Linked Deposits and are surprised this hasn’t caught on earlier: https://finance.yahoo.com/news/goldman-sachs-xylem-launch-first-140528553.html
