The ability of sustainably minded corporate treasurers in the UK to put their cash to work in green investments is getting more difficult because banks are struggling to find the opportunities to invest the money.

“The problem we have, is that banks don’t have much capacity to put money to work in green investments – they can’t find the projects to invest in, and there is a limit to what classifies as green,” reflects Richard Abigail, Group Treasurer and Head of Corporate Finance at Knight Frank. “Banks also cap the amount an individual corporate client can invest in green deposits because they want to ensure they offer a stake to all their clients.”

The global real estate consultancy has five-to-six green deposits with banks, but that doesn’t cover the £100m Abigail would like to invest sustainably. It means the company has pushed large amounts into sustainable focused MMFs and still has around 15% of its total cash held in ‘brown’ current accounts for day-to-day liquidity needs.

Abigail’s comments confirm anecdotal reports that one of the main UK clearing banks is no longer accepting green cash because it can’t find the opportunities to put the money to work.

They also offer a window into the ambition of Knight Frank’s sustainable investment strategy that Abigail has shaped since taking over the treasury team three years ago and which echoes wider sustainability endeavour throughout the group spanning emission targets in its buildings, to electric vehicle use. “Treasury set out to make our cash green,” he says.

Knight Frank has around £100-200m to invest in a typical yearly tax cycle that builds up through the year. The money, mostly partners tax contributions, used to sit in an overnight deposit account with the company’s main clearing bank before Abigail took the helm.

He began by dividing the portfolio into three seams comprising core cash for essential liquidity, designated cash for tax payments, and strategic cash for a rainy day but also on hand for acquisitions or opportunities – like the company’s recent acquisition of Australian residential estate agent McGrath.

Treasury committed to invest all cash sustainably, splitting the money into two types of investment products comprising green deposit accounts with relationship banks (around 30-40% of the total portfolio) and four MMFs. The sustainable MMFs are SDFR Article 8 funds that enshrine ESG and managed by relationship banks and where Knight Frank invests via the ICD platform.

The large allocation to MMFs is partly a consequence of the absence of short-term opportunities in green deposits. Banks are reluctant to take green deposits for anything less than 90 days because they are re-investing the money long-term, but this doesn’t suit Knight Frank’s liquidity requirements, he explains. “Most green deposits are three-month tenors, but we need shorter-dated stuff too and MMFs allow the flexibility of daily or weekly withdrawals,” he says.

He also likes MMFs because he won’t lose too much yield if rates drop. “The yield curve is flat and inverted because everyone is expecting rates to drop so we want to keep investments short term.”

A central element of strategy at Knight Frank is to invest cash through products that also nurture its key bank relationships. “I like relationship banking. I’m an old school treasurer, and the relationship is more important than the cheapest price for a BACS or the lowest cost response to an RFP,” says Abigail.

He estimates the difference in performance from investing in a green deposit with relationship banks over a ‘brown’ account with a different partner is typically 2-5 bps. “It’s not much to give away,” he says, in another nod to treasury valuing the relationship more than the investment return. “We don’t always get the best rate of return in our green deposits, but part of the rationale is to keep our bank relationships tight.”

We are an acquisitive company and seek to expand into new brands. Our belief is that all cash-like investments have their limits. It’s better to invest in the business itself for a better return for the long term.

Katherine Tan, Group Chief Financial Officer, Wearnes

Worried about risk, Wearnes dials back on higher yielding products

Investment strategy at Wearnes, the luxury auto retailer headquartered in Singapore and operating in eight markets across Asia Pacific, is shaped by a new sense of caution. Today’s challenging geopolitical and macro backdrop means Group Chief Financial Officer Katherine Tan has repositioned for the lowest possible risk.

Like her decision to peddle back on an allocation to Contango Investments to investing the majority of the portfolio in short-term deposits and T-bills instead in a bid to ensure exposure only to “basic fundamentals” rather than more structured products that gave a slightly higher yielding fixed income return.

“We used to venture into these types of structures but today we have less of an appetite for them. We are less adventurous compared to last year because from where we sit in Asia, we believe global markets are fragile,” she says, citing enduring regional wars, the US election and the impact on the auto industry of environmental and sustainability issues as key concerns.

Although the majority of the investment portfolio is held in US and Singapore dollars, she says the company is still exposed to volatile regional currencies, sensitive to the macro environment.

Still, despite the low risk approach she notes the portfolio which is benchmarked against straight treasuries has thrown off more income because of higher interest rates.

Cash is only managed in the short and medium term (three to six months) and invested in fixed income and diversified MMFs. Strategy is shaped around agility and the ability to switch in and out of the current market environment, as well as the guiding principle to always have enough on hand to acquire new businesses when the opportunity arises.

“We keep it short so we can deploy quickly when we see opportunities. We are an acquisitive company and seek to expand into new brands. Our belief is that all cash-like investments have their limits. It’s better to invest in the business itself for a better return for the long term.”

Security and capital protection are her primary concern, and investments are managed internally but based on fund manager’s proposals. “We like a direct investment approach,” she says. Although she seeks diversification as a balance to risk, Wearnes’ direct approach avoids the risk of the portfolio becoming over-diversified in the hands of a fund manager.

“You can end up in a basket floating with the market and there is no ownership on direction. If we invest in something, we are very clear on the view and direction we want to take. For this reason, we tend not to go into portfolios that are over diversified.”

Tan oversees a lean finance team of three staff. Together they spend an estimated three days a month on investment strategy. “We know the positions we are in, and when they mature, we check where the market is and re-enter to lock in for the next week or month. We just keep going on products we are familiar with.”