Insight & Analysis

Green deposits and sustainable investment

Published: Dec 2020

As the focus on sustainability and ESG continues to grow, some banks are introducing green deposit solutions – so what are green deposits, how do they work, and what do treasurers need to know?

A green piggy bank

It’s no secret that sustainability and Environmental, Social and Governance (ESG) considerations have become increasingly important in recent years. Where treasurers are concerned, in many cases their role in this topic has historically been focused on operational actions. A survey carried out by the European Association of Corporate Treasurers (EACT) earlier this year found that treasurers’ involvement in supporting ESG included making changes to processes and controls (50%) and reducing business travel and encouraging home working (41%) – both of which have become an even greater focus during the COVID-19 pandemic.

Of course, ESG and sustainability extend far beyond these actions. Green bonds and sustainability-linked bonds have gained prominence in recent years, while companies are also exploring opportunities to promote greater sustainability not only within their own companies, but also throughout their supply chains.

Sustainable investing

Against this backdrop, it should come as no surprise that the topic of sustainable investing is also attracting interest. While only 20% of the EACT survey’s respondents said they were investing in sustainable investment instruments, or developing a plan to do so, it is likely that this topic will gain momentum as more sustainable investment opportunities become available.

For one thing, money market fund providers are increasingly seeking to incorporate sustainability and ESG into their products. In addition, banks are beginning to offer green deposits that enable companies to contribute towards projects that benefit the environment.

In November, for example, Citi launched a green deposit solution that enables clients to invest their medium-term excess cash to support environmentally friendly projects. As Stephen Randall, Global Head Liquidity Management, Treasury & Trade Solutions at Citi explains, investments “will be allocated to finance or refinance a portfolio of green projects that meet the rigorous environmental finance eligibility criteria defined in the Citi Green Bond Framework, established by Citi to finance solutions and developments designed to aim to reduce the impacts of climate change.” He adds that this framework is aligned with ICMA Green Bond principle and was assessed and confirmed by Sustainalytics, an independent provider of sustainability research.

HSBC, meanwhile, has launched green deposits in the UK, Singapore and India in 2020, with more markets planned for next year. “HSBC Green Deposits give treasurers a simple way to support environmentally-beneficial projects,” says Diane S. Reyes, Global Head of Liquidity and Cash Management at HSBC. “The funds deposited are used by HSBC to provide financing for environmentally beneficial initiatives such as renewable energy and energy efficiency projects such as green buildings and clean transportation. Clients receive a quarterly, portfolio-level view of how their funds have been used and they can manage their green account as simply as a regular deposit account.”

Focus on sustainable investing

For treasurers, it’s clear that this topic is of increasing interest. “Sustainable investment is no longer a niche market,” comments Randall. “Treasurers make ESG or Green investments for strategic reasons that include alignment with their core businesses, their corporate commitments to sustainable contribution, and mitigating reputational risk of ignoring negative ESG impact.”

That said, not all companies will be focusing on this topic to the same extent. As Reyes points out, although there is increasing awareness among treasurers about the importance of sustainable investing, “the extent and pace of this development varies based on company size, industry and geography.” While she says the bank has seen strong interest in Green Deposits from companies of all sizes, from small businesses to multinationals, “in general you would expect a large company that has already set its own sustainability objectives at a corporate level would be more prepared to have a discussion around sustainable investing.”

Looking forward

Where the year ahead is concerned, Randall says the appetite for sustainable investing is growing, with clients displaying an increasing interest and demand for a wider range of sustainability products and solutions.

“Over the coming year, we expect to see rapid evolution within corporate treasuries so that sustainability becomes another KPI or parameter alongside other well-established considerations such as yield, liquidity and risk,” adds Reyes. She says that this shift will be driven by wider factors such as government policy and societal awareness – “and also the growing adoption of sustainability policies within companies, and how those policies get embedded within the organisation through supply chain changes, project financing and treasury management.”

In addition, as Reyes concludes: “The wider availability of sustainable products from banks and the financial industry will complement the shift.”

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