Commonwealth Bank of Australia (CBA) has raised over A$1.5 billion in funding through its Environmental, Social and Governance Term Deposit (ESG TD) product, which enables institutional depositors to align their cash management strategies with their sustainability goals.
Launched in December 2021, ESG TDs provide institutional depositors with the opportunity to finance CBA’s portfolio of sustainability-linked loans (SLLs), which incentivise companies to achieve improved ESG outcomes. Following the success of the Australian dollar denominated product, the ESG TD program is being expanded to offer deposits denominated in foreign currencies, including US dollars and Euros.
Andrew Hinchliff, CBA’s Group Executive, Institutional Banking and Markets, said ESG TDs provided another source of funding for Australia’s transition to a more sustainable economy.
“Access to institutional capital is critical for Australia’s transition to a more sustainable future and we’re proud that our innovative sustainable finance products are helping connect pools of capital to support the work of organisations transitioning their operations to be more sustainable,” said Mr Hinchliff.
“Exceptional inflows for our ESG TD product in just six months demonstrate the strong appetite among our clients to support Australia’s sustainability journey. It has created a significant new source of funding for our SLLs portfolio, extending our ability to finance new opportunities for clients.”
Like a traditional term deposit, ESG TDs offer depositors a fixed rate of return but with a commitment from CBA to exclusively allocate the proceeds of these deposits toward the bank’s growing portfolio of SLLs. SLLs set sustainability performance targets – such as reductions in greenhouse gas emissions or increases in Indigenous employment – and incentivise borrowers to achieve those goals over the course of the loan through financial incentives and/or penalties.
CBA’s ESG TDs are certified by the Responsible Investment Association Australasia. Since launch, CBA has transacted with a wide range of wholesale customers including local councils, super funds, investment managers and corporates.
Chris McLachlan, CBA’s Executive General Manager, Global Markets, said: “This new foreign currency capability expands the appeal of our ESG TDs to international customers managing multi-currency portfolios. We are committed to continued innovation in sustainable finance and playing a leading role in financing Australia’s transition to a low carbon economy.”
Anthony Kritikides, CBA’s Institutional Sales Managing Director, said the success of the ESG Term Deposit was driven by organic growth. “We’ve had strong client engagement on this product across a wide suite of market participants, from super funds, asset managers and local councils to, more recently, corporate clients seeking meaningful ESG cash management solutions,” said Mr Kritikdes. “We are proud to offer another avenue for clients to support Australia’s transition.”
CBA also recently supported Treasury Wine Estates (TWE) with the bank’s first sustainability-linked derivative, an AUD/USD cross-currency swap. The derivative hedges balance sheet exposures while further incentivising TWE to achieve its ambitious sustainability targets by linking the coupon rate to their accomplishment. The SLD’s targets cover material areas for TWE including water stewardship, use of renewable electricity, female representation in senior leadership roles and overall in the company, and greenhouse gas emissions.
The transaction was the latest example of CBA supporting our clients in their transition efforts, as well as our commitment to leadership and innovation in sustainable finance said Hope Gatis, CBA’s Managing Director of Client Risk Solutions “This is an exciting innovation as it supports our clients with their sustainability ambitions. It extends what we do in sustainable finance to include risk management, in addition to financing,” she said.