Green and ESG Term Deposits in IFM Cash portfolios

In a new ESG-related initiative, the IFM Treasury Services Team has been working closely with Commonwealth Bank of Australia (CBA) to introduce exposure to Green Term Deposits and ESG Term Deposits into IFM-managed cash portfolios. IFM Investors is the first institutional investor in Australia to have access to these new products, which is a testament to the close relationship we have with product innovators in the market.

What are Green and ESG term deposits?

Green and ESG Term Deposits are structured like regular term deposits but with a key difference - the proceeds are only able to be invested in specified projects that are sustainability related.

Green Term Deposits need to be invested in assets that facilitate and support the transition to a low carbon, climate-resilient and sustainable economy. Such assets are also referred to as ‘Green Eligible Assets’ that align with specific UN Sustainable Development Goals. They include:

• Renewable energy projects

• Green commercial and residential buildings

• Projects that increase energy efficiency

• Clean transportation

• Sustainable water and waste water management

• Pollution prevention and control

ESG Term Deposits are slightly different, as the proceeds are allocated towards Sustainability-Linked Loans (SLLs) that incentivise borrowers to improve their sustainability standing by meeting, or exceeding, predetermined sustainability performance objectives. SLLs are aligned with the Sustainability Linked Loan Principles (SLLPs) jointly published by the Loan Markets Association, the Asia Pacific Loan Market Association and the Loan Syndication and Trading Association. SLLPs are a set of voluntary guidelines used to assess whether a loan incentivises the borrower to achieve certain predetermined sustainability performance objectives. SLLPs require that the sustainability performance of the borrower is assessed using specific performance targets as measured by key performance indicators (KPIs). Common KPIs for SLLs include reducing greenhouse gas emissions or increasing installed renewable energy capacity.

CBA’s Green Term Deposits are certified by the Climate Bond Initiative (CBI) as meeting the Climate Bonds Standard criteria for delivering a low carbon and climate resilient economy. Likewise, CBA’s ESG Term Deposits are certified by the Responsible Investment Association Australasia (RIAA) as meeting the Australian and New Zealand standard for responsible investing. To hold these certifications, these products had to pass stringent reviews against the certification standards. This demonstrates the authenticity of the products’ ESG credentials.

Green and ESG Term Deposits in our portfolios

IFM was the first institutional investor in CBA’s Green Term Deposits, committing an initial A$10 million in May 2021. This has now grown to almost A$50 million. IFM was also the inaugural investor in CBA’s ESG Term Deposit product and has currently invested around A$360 million.

These investments demonstrate how we are continuing to embed responsible investment considerations into our investment processes and decision making, in line with our purpose, which is to protect and grow the long-term retirement savings of working people. It also reflects our willingness to partner with institutions to provide innovative solutions that enhance the sustainable finance industry in Australia.

Looking forward, we will continue to work with issuers to encourage them to offer more ESG-linked products to the market.