The Westpac-owned BT Funds Management NZ (BTNZ) has tipped in $40 million into new sustainably coloured term deposits offered by a Japanese banking giant.
BTNZ is the first investor to take up the local version of the Mitsubishi UFJ Financial Group (MUFG) short-term ‘Green Deposits’, which will fund lending for certain environmentally focused projects.
According to a release, the NZ Green Deposits will back loans for “clean transportation, green buildings, energy efficiency and sustainable water/wastewater management projects, and notably, the New Zealand forestry and power renewable energy generation sectors”.
The Tokyo-headquartered MUFG has previously launched similar term deposit products in Japan, Australia, China and Hong Kong.
Philip Houghton-Brown, BTNZ head of investment solutions, said the manager would invest in the Green Deposits – offered across terms ranging from one-month to a year – via the manager’s Wholesale Enhanced Cash Fund.
The initial $40 million exposure represents 2 per cent of the BTNZ cash fund and 0.36 per cent of the group’s total assets under management, Houghton-Brown said.
“MUFG was the first bank to approach us for green deposits, and the bank’s Green Deposit Framework enables BTNZ to add further green investment exposure to KiwiSaver and other investment products that support sustainable investment goals,” he said in a release.
Over the last couple of years several large financial institutions including the Commonwealth Bank of Australia, HSBC and Deutsche Bank have ventured into the green term deposit market amid growing demand.
MUFG has built its products for institutional and commercial investors using the Morningstar-owned Sustainalytics to rank the greenness of underlying lending projects.
The spread of environmental, social and governance (ESG) factors into the term deposit market follows rapid growth in the global ‘green bond’ sub-sector.
Some green bonds do offer lower yields than vanilla counterparts, according to the latest Climate Bond Initiative (CBI) six-monthly pricing analysis of the sector.
The CBI report found some evidence of the so-called ‘greenium’ in certain climate-related bonds where investors accept lower income compared to non-ESG securities.
However, just 10 out of the 50 green bonds issued in the first half of 2022 offered a greenium, the CBI study says.
It’s unclear whether green term deposits would have a pricing differential but Houghton-Brown said the MUFG product “offers competitive rates for investors”.
BT manages over $10 billion on behalf of Westpac, mostly through the roughly $9 billion KiwiSaver scheme. Figures from the latest Melville Jessup Weaver investment survey show the BT cash fund held about $2 billion at the end of September.