The Commonwealth Bank (ASX:CBA) has launched an ESG term deposit and institutional investor IFM Investors is in – to the tune of $200 million.

The ESG term deposit, which the firms claim to be an Australian first, will be used to fund loans described to drive sustainable outcomes.

While IFM, an institutional investor that is focused on industry super funds and has  ~$179 billion in Funds Under Management, will receive a fixed rate of return as with typical term deposits, the entire proceeds will be allocated to Sustainability-Linked Loans (SLL).

SLLs link the cost of funding to the achievement of predetermined sustainability targets such as lowered emissions, waste or water use or even gender and ethnic diversity targets.

Borrowers can receive penalties for missing targets or rewards for achieving targets.

The product is certified by the Responsible Investment Association Australasia (RIAA) as meeting standards for responsible investing.

Both CBA and IFM said ESG term deposits could help support the transition towards a more sustainable future.

“We see this type of financing playing an important role in supporting significant assets across the community (to) become more sustainable,” said Helen Tu, IFM’s Treasury Services portfolio manager.

“We are delighted to partner with CBA and we particularly welcome their commitment to provide us with regular updates on the progress of initiatives being funded through the SLLs.”

Commenting from CBA was Andrew Hinchcliff, the bank’s group executive for Institutional Banking and Markets.

“The financial system has a critical role to play in supporting Australia’s decarbonisation journey by directing capital to projects and assets that will drive our transition to a more sustainable future,” he said.

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