Commonwealth Bank joins green repo market with Northern Trust

(Bloomberg) – The Commonwealth Bank of Australia is joining the green repo party, reaching a 50 million Australian dollars ($35.9 million) deal with Chicago-based wealth manager Northern Trust Corp. as it moves closer to a sustainable lending target of A$70 billion by 2030.

The transaction, while small, is “another building block of the ABC’s ability to fund a green balance sheet,” Chris McLachlan, acting executive managing director for global markets, said in an interview. “Sustainability and ESG come up in every conversation with our customers and this kind of innovation is meant to ease the transition.”

Cash raised through the repurchase agreement will help fund the Sydney-based bank’s A$6.4 billion green loan portfolio. As part of the deal, CBA and Northern Trust agreed to exchange general collateral for cash and then reverse the flows later at an agreed price.

The global market for ESG-related products reached $35 trillion last year, and McLachlan predicts that green buy-back deals could capture a 1% share of the $14.3 trillion market for these products. short term loans.

While Deutsche Bank AG and BNP Paribas SA entered into green repurchase agreements this year, McLachlan said the CBA instrument is the world’s first certified green repurchase agreement. Australia’s largest bank worked for six months with the nonprofit Climate Bonds initiative to receive certification, he said.

However, global regulators have yet to detail the parameters of complex ESG instruments, with the European Repo and Collateral Council consulting market participants on how best to define a sustainable repo arrangement. The ABC joins the consultation process and said its version of the product is under review by the International Capital Markets Association.

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