A bank with a Michigan presence launched a program called Green Deposits to allow commercial clients to direct their cash reserves toward companies and projects that are expected to create a positive environmental impact.
Providence, Rhode Island-based Citizens — which has branches in Michigan and 10 other states — said the Green Deposits solution gives clients the opportunity to direct deposits to investments in sectors such as energy efficiency; renewable energy; green transport; sustainable food, agriculture and forestry; waste management; and greenhouse gas reduction.
“Recognizing the increasing desire among clients for socially responsible investing options, our new Green Deposits solution gives clients a sustainable investment vehicle that aligns with Citizens’ own commitment to help create a healthy and sustainable future for all of our stakeholders,” said Michael Cummins, executive vice president and head of treasury solutions at Citizens. “As a financial institution, Citizens recognizes the critical role that the bank can play to help finance a socially responsible future and continues to explore opportunities to support sustainable development.”
Citizens developed a Green Deposits Framework to identify eligible activities within the bank’s portfolio and ensure alignment with best practices and standards. The framework was created with the support of Sustainalytics, a Morningstar company and leading provider of environmental, social and governance (ESG) research and data.
Pat Nuzzo, executive vice president, head of commercial liquidity management for Citizens Commercial Banking, said the bank has an internal incubator committee that brainstormed the idea for Green Deposits based on client feedback and with funding from its investment committee.
“We found that one, there was a lot of education that was needed around ESG, but that also, clients were keenly interested in including ESG into their corporate structure, but for most clients, specifically the clients that are at the lower end of the middle market … they don’t really have the bandwidth or the capacity internally to really stand up their own ESG programs, and so they were looking for ways that they could show to their stakeholders their commitment either to the environmental and social programs or to governance,” he said. “We started thinking, how could we as a bank help our clients get there? And then we started to ideate around Green Deposits.”
Nuzzo said the Green Deposits program is designed for investing “stable cash that’s either strategic or more regulatory in nature.”
“(Clients) can earmark their deposits, to help them show commitment to the environment,” he said.
When working with Sustainalytics to develop the project, Nuzzo said Citizens realized most of the green investment opportunities out there are around green bonds, which carry higher risk and are potentially more labor-intensive for companies to manage, or carbon credits, which can be complicated to understand. Green Deposits is a new approach, he said, with only a few other banks having developed a similar model.
“We manage the portfolio holistically,” Nuzzo said. “We do report it out to clients in terms of the portfolio and the investments. Our target is to not take more deposits than we have loans or investments that qualify for the program. We don’t want this to look or feel like a mutual fund, where there are requirements around having to invest a certain amount of proceeds into certain investments.
“For the client, one of the real benefits of this program is that it’s a passive investment. They’re in a portfolio, they generally have disclosure of what types of investments are in the program, but they don’t have specific information as to the individual client names … because they are not actually tied to any gains or losses associated with those individual names.”
Nuzzo said Citizens customers have expressed concerns that if they don’t have an ESG program, it could limit their access to capital in the future, as more firms, municipalities and states are starting to require companies’ ESG compliance — as well as compliance by their suppliers — before they will consider investing in them.
Another risk management piece Green Deposits can help with, Nuzzo said, is the company’s image to buyers and prospective employees who value ESG in a corporation.
“It’s buying decisions, it’s decisions that workers will make about who they’re willing to work for that also are impacted by a company’s ESG profile,” he said.
Nuzzo said Citizens has generated a lot of buzz since announcing this program in late July.
“There’s been an awful lot of interest, an awful lot of questions,” he said. “There’s education that has to happen in markets still. Folks are concerned about it; they just don’t know how to go about establishing a program, and so a large part of what we’re trying to do is help customers become educated and make good choices around whatever programs that they may put in place.”
Citizens said it is committed to reducing its own operational impact on the environment, as well, understanding and managing the risks and opportunities presented by climate change and resulting regulatory and market changes, and helping its customers plan for and manage climate change impact. To support the renewable energy industry, Citizens provides equity investments through Citizens Asset Finance and has participated in the funding of eight U.S. wind farm projects since mid-2015, with investments totaling about $403 million at the end of 2020.
Citizens also has adopted targets to reduce its scope one and two greenhouse gas emissions 30% by 2025 and 50% by 2035, based on its 2016 baseline, to support international goals to limit global temperature rise. These targets align with the Paris Agreement, which aims to limit average global temperature increase to well below 2 degrees Celsius compared to pre-industrial levels.
More information about Citizens Green Deposits is at citizensbank.com/greendeposits.