Companies and individuals sitting on hordes of cash are having to pay for their deposits in banks. Announcing its 2020 results, Bank of Ireland disclosed that it tripled negative interest-rate deposits last year and wants to continue the trend in 2021.
The bank said the amount of customer deposits on negative interest rates last December was €8.5bn, compared with €2.7bn a year earlier. As a result, funding costs were reduced by €31m.
The current threshold at which Bank of Ireland customers have to pay for parking their cash in the bank is €2.5m. CFO Myles O’Grady expects negative-interest deposits to nearly double to €15bn through 2021, which would be achievable if the bank lowered its ‘you-pay-us’ threshold to €1m.
Life companies may benefit from some bank depositors seeking a new home in relatively safe assets. Last year, Zurich added to its fixed income product line with the Short-Term Corporate Bond Fund and Medium-Term Corporate Bond Fund. The two funds are available as standalone options or as part of the Prisma multi-asset fund range. According to Zurich, the funds have attracted c.€1.4bn since launch.
The funds only invest in investment grade bonds that are euro denominated. Buoying up these bonds at the moment is the ECB’s €1,850bn pandemic emergency purchase programme. Helen Dodd, senior credit portfolio manager, says Zurich is selective across investment grade credit, favouring short term credit as an alternative to cash, and selected medium dated exposures as an alternative to government bonds.
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“While pockets of the investment grade corporate bond market appear rich in absolute terms, longer term structural trends are supportive of further spread compression, particularly amongst sectors most aligned to economic recovery,” she adds.
EU Tightens Rules On Greenwashing
Joe Biden’s election as US president will strengthen the trend for ‘Responsible Investing’. Unlike his predecessor, Biden is sympathetic to green economy aspirations, and his policies will push more US capital in that direction. America has catching up to do on the European Union, where climate change and lowering carbon emissions has been top of the agenda for years.
The European Commission wants to channel private investment to help transition the EU to a climate-neutral economy. It’s doing so by compelling investment managers to make private capital available, firstly be ensuring that investment products sold with a green label live up to their promise. Demand for ‘sustainable funds’ has been increasing rapidly, as evidenced by inflows into ESG-related exchange traded funds growing last year by a factor of three.
The EU’s Sustainable Disclosure Regulation is multi-faceted and came into force on March 10 in relation to ESG funds. According to law firm Maples, such funds now have to comply with more granular requirements than other types of financial products, the main objective being to mitigate ‘greenwashing’ and ensure that the ‘green’ or ‘ESG’ labelling is not just a marketing exercise but is actually reflected in investment decision-making.
For instance, where a financial product has an objective of reducing carbon emissions, the information disclosed must include the objective of low carbon emission exposure in view of achieving the long-term global warming objectives of the Paris Agreement.
For products promoting environmental or social characteristics, fund managers and financial advisers are required to advise clients what these characteristics are, and provide information on the methodologies used to measure and monitor these characteristics, including data sources, screening criteria and relevant sustainability indicators.
The Central Bank is charged with vetting the new regime, which should be evident on the funds’ websites in the coming weeks.
