Goldman Sachs, Xylem launch first ESG-linked demand deposit account
As part of Xylem’s commitment to advancing sustainability, we are adopting innovative green finance practices, which place sustainability further at the core of how our company creates economic and social value. In our most recent green finance development, Goldman Sachs Transaction Banking Services has launched a new ESG (Environmental, Social and Governance) linked demand deposit account, with Xylem as its anchor client. Here, Sandy Rowland, Xylem’s Chief Financial Officer, shares her perspective on this initiative and Xylem’s broader green finance agenda.
Firstly, what exactly is an ESG-linked demand deposit account?
This new Goldman Sachs Transaction Banking (TxB) is a first-of-its-kind product that links the yield or amount of interest that Xylem earns on our deposits to performance against our company’s ESG targets. This means that as we make progress against our sustainability strategies, we stand to earn higher returns on our deposits with Goldman.
This strongly aligns with our view at Xylem that sustainability should be at the heart of both our business strategy and our financing approach. Our business is innovating in technologies that deliver more sustainable outcomes for our customers and other stakeholders. Banking products that recognize and reward ESG achievement are a welcome step forward in managing financing and sustainability interdependently. This account does that while delivering the flexibility we need to manage liquidity and payments.
How did the Goldman product come about?
This was a cross-functional effort led jointly by our Treasury and Sustainability teams including Samir Patel, Corporate Vice President & Treasurer, and Austin Alexander, Vice President, Sustainability. The process began with open idea generation sessions, about what something like this might look like, and how it would work. Ultimately, working across the ESG groups in both Xylem and Goldman, we agreed on company-specific metrics aligned to our 2025 Sustainability Goals, and on the mechanism that will deliver a pricing benefit when we achieve our annual metrics.
The ESG-linked deposit account builds on Xylem’s suite of green financing tools. Talk to us about the other tools in the toolbox.
As a company dedicated to solving water, we see a unique opportunity – and responsibility – to show leadership on sustainability. This latest tool builds on several green finance initiatives by Xylem to more closely align our business and sustainability strategies. We started a few years ago, with a first-of-its-kind credit revolver – a category of financing where the price of borrowing was linked to our sustainability performance. Then, in 2020, we were the first US industrial company to issue a $1 billion portfolio green bond, the proceeds of which were allocated to projects that improve water security and advance sustainability. The bond both expanded liquidity at attractive rates and provided funding capacity for green projects that are important to our customers, employees, shareholders and communities. Now, the deposit account is another way of linking our sustainability and finance strategies.
We’re really pleased that, like our previous green financing initiatives, this work with Goldman on the deposit account is a first of its kind. And once again, we’ve got great partners willing to innovate with us at the nexus of finance and sustainability. We’ll continue to explore new and innovative ways to further entwine our sustainability and business strategy.
You mentioned these green finance tools are linked to Xylem’s 2025 Sustainability Goals. Tell us more about the goals and progress to date.
We launched a comprehensive set of 2025 Sustainability Goals in 2019, with eight goals particularly critical to advancing progress on the world’s most urgent water challenges. These goals focus our efforts to help our customers solve water scarcity; enhance water systems resilience to climate change and water affordability issues; enable the continued sustainability of our company; and empower communities. The pricing of our Goldman demand deposit account is linked to achievement of our goal to recycle 100% of process water at our 22 major facilities.
And despite the challenges of the global COVID-19 pandemic, 2020 was a year of progress. Among our broader sustainability impacts were: enabling water operators to reduce their carbon footprint by 0.7 million metric tons of CO2, preventing 1.4B m3 of polluted water from flooding communities or entering local waterways, and enabling the reuse of 4.3B m3 of water, or more than 1 trillion gallons.
What is next for Xylem?
We’ll continue to solve the world’s biggest water challenges. That’s our mission and our business and that’s why sustainability is at the core of who we are and what we do. Working with customers to advance water stewardship - from utilities to industrial and commercial operators of water systems – puts us in a unique position to create economic and social value in tandem. We’ll continue to explore routes to bring stakeholders together to collaborate towards a more sustainable future for all, with our green finance framework as a core pillar of this effort.
Learn more about Xylem’s green finance framework here.
Xylem’s 2020 Sustainability Report is available here.
Xylem’s 2021 Investor Day Presentation is available here.