The OECD estimates that until 2030, more than 6 trillion euros of investment will be required every year to fight climate change globally. Naturally, as a global financial intermediary, we have a role to play here, by developing investment products and financing solutions and by providing advice to companies on how they can make the transition to more sustainable business models.
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Building on our long-standing expertise and involvement in financing sustainable economic activities, in May 2020, we announced the target to generate at least 200 billion euros in sustainable financing and ESG investments by our Private Bank as at the end of 2025. The target of 200 billion euros does not include our asset manager DWS. As a listed company, DWS sets its own targets and already has around 70 billion euros of sustainable assets under management, per year-end 2019. We have also signed the climate commitment of the German financial sector. By doing so, we pledge to gradually align our lending portfolios with the goals of the Paris Agreement. We have developed an internal Sustainable Finance Framework to establish a bank-wide consistent definition of what constitutes sustainable finance. It links to the EU taxonomy for environmental criteria but also includes social criteria we have set up following international principles, such as the International Capital Market Association (ICMA) Social Bond Principles. Our Framework, including the Second Party Opinion by Institutional Shareholder Services ESG (ISS ESG) is publicly available. In May 2020, we issued our first own green bond with a volume of 500 million euros. Based on our Green Bond Framework, the proceeds will be used to support the development of renewable energy, energy efficiency projects, and so-called green buildings. The framework follows the ICMA Green Bond Principles and the EU Technical Expert Group’s latest guidance on the EU Taxonomy and will continue to evolve following the development of these principles and standards. Our Green Bond Framework and the corresponding Second Party Opinion provided by ISS ESG are disclosed on our Investor Relations website.
Examples for a sustainable finance 2019
Corporate Bank and Investment Bank
In 2019, we helped clients across the globe to raise 4.5 billion euros through issuing ESG bonds, including green bonds, social bonds, sustainable bonds and bonds linked to sustainability criteria. Of that, 3.7 billion euros was raised through issuing dedicated green or sustainability-linked bonds, most of which had a strong focus on solutions mitigating or adapting to climate change. For example, in 2019, we provided support to:
- The Italian utility company Enel to introduce a new format known as a sustainability-linked bond. It was the first-ever public bond format to attach contractual consequences to the fulfilling of certain predefined sustainability key performance indicators.
- Assicurazioni Generali in issuing the first green-subordinated benchmark transaction by a financial institution in Europe.
- Vattenfall in issuing their inaugural green bond, and Republic of Indonesia in issuing their second green sukuk bond, a sharia-compliant investment in renewable energy and other environmental assets.
This positive trend is continuing in 2020. In the year to 31 May 2020, Deutsche Bank advised clients on 22 transactions, placing sustainable bonds with an underwriting volume of nearly 3.5 billion euros, ranking Deutsche Bank number 10 in the global ranking for sustainable bonds (May 2020; source: Dealogic). For example, Deutsche Bank acted as joint bookrunner on BASF’s inaugural 1 billion euro green bond, and as joint lead manager of two 500 million euro Climate Awareness Bond taps issued by the European Investment Bank.
Further, in 2019, we acted as coordinator for eight sustainability-linked loans including the German companies Continental, LANXESS and Zeppelin, the British company NEPI Rockcastle and the US company Crown, where we led the first leveraged sustainability-linked loan agreement in the US market.
In the area of infrastructure development financing, in 2019, we were mandated lead arranger and sole rates hedge arranger for the largest offshore wind transaction in Asia Pacific at deal closure. The 82 billion new Taiwanese dollars (2.3 billion euro equivalent), 640 megawatt Yunlin offshore wind farm project financing, developed by a consortium led by Wpd AG, provided a viable financing template for large-scale offshore wind projects to facilitate the gradual phase-out of nuclear energy and coal-fired power generation in Taiwan.
We have been active in financing renewable energy projects since the mid-2000s, when projects reached industrial scale. In 2019, we arranged full or partial finance for such renewable energy projects totalling around 2.5 billion euros and generating over 2,200 megawatts.
In line with our broader strategy to grow and expand our ESG products and solutions to all client groups, we are strengthening divisional and regional structures to anchor a holistic approach to sustainability. We have allocated additional ESG resources both in our Investment Bank and Corporate Bank, including a newly created sustainable finance team within Capital Markets. The team will support our clients and our global coverage teams to better understand the impact of ESG on market access and business development. Additionally, we have established an ESG Competence Team in our Corporate Bank, acting as a specialist partner for product development and client coverage, to ensure that Corporate Bank customers have access to ESG advisory and sustainability-related commercial banking products that support them in their sustainability transition. We have also appointed a regional Head of ESG to develop and coordinate our ESG business strategy across all business divisions in the Asia-Pacific region.
In 2019, we began offering an equity fund to our Private Bank clients that invests in companies that contribute to the objectives set out in the United Nations Sustainable Development Goals (SDGs). After the launch of the equity fund, we generated gross inflows of approximately 248 million euros (equivalent to around 22% of gross flows into equity thematic funds). Additionally, we started offering a green bond fund whose target is to invest into bonds to support environment-related projects. For our international private and commercial business, we actively recommended four thematic ESG funds to clients in Belgium. This took the total number of recommended ESG funds to nine.
BHW, Deutsche Bank’s building society, is keen to further expand its core business area of real estate modernisation and strongly supports our clients in financing sustainable energy modernisation. To this end, the construction loan BHW Express Darlehen was made available throughout the first quarter of 2020 at a reduced rate of interest applicable to such sustainable modernisation projects. Based on the success of this product in the market, BHW is currently working on KlimaDarlehen – a form of lending designed particularly for sustainable energy construction projects.
In Wealth Management, we manage assets under ESG mandates of nearly 500 million euros. Currently, we have 19 ESG funds on our global approved list. Client assets in ESG funds grew by 56% in 2019.
Asset Management (DWS)
In 2019, our asset manager DWS reported 69.7 billion euros of ESG assets under management (AuM), the bulk of which (51.6 billion euros) is managed across active and passive mandates. The remainder includes sustainable investment funds/impact investments (715 million euros); real estate investments in certified green-labelled buildings (16.5 billion euros); infrastructure assets in renewable assets (862 million euros). In 2019, DWS total assets under management (AuM) were 767.4 billion euros.
ACTIVITY IN 2019/2020 INCLUDED
- Introduction of Climate Transition Risk Scorings to identify risks and opportunities associated with the transition to a low carbon economy. Access to the scores is provided globally to DWS portfolio managers and analysts for liquid/listed assets.
- Publication of climate transition risk and water risk on a sector level.
- Introduction of “Smart Integration” into the investment platform, an advanced approach to ESG integration that leverages best-in-class research data from DWS’s proprietary ESG Engine. “Smart Integration” enables DWS to specifically identify and objectively analyse the risks and opportunities associated with a transition to a low-carbon economy for each issuer.
- Launch of the first DWS Invest QI Global Climate Action Fund, designed to meet the growing investor demand for strategies that aim to reduce carbon emissions.
- Extension of the ESG leaders low carbon product suite of exchange traded passive funds with MSCI.
- Conversion of the DWS Invest Climate Tech into an ESG version.
- Continued partnership with a significant corporate client by extending a clean energy fund to invest in climate solutions in China in the context of the China Clean Energy Fund.
- Promotion of retail distribution campaigns for DWS Invest Green Bond fund and DWS Invest SDG Global Equities fund to scale up capital market investment.
- DWS’s first Group Sustainability Officer will start work in August 2020 and will focus on driving DWS sustainability strategy forward and putting ESG at the core of everything we do.
DWS has piloted ESG Key Performance Indicators, for example on CO2 emissions and information on climate change indicators of a fund, to give investors transparency on the ESG contributions of the DWS Invest SDG Global Equities fund. Furthermore, DWS continues to develop its ESG methodology, especially with regard to carbon and climate risk sensitivity, opportunities from impact investing and the SDGs, by integrating them into the ESG Engine.
To further strengthen its commitment to ESG in real estate investments, DWS aims at halving carbon emissions by 2030 against the reference year 2017 for its entire portfolio of European office properties held by funds managed by the European real estate business. This is estimated to result in an annual reduction of 61,000 metric tons of carbon dioxide emissions – the equivalent of taking approximately 24,000 diesel cars off the road and saving around 23 million litres of diesel.
When engaging with corporates, DWS places greater emphasis on a board’s responsibility for ESG. According to a report published by the UK campaign group ShareAction, DWS finished among the leading asset managers globally in voting on shareholder resolutions linked to climate change.