Berlin Hyp consistently continued on its path as a major player on the ESG capital market in 2020 and strengthened its position as the most active issuer of green bonds among European commercial banks. Berlin Hyp’s role as a major player involves more than just the number and volume of its outstanding or newly issued green bonds, however. It is at least just as important to us to continuously question and further develop tried and tested practices, set new standards for ourselves, inspire others and do the work necessary to ensure we can continue to offer products in future that incorporate the latest knowledge and expertise in our industry.
Competence is our strength:
Courageously breaking new ground
Further development of the Green Bond Framework, annual reporting…
Berlin Hyp issued the world’s first Green Pfandbrief in April 2015. The underlying assets were selected at that time mainly on the basis of the existence of valid sustainability certificates for the buildings financed by the Bank. However, within a year, this approach no longer corresponded to the requirements of the rapidly developing green bond market. More specifically, energy efficiency had become the key attribute for determining whether a green bond could be issued to finance a building. Berlin Hyp identified this new development early on and also took active measures to promote it. As part of its Green Bond Framework, which was to now serve as the basis for all future decisions regarding the issuing of Green Pfandbriefe and Green Senior Unsecured Bonds, Berlin Hyp defined for the first time in 2016 energy consumption levels that various types of buildings could not exceed if they were to be designated by the Bank as green buildings. Since then, this approach has also formed the basis for the Bank’s annual impact reporting activities, which quantify the CO₂ reductions to be achieved – in relation to defined benchmarks – through the issuing of Green Bonds. Our impact reporting system was selected as the best in the entire green bond market three years in a row (2017-2019) in the GlobalCapital SRI Awards competition.
It was clear from the beginning that we would need to further develop the Green Bond Framework at Berlin Hyp in order to safeguard its position as a qualitative market benchmark. The current version from April 2020 is the fourth version and basically contains the element that made the previous versions stand out, namely a tightening of requirements relating to the energy efficiency of green buildings. A further reduction of 20 kWh with regard to the upper limits for energy consumption for both heating and electricity systems in the office asset class was stipulated in the reporting year in order to take into account the emerging additional criteria for buildings that will likely be incorporated into the EU taxonomy that is expected to be presented later this year. Additional adjustments to our eligibility criteria can also be expected this year, as our stated goal at Berlin Hyp is to ensure that these criteria reflect to the greatest extent possible the standards defined by the EU taxonomy for the development, modernisation and acquisition of buildings. The adjustments will be made as soon as the European Commission publishes the final version of the associated delegated act. Experts believe this will be done in April 2021.
Berlin Hyp also continues to further develop its annual reporting in accordance with the requirements of the ICMA Green Bond Principles. Two Green Bond Annual Reports were published for the first time during the reporting period for the 2020 annual financial statements. This state of affairs came about because the Bank stopped using a reporting period from March to February for its Green Bonds and instead aligned the reporting period with the Bank’s financial year. Our Green Bond reporting for 2020 therefore covers a shortened period of ten months. For the first time, our Green Bond reporting results are now published simultaneously in the Berlin Hyp Annual Report. This change is meant to increase transparency and highlight the strategic importance of the Bank’s Green Finance portfolio.
… and our market presence
The year 2020 was one in which Berlin Hyp not only further developed its eligibility criteria and reporting activities; it also issued more Green Bonds than ever before and identified new sales channels and markets for its business in this sector.
The bank has always placed strict limitations on the issuing of its Green Bonds: Regardless of whether the bond in question is a new Green Bond, a Green Pfandbrief, or a new Green Senior Preferred or Senior Non-Preferred Bond – such bonds can only be issued for refinancing purposes. This means that energy-efficient green buildings have to be financed first; only after that can a Green Bond be issued. Following a period in which the Bank’s Green Finance portfolio grew considerably in 2019 and at the beginning of 2020, Berlin Hyp was able to issue Green Bonds with a total volume of more than €1 billion during the reporting year. This also included three bonds in benchmark format for the first time. Along with two Green Pfandbriefe with terms of eight and ten years, respectively, and a volume of €500 million each, the Bank also issued its first Green Bond in a foreign currency. This eight-year Senior Preferred Bond with a volume of CHF 125 million also marked the Bank’s début on the Swiss market, thereby enabling it to gain access to what in many respects is a completely new investor base. Our entry into the Swiss market was so successful that it was followed after the reporting period (in February 2021) by the issue of the next syndicated Green Senior Bond – also with a volume of CHF 125 million, but this time with a term of ten years.
In addition, Berlin Hyp issued Green Bonds in a private placement format for the first time in 2020, both in the form of borrower’s note loans and as bearer bonds. This served the interests of investors to whom regular reporting on the use of proceeds is important but who also require bond investment structures that are tailored to their needs as regards terms and coupon values. At the end of 2020, the Bank had a volume of outstanding Green Bonds in the amount of €5.2 billion – and we remain proud of our 11 outstanding Green Bonds in benchmark format. The first figure means that Berlin Hyp is the third-largest issuer of green bonds after KfW bank and the German federal government, while the second figure shows that Berlin Hyp remained the most active bank issuer of such debentures in Europe at the end of 2020 as well.
Carbon footprint methodology
Berlin Hyp’s new sustainability agenda, which was presented in August 2020, includes as its fundamental core element a commitment to the Paris Agreement and the Climate Paths of the Federal Republic of Germany. This may sound like a somewhat vague commitment to some people, but it’s actually quite ambitious: Indeed, the Paris Agreement aims to reduce global warming to less than two degrees Celsius compared to pre-industrial levels by 2050, while the Climate Paths describe the approaches to be taken in each economic sector in order to enable Germany to effectively contribute to the achievement of this target. The associated mandatory stipulations are defined in the Climate Change Act (Klimaschutzgesetz) that came into force at the end of 2019. The new law calls for carbon neutrality to be largely achieved in the building sector by 2050, whereby interim targets have already been set here. For example, CO₂ emissions caused by the building stock in Germany will need to decline by 40% between 2020 and 2030. Berlin Hyp’s commitment to the Climate Paths is not limited to its own business operations; it also extends to the buildings it finances. However, in order to measure whether the CO₂ emissions of the real estate portfolio are actually being reduced as required, the Bank needs to obtain data on the energy efficiency of the buildings it finances, and it also needs to use this data as a basis for developing a robust methodology for calculating CO₂ emissions. Berlin Hyp developed such a methodology for its Green Bond impact reporting system several years ago and has continued to refine it since that time. Improvements were made in 2020 as well – for example with regard to the conversion factors used to express kilowatt-hours as CO₂ emissions. The Bank also now collects data on the energy requirements of the green buildings in its Green Finance portfolio. Up until now, such data has only been available for a small portion of the rest of the real estate portfolio, which means Berlin Hyp has real data on 26% of the total area it finances, or on 35% of its total financing volume.
The Bank plans to eliminate this gap in data by the end of 2023 within the framework of its sustainability agenda. At the same time, Berlin Hyp is already able today to estimate the energy requirements of buildings for which it has no energy performance certificate. The age of the building in question, and how it is used, both play a key role here. Berlin Hyp calculated its estimates in a joint project with the Drees & Sommer consulting firm. These calculations made it possible for the Bank to release figures on the average CO₂ emissions of the portfolio in 2020, which amounted to 38.62 kg CO₂/m²/a. It’s important for the Bank to know this figure because it’s the one that needs to be reduced by 40% between now and the end of 2030. In addition, precise calculations of CO₂ emissions, and the use of such calculations throughout the entire loans portfolio, will serve as an important basis for the further development of Berlin Hyp’s ESG refinancing instruments in future.
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