A company of LBBW
Financial institutions have a key role to play in the transformation of business and industry. More specifically, such institutions are the entities that finance the investments that companies and governments need to make, and they also integrate ESG-related opportunities and risks into their evaluations of investments and financing plans. In addition, they support investors by providing them with information on sustainability approaches and strategies. Berlin Hyp seeks to play a major role in efforts to expand the integration of sustainability criteria into real estate financing and investment products.
Sustainable Finance Framework
For many years now, we at Berlin Hyp have been focusing on financing energy-efficient and environmentally friendly buildings. In addition, we see it as our mission to support, facilitate and finance the transition to a climate-neutral building stock. For this purpose, existing buildings must be transformed in a sustainable way. With suitable product solutions and together with our customers, we want to achieve the climate targets in the building sector. With our Sustainable Finance Framework, we have created an overarching approach to classifying sustainable financing products on a holistic scale. These financial products are now classified on the basis of eligibility criteria. Our sustainable financing products in turn form the basis for our sustainable capital market products, which are each issued at a later date.
The EU Taxonomy is the first EU-wide unified framework for sustainable and environmentally friendly activities and investments to be developed. We at Berlin Hyp are thus aligning our Green Loan portfolio with our own sustainability objectives and the regulatory standards of the EU taxonomy. Our Green Loan portfolio currently includes the energy efficiency loan and the taxonomy loan. Green Loans can also be structured as transformation loans.
It is very important to us at Berlin Hyp that our products are verified externally, which is why we have commissioned an ESG rating agency or auditing company to assess the sustainability of our Sustainable Finance Framework. The results are published in a second party opinion and are available for download here. The review assesses the framework’s design and its compliance with relevant industry standards in addition to its credibility.
Pioneer for green finance and investments
Berlin Hyp invented the “Green Pfandbrief” and is today one of the most active issuers of bonds that are firmly linked to sustainability criteria.
Since its first Green Bond issue in 2015, the Bank has successfully placed Green Bonds with a total volume of approximately €6 billion on the market.
In 2021, Berlin Hyp became the first commercial bank in the world to issue a Sustainability-Linked Bond (SLB), thus once again proving itself to be a pioneer in promoting the use of sustainability criteria as a firm component of real estate financing products.
Berlin Hyp for the first time issues a Social Pfandbrief, being the first European bank to issue bonds in three different ESG categories.
Whereas the sustainability criteria for a Green Pfandbrief or any other type of green covered bond relates exclusively to the loan portfolio in question, an SLB links the sustainability targets of an entire company to the financing instrument. Basically, this means that with an SLB the amount of the interest coupon paid to investors depends directly on the extent to which a company achieves all of its defined sustainability targets, or whether it achieves them at all. Sustainability thus becomes a high-priority corporate objective at companies that issue SLBs.
Social bonds represent an additional class of refinancing instruments in our ESG funding mix and complement Berlin Hyp's commitment to the markets for Green Bonds and Sustainability-Linked Bonds.
Sustainable financing and credit products support the transformation
Sustainability criteria can be taken into account as early as the design and planning stage when new properties are built. The real challenge in terms of sustainability lies in upgrading existing building stocks. Making an existing property more sustainable and optimising its energy performance retroactively is a complex undertaking, both in a technical sense and in terms of financing. At the same time, the complete modernisation of existing buildings is one of the most effective climate protection instruments that can be used in the real estate sector.
Berlin Hyp supports its customers and business partners who wish to make their properties more sustainable. For example, we offer our transformation loan.
Alignment with key industry and sustainability standards
Berlin Hyp’s commitment to sustainability is shaped by the United Nations Sustainable Development Goals and the climate strategies adopted by the European Union and the German federal government. Activities related to sustainability are also guided by relevant industry standards. These include the five principles defined by the German Property Federation (ZIA e.V.) for the “Financing” sector cluster.
- We give special consideration in our loan decision-making processes to matters relating to future viability and sustainable resource allocation with regard to the property in question.
- We support efforts to ensure that sustainability aspects are taken into account in property and real estate valuation processes.
- The use of sustainable building methods, in particular those that serve to improve energy efficiency and the life-cycle assessment, is an important parameter that is addressed in our financing discussions.
- We assist our customers with the implementation of sustainable utilisation plans for their existing properties and new constructions.
- Green leases are especially taken into consideration in our processes for making loan decisions and valuations, as well as in our cooperation with customers.
(Information in relation to investment advice provided in accordance with Articles 3 and 4 of the Disclosure Regulation (Regulation (EU) 2019/2088) and Article 13 of the Delegated Regulation (EU) 2022/1288)
In articles 3 and 4, the Regulation (EU) 2019/2088 (Disclosure Regulation) sets out requirements for transparency in relation to strategies for managing sustainability risks and in relation to adverse sustainability factors in connection with investment advice provided. In this regard, sustainability risks are defined as events or conditions relating to the environment, social issues or corporate governance, which if they were to occur/exist could have an actual or potential material adverse effect on the value of the investment in question.
Insofar as Berlin Hyp offers investment advice, this refers exclusively to financial instruments (derivatives) in which Berlin Hyp itself acts as a counterparty and which are concluded with borrowers in connection with an associated underlying transaction (i.e. loan agreement with interest based on a reference interest rate and periodic interest rate adjustment). The derivatives serve exclusively to hedge the interest rate risk associated with the underlying transaction.
For these financial instruments offered by Berlin Hyp which are purely based on the interest rate, sustainability risks are generally not relevant as such, and they are therefore not the subject of possible investment advice, if any.
Published: 2 January 2023