EBRD and insurer Euler Hermes are joining forces in risk – and green bonds
EBRD and Euler Hermes sign master risk participation agreement to expand cooperation
Insurer will invest remuneration on selected EBRD projects in green bonds
EBRD aims to make more than half of its total investments in green projects by 2025
The European Bank for Reconstruction and Development (EBRD) and trade credit insurer Euler Hermes SA/NV, with the support of the Texel Group, an independent insurance broker, have signed a master risk participation agreement to boost cooperation through the Bank’s Unfunded Risk Participation programme to support investments in green bonds.
In one of the first transactions signed within this framework, Euler Hermes, through its UK branch, has taken on half the risk in an existing EBRD loan to a financial institution in Serbia. The original loan was signed to help the bank on-lend to its small business clients for investments in energy efficiency through the EBRD’s Western Balkans Sustainable Energy Financing Facility (WeBSEFF).
Euler Hermes, a subsidiary of the German insurer Allianz SE, has pledged to use the payments it receives from the EBRD through interest premiums on this agreement to invest in green bonds. Euler Hermes recently launched a Green2Green Single Risk insurance product, which enables it to support green transactions by investing remuneration received through them back into the green economy in the form of green bonds. The bonds are used to finance investments furthering the green economic transition in line with the Paris Agreement on climate change.
Together with providing funding to support the “greening” of the Western Balkans, the Bank is also engaging with governments to reform legal and policy frameworks to create an environment in which projects can succeed and wider impact is possible.
Supporting residential energy efficiency, the EBRD’s Green Economy Financing Facility (GEFF) has reached thousands of families across the six countries of the Western Balkans, providing financing to local banks for on-lending to households to invest in green technologies and solutions such as improving home insulation and installing efficient boilers. Its sister facility WeBSEFF, which began in 2013, has likewise provided finance for hundreds of successful energy efficiency projects for business and municipalities.
Across its countries and regions, the EBRD intends to raise the proportion of its annual business volume invested in green projects to more than 50 per cent by 2025.
Trade credit insurer Euler Hermes is a specialist in the areas of surety, collections, structured trade credit and political risk. Headquartered in Paris, it is present in more than 50 countries and is a full member of Allianz Group.
Deutsche Bank surged into second place for green bonds
It is only five months since Deutsche Bank announced its ambitious and quantifiable target to reach at least 200 billion euros of sustainable financing and investments by the end of 2025.The target is only one facet of our commitment, however. Reaching it means embedding sustainability firmly into our processes. In this context, we have made great progress, also in the third quarter of this year: we published our Sustainable Finance Framework, announced that we would end business activities in coal mining by 2025 and issued our first Climate Statement. At the same time we saw a big push for ESG related products in all business areas, with outstanding results in the field of green bond issuance in particular. “The momentum being generated throughout the bank is unparalleled”, says Viktoriya Brand, Head of Group Sustainability. “Our institution is undergoing an irreversible behavioural and cultural shift towards embedding climate protection and sustainability across all areas of the bank. The achievements in 2020 demonstrate our commitment to integrate sustainability holistically across our entire business and become a leader in this field.”
But what qualifies as sustainable financing and what makes an investment product sustainable? With the publication of our Sustainable Finance Framework we now have transparent criteria to consistently classify transactions as sustainable. It is a key prerequisite to achieve our target of 200 billion euros in sustainable financing.
At the same time we are stating clearly what kind of business we will not do in future because it contradicts our view on sustainability. That is why we announced in July that we will stop financing coal mining by 2025 and also have a new Fossil Fuels Policy with regard to business activities involving oil, gas and coal worldwide. We will analyse the portfolio over the coming months together with the businesses and devise a roadmap for how we can reduce our activities throughout the next few years. By signing the Equator Principles for assessing environmental and social risk in July we made another clear commitment to supporting a more sustainable economy going forward. These principles ensure that major infrastructure projects are developed in accordance with robust environmental and social standards.
Our general stance on climate protection and which measures we undertake to fight climate change is summarized in our Climate Statement which we issued in August. It encompasses sustainable finance, our own climate footprint and the commitment of our employees.
3Q2020 Business Achievements in Sustainable Finance and ESG Products and Assets
We are convinced that supporting a more sustainable economy is a very worthwhile goal in and of itself. But as CEO Christian Sewing repeatedly highlighted in recent months, we also strongly believe that there is a huge business opportunity for those banks who assist clients in the transformation of the economy.
The third quarter provided considerable evidence to support this:
Our Debt Capital Markets business led 29 transactions and helped our clients raise more than 27 billion euros in sustainable financing, with underwriting volume of 4 billion euros – almost as much as in the full year 2019. Deutsche Bank ranked second by fees and third by volume in Green Bond underwriting, up from 14th by volume in the fourth quarter of 2019 (source for all rankings: Dealogic).
Our achievements include the issuance of Germany’s first green federal security, where our Debt Capital Markets team acted as joint marketing advisor and book runner, as well as key roles in arranging the inaugural green and sustainability bonds for Egypt and Luxembourg respectively. In the financial space, we acted as joint book runner on a highly successful transaction for MunichRe – the first green bond by a German (re-)insurance company. Outside the EMEA region, we managed inaugural Green Bonds for Visa for example. In the first nine months of 2020, Deutsche Bank led 59 transactions and helped clients raise more than 46 billion euros in sustainable financing, versus 13 billion euros in the prior year period.
The Private Bank successfully executed the public offering of the bank’s first self-issued retail green bond in Belgium. Recently we integrated environmental, social and governance aspects (ESG) into our Chief Investment Office platform of the International Private Bank. Clients benefit from the offer of an integrated portfolio management strategy, as ESG portfolio strategies have outperformed non-ESG strategies in the past. In Germany, we are piloting three “green branches” where we provide clients with information on sustainability and ESG-linked investment, insurance and mortgage products. On the product side, for example, we converted VarioInvest, an insurance product for retirement, into an ESG investment concept.
In Asset Management cumulative year-to-date net flows were 17 billion euros, of which more than one-third were in environmental, social & governance (ESG) assets. In the third quarter FTSE Russell confirmed that DWS is among the companies listed in its FTSE4Good Index Series – a leading market tool designed to help investors looking to invest in companies that demonstrate good sustainability practices measured against globally recognized standards. Furthermore, for the third year in a row, DWS has received the highest possible A+ rating for Strategy & Governance in the UN’s Principles for Responsible Investment (PRI) annual assessment.