Green Bonds – Deutsche Bank Supports Innovative Financing Solutions

Green bonds offer new ways of raising capital for companies that want to finance projects or activities that promote environmental sustainability. Deutsche Bank has been a key player in this market from the start by supporting companies interested in issuing green bonds and working with other leading financial institutions to create the Green Bond Principles, which aim to make the market more consistent and transparent.

Green bonds were first issued exclusively by supranational institutions such as the European Investment Bank and members of the World Bank’s International Finance Corporation. In 2013, companies joined this market for the first time, enabling a wide variety of projects to be financed through green bonds, such as wind farms, the development of hybrid and electric cars, and energy optimization of buildings.

Unilever was the first company ever to issue a green bond with the exclusive purpose of financing internal energy-efficiency investments. These investments will help the consumer goods company to achieve its goal of halving its CO2 emissions, water consumption, and waste production by 2020, benefitting the environment and increasing profitability.

The Dutch-British group rapidly raised the £250 million funding required by issuing a green bond on the capital market in early 2014. Within three hours of its issue, the bond was more than three times oversubscribed. More than 100 investors purchased it, including several first-time buyers of Unilever bonds.
Deutsche Bank was Joint Lead Manager on the deal and the bank’s Global Transaction Banking division provides Principal Paying Agent services.

Green bonds – Where the economy meets the environment

The first ever green bond was the Climate Awareness Bond, issued by the European Investment Bank in 2007. This gave issuers the opportunity to generate capital on fixed-income markets, specifically for environmentally or socially sustainable projects.

With the growing importance being put on sustainability issues and the very limited potential returns of lower-risk investments in the current market environment, green bonds are becoming increasingly sought after, especially by pension funds and other institutional investors. This demand is driving market growth.

In 2014, the number of issued green bonds tripled to almost $40 billion. The non-profit organization Climate Bonds Initiative (www.climatebonds.net) expects the overall market – including green bonds issued by governments, financial institutions, and companies – to be at the size of $100 billion in 2015.

The Climate Bonds Initiative estimates that green bonds still only comprise around 0.05 percent of the total bond market. But in a survey, more than half of the asset managers questioned said that they take climate-related data into account when making investment decisions. And 83 percent of the 500 largest companies in the world see climate change as a business risk. This represents enormous potential for the growth of green bonds and shows their transformation from a niche product to a widespread and well-accepted financial instrument.

Reliable guidelines – Guidance for issuers, transparency for investors

To ensure a reliable foundation for the development of the corporate green bond market, Deutsche Bank collaborated with 12 other leading financial institutions to create the Green Bond Principles, first time published in early 2014, updated in March 2015. Around 100 institutions have now signed up. Commitment is voluntary to make sure that all financing raised through green bonds is used exclusively for investments in recognized projects with environmental benefits – ensuring the continued integrity of the market. All parties benefit from the guidelines: Issuers receive guidance on how green bonds should be designed, and investors can be sure that they are participating in projects and activities that are consistent with their (sustainable) investment criteria.

“As a carbon-neutral bank, Deutsche Bank believes that the principles will play an important role in unlocking the green market capital necessary to finance the transformation to a cleaner and more sustainable future,” says Stefan Reiner, Head of Sustainable Capital Markets at Deutsche Bank.

The Green Bond Principles describe the basic procedures for transparent communication between issuers and investors. They provide guidance on:

> investments or projects that can be financed
> selection of green projects
> management of proceeds from green bonds
> reporting on how they are used

To ensure the information provided by the issuer can be trusted, the principles recommend the integration of verification by independent, external third parties.

Green bonds – Investing in and for the future

Green bonds are expected to become increasingly important. The International Energy Agency predicts that an annual global investment of $500 billion in climate-friendly technologies will be required by 2020 to support efforts to tackle successfully climate change. If this is extended to include the investment needed for the entire infrastructure of a “green economy,” Deutsche Bank estimates the total will be closer to $1 trillion a year. These investments will be hard to manage without the use of external capital, so green bonds will be a crucial financial instrument.

Deutsche Bank has been active in the area of sustainability for many years and brings considerable expertise to the topic of green bonds. The bank has led the way on green bond issues for international institutions and global companies.

In February 2015 Deutsche Bank announced that it will invest €1 billion in a new, high-quality green bond liquid asset portfolio. Deutsche Bank is committed to the growth of this developing market. The bank’s portfolio will be used to further highlight and promote investment opportunities in the sector.

More information on sustainability and green bonds can be found on the Deutsche Bank website at www.db.com/cr.