The German bank has placed ESG at the heart of its capital markets strategy and is rising up the league tables. 

Team 0221

Clockwise from top left: Henrike Pfannenberg, Trisha Taneja, Gerald Podobnik and Frazer Ross 

Deutsche Bank expects 95% of investments to incorporate environmental, social and governance (ESG) factors by 2030. That is just one of the reasons why it set up an ESG team within its capital markets unit last April. During 2020, the bank rose from 13th place in the league table for euro ESG bond issuance to sixth.

“The bank has upgraded its ESG ambitions and credentials in the past 18 months,” explains Gerald Podobnik, chief financial officer of Deutsche Bank’s corporate bank division. As well as being co-chair of the bank’s sustainability council, Mr Podobnik is also a member of the German government’s Sustainable Finance Advisory Council.

Banking for the future

Sustainability is now one of Deutsche Bank’s five strategic key themes, and it has set itself various associated goals. “The most tangible is to achieve a minimum of €200bn in sustainable financing by the end of 2025, including loans granted, bonds placed and assets managed by the private bank,” Mr Podobnik says. 

The ‘€200bn by 2025’ target has been integrated into the financial planning system, with all businesses kept abreast of progress via the monthly scorecard that ultimately determines management compensation.

“Policy-makers and the public want us to use our leverage to move the economy to carbon neutrality,” Mr Podobnik observes. “So, our mantra now is to help clients on their transformation path with our products.”

The most visible of those products come from the debt capital markets (DCM), where sustainable volumes have been growing, as Frazer Ross, Deutsche Bank’s head of investment grade DCM for Europe, the Middle East and Africa, points out. “Five years ago, they accounted for 1–2% of the total, but this year that has risen to 9–10%,” Mr Ross says. “In the second quarter of 2020, 20.5% of corporate issuance in euro was ESG-linked.”

Understanding ESG

The capital markets division was a natural location for the bank’s new ESG team, which aims to increase dialogue with clients on ESG while supporting the origination of green and sustainable transactions in capital markets products.

The ESG advisory team within the investment bank is led by a non-banker, Trisha Taneja. She was previously global head of green and sustainable bonds at Sustainalytics, an ESG rating agency.

The current market for ESG products is driven by three things, Ms Taneja says. “Investors are increasingly conscious of externalities that are not priced in,” she explains, pointing to the widespread distress caused by Covid-19. “Companies with good ESG are more resilient."

Investors are increasingly conscious of externalities that are not priced in

Trisha Taneja, Deutsche Bank

Next, as the world undergoes a significant transfer of wealth to the millennial generation, the end-customer is changing. “There is pressure to invest more responsibly, and if asset managers don’t offer ESG products they will lose customers,” Ms Taneja notes.

Finally, as ESG becomes more mainstream, regulators are playing catch-up. One consequence is that financial advisers, at least in Europe and the UK, will need to have more product-specific discussions with their clients.

Leading by example

The bank understood that if it was to be taken seriously by clients as an ESG apostle, it needed to walk the walk and issue its own green bond. Christian Sewing, chief executive of Deutsche Bank, announced this intention in October 2019. A green bond framework was published in May 2020 and an inaugural €500m 6NC5 senior preferred green bond was finally priced in June. Books closed at more than €4.75bn in orders. The bond carried a 1.375% coupon and was priced at mid-swaps plus 167 basis points (bps) — 10bps cheaper than a comparable vanilla bond, the bank says.

In September, Deutsche Bank was a joint lead manager on Germany’s inaugural green bond, a €6.5bn zero-coupon 10-year issue with a re-offer spread of –1bp. It attracted orders of more than €33bn, helped by a ‘twin bond’ feature that allows investors to switch into conventional bonds of the same coupon and maturity.

“This was years in the making, and sets a benchmark which will make others pay attention,” Mr Ross says.

The year’s highlight was the first-ever social bond issued by the EU, on which Deutsche Bank was a joint lead, alongside Barclays, BNP Paribas, Nomura and UniCredit. The 10- and 20-year tranches drew the biggest order book of all time, at €233bn, before being sized at €10bn and €7bn respectively. Coupons were zero and 0.1% with re-offer yields of –0.238% and 0.131%.

“The fact that the EU could issue in the size that it did illustrates the evolution of this market,” Ms Taneja says.

History of success

Deutsche Bank has been involved in several other ESG DCM milestones, including the first sovereign green bond out of the Middle East and North Africa — a $750m five-year deal from Egypt. “While most European sovereigns have already issued or announced their intention to issue ESG paper, this showed that climate change is being taken seriously by emerging market issuers,” Ms Taneja observes.

The notes yielded 5.25%, well inside the opening target of 5.75%, and pulled in orders of $3.8bn. “The fact that emerging markets investors were willing to buy the deal shows that this is now a global phenomenon,” Mr Ross says.

Deutsche Bank was also joint bookrunner to Italian utility Enel’s £500m ($684m) 1% seven-year sustainability-linked bond (SLB). This was the first-ever sterling SLB, making Enel the first issuer of SLBs across euro, US dollar and sterling.

Moving forward

While Europe has led the way in ESG bonds until now, North America is starting to catch up. “Europe is still the biggest market, but the US is now the fastest-growing,” Ms Taneja says.

Last summer, Visa, the world’s largest payments network, issued the first US dollar-denominated green bond from a consumer finance business as part of a $3.25bn three-tranche deal. The 0.75% coupon on the $500m seven-year green portion set a record low for that tenor. Deutsche Bank was an active bookrunner.

We have discussions with our clients on what sustainable structures may look like on a product-agnostic level

Henrike Pfannenberg, Deutsche Bank

Green structures are also beginning to show up more often in the European high-yield market. Deutsche Bank was left lead bookrunner and green bond structurer for VodafoneZiggo’s €700m eight-year green financing notes, the first single-B rated green bond since the start of Covid-19. The Dutch cable company’s issue was upsized by €100m and priced at 2.875%, at the tight end of price talk.

“We also have discussions with our clients on what sustainable structures may look like on a product-agnostic level,” says Henrike Pfannenberg, head of the ESG competence team within Deutsche Bank’s corporate bank. One result has been the first-ever option-based foreign exchange hedge linked to ESG criteria.

Deutsche Bank worked with Primetals Technologies, a German–Japanese engineering company based in London, to apply an ESG overlay to all its option trades. If Primetals, which works in the metals industry, fails to meet certain sustainability targets, it must donate to a pre-defined non-governmental organisation. Targets include the share of new orders for ‘green’ products and the ratio of revenue to research and development expenses for product solutions that lead to improved resource efficiency.

This four-year agreement exemplifies another trend, according to Ms Pfannenberg, showing how even so-called ‘dirty’ industries such as metals and mining can align themselves with ESG standards. “Another emerging theme is biodiversity,” she adds. “We will see more sustainability key performance indicators (KPIs) created to track impact on biodiversity.”

In the year ahead, the most dramatic growth may be expected from sustainability-linked bonds. With KPIs broadly linked to the UN’s Sustainable Development Goals (SDGs), these provide more financing latitude than green bonds, which are tied to a limited pool of defined green assets or projects.

Mr Ross points out that a change in the European Central Bank’s (ECB’s) eligibility criteria will give the SLB market a lift. “Until now, the ECB wouldn’t buy SDG bonds because they have a step-up,” he explains. “But they have changed the rules, and from January 4, 2021, they will buy euro environmentally-focused SDG bonds, so we expect volumes to grow dramatically in this format.”


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