Deutsche Bank has executed its first-ever green repo transaction as part of a new initiative to broaden the range of ESG fixed income products available to clients.
"We are proud to be one of the first banks to bring a green repo to market," commented Claire Coustar, global head of ESG for Deutsche Bank’s Fixed Income and Currencies (FIC) business. "We believe this is the first transaction to be executed by any firm in Europe, and hope it will encourage more activity so that a new source of green finance can be developed for the industry, as well as a new asset class for investors."
Inside the green transaction
The transaction involved Deutsche Bank transferring securities to long-standing client M&G Investments, and receiving cash to fund Deutsche Bank’s green asset pool, including renewable energy projects such as wind or solar power plants and the improvement of energy efficiency, for example, commercial buildings as per the bank's Green Financing Framework.
In May 2020, Deutsche Bank set itself a target of providing at least EUR200 billion in cumulative sustainable finance by 2025. Thanks to the quick progress made, the target date was brought forward to 2023. By Q2 2021, over EUR99 billion had been provided. The bank plans to introduce further ESG financial products for clients in the coming months.
ESG solutions growing
The Deutsche Bank news is the latest in the trend of banks moving to service the demand for ESG solutions across all areas of finance for their clients. For example, NAB in Australia recently launched specialist derivative products tied to ESG targets in a move to encourage Australian businesses to consider sustainability across their financial risk management.
NAB is extending this product to the Australian market, having already arranged six ESG-linked derivatives for European and UK-based customers. The bank first offered ESG-linked derivatives in 2020. This was in response to growth in European sustainability-linked loan and bond markets. Despite the relatively big size in Europe, ESG-linked derivatives are relatively unknown in Australia.
"Climate action - and sustainability more broadly - is everyone’s job," commented David Gall, Group Executive - Corporate & Institutional Banking at NAB. "We need to be part of the solution and support our customers as they take action too. It is our responsibility to keep innovating and broadening our products for customers, linking sustainability to all forms of finance. We are seeing growing demand for ESG-related products across many industries and sectors, including higher education, emerging tech, and agriculture.
Globally, NAB has arranged over A$20bn in sustainability-linked loans. ESG-linked derivatives are a natural extension of these facilities. Customers can hedge the interest rate, inflation, and foreign exchange (FX) risks tied to these transactions. ESG-linked derivatives provide the same benefits (i.e. reduction of risks) while at the same time fostering sustainability goals or managing ESG-related risks.
Global bank loans with terms tied to ESG targets jumped to about A$52bn in volume this year (as of May 2021), a 292% increase compared with all of 2020. Global ESG assets are valued at over A$30 trillion, with more growth ahead.
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