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Sustainability

Ahead on a green track

Paul Weber

Paul Weber

Bayern LB

As part of a strategic realignment, BayernLB decided at the end of 2019 to focus its business activities even more consistently on sustainability. Accordingly, the Bank is to develop into a focused specialist bank by 2024. The focus will be on the future sectors energy, mobility, technology, mechanical and plant engineering, as well as construction and basic materials, in a consistently sustainable manner.

With a view to the customer, BayernLB’s Sustainable Lending Framework provides orientation and thus sets the framework for the range of sustainable financing – based on our sustainability strategy. This creates transparency with regard to the range of sustainable credit financing on offer and thus also serves as a seal of quality. The Sustainable Lending Framework is in line with the guidelines of the Loan Market Association (LMA), which are currently the standard in the market for sustainable loan financing. Independently of this, every new loan is subjected to a detailed sustainability assessment. In addition to the impact of environmental risks, the ESG impact – the positive effects of financings on the achievement of climate and sustainability goals – is also assessed. The criteria are based on the Bavarian Sustainability Strategy and the EU taxonomy. The end product is an ESG classification that makes it possible to prepare detailed ESG reports and to control lending. For example, BayernLB’s Treasury provides preferential financing terms for sustainable loans.

BayernLB published its own Sustainable Financing Framework for the first time in 2020. The core of this framework is a sustainable loan pool from the Bank’s sustainable financing. A total of around EUR 4.5 billion in such financings is currently outstanding.

After the start of global financings of solar and wind power plants, financings of electric rail transport projects have been added to the pool since the beginning of this year after an update of the Sustainable Finance Framework. On the one hand, this involves construction finance for the manufacturers of the trains, and on the other hand, follow-up financings for the operation of the respective rail network. For example, BayernLB financed the construction of 18 KISS double-deck vehicles from the manufacturer Stadler for the operation of the electric rail network East Schleswig-Holstein. From December 2022, 810 seats will be available for each connection. Approximately 24,000 passengers travel daily on 175 kilometres of track between Lübeck and Hamburg. Both renewable energies and electric rail transport are characterised by high sustainability quality. In its current second party opinion, the rating agency ISS ESG confirms in particular that the BayernLB rail portfolio meets the strict criteria of the EU taxonomy.

Based on its taxonomy-eligible rail assets, BayernLB debuted the first Green Public Pfandbrief at the end of June 2022. A total of around € 1.6 billion in rail loans is currently outstanding, with a further € 1.0 billion in business volume already closed. About half of the assets are part of BayernLB’s public cover pool. The cover assets are backed by public special-purpose authorities and federal states. The non-eligible construction financings have a maturity of less than 5 years. On the other hand, the eligible operating financings have maturities of more than ten and in some cases even more than 25 years.

At the end of September 2022, the trade magazine “GlobalCapital” awarded the “Green Rail Public Sector Covered Bond” the “Best Pioneering Deal” award.

The transaction proves the attractiveness of sustainable bonds among investors. Despite the difficult environment and the resulting volatility and restraint on the primary market, the 10-year bond was very well placed.
At the same time, however, investors’ demands on frameworks and reporting are increasing. For example, the framework should no longer be seen in isolation, but linked to company-wide ESG metrics and targets such as Scope 3 CO2 emissions and be in line with the issuer’s sustainability strategy. Similarly, the greenwashing controversies that have emerged in the recent past have made investors reluctant to calculate metrics from reporting data on their own. In fact, the issuer is required to prepare the relevant key figures and publish them. Issuers that do not comply with investors’ demands must expect that dedicated ESG investors will not place orders in the book or even sell existing issues.

BayernLB aims to be an active issuer of ESG debt instruments. Both the Sustainable Financing Framework and reporting are being continuously refined to meet future requirements. This also includes expanding the Sustainable Loan Pool to include other relevant categories. As one of the largest real estate lenders in Germany, we have recently included financing of environmentally friendly buildings in our Sustainable Loan Pool and issued our first green Mortgage Pfandbrief, too. All of this under the self-imposed guideline of making a social contribution to the sustainable transformation of our economy area.

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