5 questions for Uwe Jurkschat, Head of Funding & Investor Relations, Deutsche Kreditbank (DKB)

With the Social Pfandbrief, we broke new ground in 2018 and added another sustainable aspect to the German Pfandbrief segment. Since then, we have issued two benchmark transactions and one retail social bond in Social Pfandbrief format. A special transaction was certainly the world’s debut Blue Social Bond we issued in 2019. This Public Pfandbrief is designed to refinance loans that serve water supply and wastewater disposal in Germany. This reference to water gave the product its name. At the same time, we refer to our company-wide sustainability approach as “blue” because we go beyond green and ecological issues and above all integrate social aspects into our understanding of sustainability.

One conclusion for us is that we opened up a market segment in Germany very early on that is becoming increasingly important. The share of social bonds within the sustainable bond segment has increased disproportionately in the recent past – also against the background of the social consequences of the Corona pandemic. We expect social bonds to remain an essential component of this asset class in the future. Our thematically very broad framework – including the topics of social housing, public care, health & care, education & research as well as inclusion – leaves DKB plenty of scope to remain active here and to bring on further issues with new focuses.

In my opinion, the Minimum Standards for Social Pfandbriefe are a milestone for the German capital market. The members of the vdp are thus translating the requirements of the ICMA Social Bond Principles, supplemented by other Pfandbrief-specific aspects, into a national standard for promoting this asset class. In addition, we have integrated the consideration of the Do No Significant Harm criterion and thus made reference to the Green Taxonomy.

I expect the minimum standards to provide more certainty and acceptance for potential new interested parties and tailwind for further issuers and Social Pfandbrief transactions. In addition, the vdp and the German issuers are also setting standards in comparison with other jurisdictions and underlining the claim to develop Germany into a leading sustainable finance location.

The extension of the EU taxonomy for environmentally sustainable economic activities, which so far includes mitigation and adaptation to climate change, to include social objectives is already under discussion. This is happening, for example, within the EU Commission’s Platform for Sustainable Finance, where there is a separate working group for the topic that aims to present a first report by the end of the year. Nevertheless, the complex topic “social” is even more diverse than ecological topics and any broad discussion on the social taxonomy is still in its infancy.

I see a major challenge in bringing together the different parties and stakeholders in the development process. Currently, for example, the number of stakeholders in the above-mentioned working group is very small and the private sector is underrepresented. This can result in concepts being developed that are difficult to implement in business or the capital market. Therefore, both market actors and/or relevant trade-associations should seek ways to be more involved in the discussion on social objectives for the taxonomy at an early stage in order to ensure a balance between theory and practice.

I am convinced that sustainability and sustainable management will be one of the core topics for credit institutions in the coming years and decades – not only from an ecological perspective but also and above all with regard to social aspects. We can already see that topics such as diversity, equality or the fight against poverty are gaining traction and are increasingly being incorporated into corporate strategies. This is happening because society is changing and business partners, customers and investors increasingly expect this. Of course, this development does not stop at credit institutions and will be reflected in business conduct, products and in capital market funding. In this respect, I think “social funding” should be or become part of every refinancing strategy.

So far, we have been in the ESG market with a new Green Bond in February this year, which is remarkable because it was the first Green Bond of a financial institution that complies with the drafts of the strict EU Green Bond Standard and thus with the EU taxonomy. In addition, we were also the first financial to price a senior preferred bond with a negative yield.

But we have further plans for this year – also on the covered side. However, their implementation also depends on our deposit development and other factors that are difficult to assess at the moment. But if we decide to go to the market again in the second half of the year, there is a high probability that we would issue a Social Pfandbrief again. We will see.