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Sustainability is our future.
Our conviction is now our tradition
Current climate targets can only be achieved if existing buildings in Germany are made more energy efficient. The finance sector plays a key role when it comes to providing the funds needed for this. Berlin Hyp is aware of this fact and has therefore developed an ambitious sustainability agenda that is moving the Bank further along a “green path”.
European Commission President Ursula von der Leyen described the presentation of the European Green Deal in December 2019 as “our man-on-moon moment”. The European Green Deal will provide the framework for the EU to achieve its goal of reducing CO₂ emissions by 55 per cent by 2030 as compared to the base year of 1990 – and then become completely climate neutral by 2050. The moon landing analogy actually makes a certain amount of sense, as the green targets that have been formulated appear just as ambitious today as President John F. Kennedy’s pledge in 1961 to put a man on the moon by the end of the decade. The associated questions are also similar – i.e. “can we even do it”, and “even if it’s possible, how are we going to pay for it”?
A huge amount of investment will indeed be needed in order to achieve the targets. For example, the investment programme presented by the Commission just for the Green Deal has a volume of €1 trillion for the period between now and 2030 – and this investment only covers a part of what will actually be needed.
The real estate sector has a lot of work to do
The real estate sector has some major tasks to complete in the area of climate protection. For example, the German government’s Climate Paths stipulate that CO₂ emissions caused by the building stock in Germany be reduced by 40 per cent between 2020 and 2030. On the one hand, such ambitious goals make sense, as it is estimated that one-third of global CO₂ emissions are caused either directly or indirectly by buildings and the systems needed to operate them. In other words, there’s a lot of potential here, especially with regard to existing buildings. On the other hand, it takes a very long time for measures to have an impact on a large scale in this sector in particular. That’s because a building is generally used over a period of decades, and it’s also not possible to convert heating systems and other technical equipment to operation with low-emission or even zero-emission energy sources on a broad scale in a short period of time.
The transformation of the building stock thus amounts to a Herculean task whose success will depend in large part on the finance sector, which will provide the capital needed for all the measures. The financing process also offers a good starting point for introducing more incentives for climate protection via loan conditions, for example. Finally, one of the main areas of expertise at banks involves analysing and assessing risks in order to help guide investment decisions.
A tradition of focusing on sustainability
“Sustainability and a focus on climate protection are now something of a tradition at Berlin Hyp”, says Sascha Klaus, Chair of the Board of Management, who is referring in part here to the Bank’s position as a pioneer in green financing. For example, Berlin Hyp invented the “Green Pfandbrief”, whose initial issue in 2015 laid the foundation for a new segment in the real estate refinancing market.
With a volume of approximately €6 billion in its Green Finance portfolio (as at 31 December 2020), Berlin Hyp is the most active issuer of green covered bonds among European commercial banks (see the table below).
Using this strong position as a basis, Berlin Hyp adopted a far-reaching sustainability agenda in 2020 and also put together a package of measures to support it (see the illustration below). Key elements here include measures designed to increase the share of climate-friendly buildings in the Bank’s loans portfolio, as well as the launch of new products such as the Transformationskredit (transformation loan). The latter is used to finance investment in existing commercial real estate – for example for energy-related refurbishments. The loan conditions are linked to, among other things, the extent of the energy efficiency improvements to be made, as well as other ESG key performance indicators (KPIs) for assessing improvements to the overall sustainability performance of the property in question.
Complete portfolio transparency is the goal
It’s very important to utilise clearly defined criteria here, as this is the only way to determine which investments are truly “green”. The European Union has therefore developed a standardised classification system for sustainable real estate that is meant to ensure that the quality of a building in terms of its impact on the environment is evaluated in a holistic manner.
Still, even the best criteria are of little use if no data is available. The real estate sector in particular still has a lot of work to do in this area, as despite all the progress made in recent years, there is still very little data available on the energy efficiency of buildings. In most cases, for example, banks can only simulate the energy consumption and energy efficiency of buildings they have financed. Berlin Hyp only has such energy information for around 36.4 per cent of the buildings in its loans portfolio (as at 31 January 2021).
The Bank is looking to achieve complete transparency here by the end of 2023. “This will involve a major undertaking that can only work if it proceeds step by step and, above all, in close cooperation with our customers”; says Klaus. This is especially true given the fact that a lot more information about each and every property now needs to be obtained and processed. For the transitional period leading up to complete data transparency, Berlin Hyp has developed a procedure that uses simulation data to reliably calculate the CO₂-emissions of its entire portfolio. This once again makes Berlin Hyp a pioneer among European commercial banks.
“Sustainability is no longer a niche topic today, and in the near future it will become an integral component of all activities in the real estate market”, says Klaus. It’s not just the growing number of political regulations that are driving this development, as both private and large institutional investors are now increasingly basing their decisions on sustainability criteria. As Klaus explains: “Our policies here are based on our convictions and are also in our own interest.”
Far-reaching sustainability agenda
We are committed to the Paris Agreement and the Climate Paths of the Federal Republic of Germany. Our big objective: continuous CO₂ reduction until climate neutrality in 2050
To achieve that ...
The four pillars of Berlin Hyp’s sustainability agenda
1. Commitment to the Climate Paths of the Federal Republic of Germany
Berlin Hyp views the objective defined in the Paris Agreement of limiting global warming to less than two degrees Celsius compared to the pre-industrial age as an obligation and a guide for its own business activities. The Bank is also committed to the Climate Paths of the Federal Republic of Germany. Among other things, the Climate Paths stipulate that CO₂ emissions caused by the building stock in Germany be reduced by 40 per cent between 2020 and 2030.
2. Portfolio target: One-third share of green buildings by 2025
Our plans call for the share of highly energy-efficient buildings (green buildings) in Berlin Hyp’s loans portfolio to increase to one-third by 2025. In other words, “green new lending” continues to grow in importance at the Bank.
3. Portfolio transparency by 2025
Berlin Hyp plans to calculate the energy values and CO₂ emissions of its entire portfolio by the end of 2023. The data will then be used as a basis for identifying material climate risks by 2025, or reliably estimating them using appropriate scenario analyses. We are already working on collecting the data that will be needed here.
4. Further development of the product range
With its Transformationskredit (transformation loan), Berlin Hyp has introduced a new instrument that establishes additional climate-protection incentives by offering more favourable conditions for loans taken out to perform climate-friendly renovations and energy-related refurbishments.
The Green Finance portfolio at Berlin Hyp AG
Total at 31 December 2020
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