allocated to clients’ renewable energy projects
In brief
- Lead manager for several Green Bond issues
- More than € 978 million allocated to clients’ renewable energy projects
- Support to the development of the concept for a Sustainable Shipment Letter of Credit
Our corporate clients operate in all sectors of the economy. We provide them with direct financing and access to capital markets and offer risk management for adverse movements in prices, currencies or interest rates. Our clients can have positive and negative impacts on society and the environment. Our banking services and products aim to support their business while mitigating potential negative impacts. (See Environmental and social risk) In this context, financing the transition to a low-carbon economy is vital.
Achieving low-carbon growth is essential to counter the risks of climate change. The latest report by the United Nations Intergovernmental Panel on Climate Change (IPCC) emphasized the urgency. Failure to reduce carbon emissions will increase the likelihood of severe, widespread impacts on the environment and on economic development. A reliable, clean energy supply is critical.
For the first time, the IPCC has estimated the required shift in energy investments over the next 15 years. Investment in low-carbon electricity supplies needs to increase by US$ 147 billion (double the level in 2010). Energy efficiency investments in transport, industry and buildings are also important and are projected to rise by about US$ 336 billion a year.
The private sector will play a significant part in this transition. It creates a substantial market with important environmental and economic benefits which Deutsche Bank is well-placed to serve.
Raising capital to benefit the environment
Green Bonds offer a novel way to unlock the capital for projects that benefit the environment and society. They use the debt capital markets to raise funds for investment in developments such as renewable energy, energy efficiency and clean water. These bonds were initially issued by multilateral organizations such as the World Bank, but companies have become increasingly active.
Continued growth in this market requires clear definitions. At the beginning of 2014 Deutsche Bank joined twelve other major financial institutions in supporting the Green Bond Principles which provide a framework for integrity and transparency of this product. They set out requirements for designating, disclosing, managing and reporting on capital raised from a Green Bond. This ensures that the funds will make a difference for people and the environment.
The clarity provided by the Green Bond Principles helped the market to grow quickly. 80 financial institutions and issuers became signatories during 2014. A total of 35 labeled Green Bond issuers raised a total of US$ 36.6 billion in 2014, up from just US$ 11 billion in 2013. The Green Bond market is forecasted to reach US$ 100 billion in 2015. Deutsche Bank was involved in several Green Bonds. We also managed the first ever securitization of loans for residential energy efficiency. Two bonds raised US$ 233 million to retrofit over 12,000 homes through California’s Property Assessed Clean Energy (PACE) – a mechanism for financing improvements such as home insulation and solar panels on private property. With more than 31 US states having passed the necessary legislation, this could be a critical mechanism for financing energy improvements in large numbers of homes.
Green Bonds co-managed by Deutsche Bank |
|
Issuer |
Amount |
European Investment Bank |
CHF 350 m. |
|
€ 250 m. |
|
£ 750 m. |
KfW |
€ 1.5 bn. |
Unibail-Rodamco |
€ 750 m. |
Unilever |
£ 250 m. |
Vornado Realty Trust |
US $ 330 m. |
Raising funds for Unilever’s green ambitions
In 2014, Deutsche Bank helped the leading global consumer products company to raise £250 million in the first sterling corporate Green Bond issue. These funds will be used to support Unilever’s Sustainable Living Plan – its blueprint for sustainable growth. Projects will reduce energy, water and waste in factories in South Africa, China, Turkey and the US. One project is developing “Lean & Green Freezer” cabinets, changing refrigerants to significantly reduce greenhouse gas emissions. The funds raised by the bond can only be used for projects that reduce water use, waste generation or carbon emissions from energy by 50% for new factories and 30% for existing sites.
Financing renewable energy
For the first time in three years, global new investment in clean energy increased in 2014, growing by 16 % to reach US$ 310 billion. The investment outlook continues to be promising, but there is wide variation in the technologies. Wind energy investment has been restricted by policy uncertainty in many countries. But studies suggest the world is experiencing the second solar energy growth spurt. Research by our market analysts concludes that solar is currently competitive without subsidies in at least 39 countries/regions globally. We expect more markets to reach this “grid parity” as prices fall further.
€ 978 million
Our finance and advisory services support clients developing, acquiring and selling low-carbon businesses and assets. In 2014, Deutsche Bank allocated more than € 978 million (2013: € 783 million) to clients’ renewable energy projects. We advised and provided financing to projects with a total capacity of more than 1,793 MW, worth more than € 4.3 billion. According to Bloomberg New Energy Finance, we were the sixth largest private sector financier of renewable energy projects globally. We were also the third largest public markets co-lead manager, helping clean energy companies to raise more than US$ 5.1 billion of capital through the equity and debt capital markets.
Significant deals in 2014 included:
- Multiple key lead roles in a € 2.8 billion deal to finance the second-largest offshore wind farm in the world. The 600 MW Gemini offshore plant in the Dutch North Sea will supply almost 800,000 households and reduce Dutch CO2 emissions by 1.25 million t a year. Gemini was Project Finance International’s European Power Deal of the Year.
- Agreeing a ¥11 billion (€ 81 million) loan to finance construction of a large-scale solar farm in Japan, developed by Gestamp Solar. The plant will generate enough power for 10,000 households.
- Helping the leading electric vehicle company Tesla Motors raise US$ 2.3 billion in convertible bonds in two deals. Deutsche Bank was one of the joint book-runners, raising US$ 575 million. This capital will assist the company in building a large new electric battery factory.
- Providing € 186 million bridge loan to the Klettwitz wind farm in Germany to refinance an existing loan and to finance the upgrading/repowering of the wind farm.
- Raising capital for the leading US solar technology company SunEdison with two equity block trades and a convertible bond that raised US$ 842 million. Deutsche Bank also started to provide our third revolving credit facility to support SunEdison in developing and acquiring new projects in North America.
- Providing a variety of trust and agency services for renewable energy investments. In 2014, we supported renewable energy deals with a total value of US$ 4.2 billion.
Promoting action to reduce carbon emissions
Deutsche Bank is a member of the Banking Environment Initiative, which worked with the Consumer Goods Forum (CGF) to develop a Sustainable Shipment Letter of Credit. CGF is a consortium of consumer goods companies that has committed to stop net deforestation by 2020. It has set deadlines by which members will only buy commodities produced in line with sustainability standards.
The new Letter of Credit is only available for goods which meet such standards. It can be used by banks to incentivize trade in sustainably produced commodities. The International Finance Corporation will offer trade finance banks preferential rates for transactions using a Sustainable Shipment Letter of Credit.
Carbon neutral off setting portfolio
Carbon neutrality
To reduce emissions from the energy we use in our offices, we invest in energy efficiency measures and purchase electricity from renewable sources. We offset the remaining net-GHG-emissions (see Selected financial and non-financial figures) by buying and retiring certificates from high quality emission reduction projects. Our business operations have been carbon neutral since 2012.
Reputable service providers purchased and retired emission reduction certificates in the voluntary carbon market on our behalf. In 2014, all nine of the offsetting projects we invest in comply with the widely recognized Verified Carbon Standard. Some also comply with additional standards such as the WWF Gold Standard or Social Carbon Standard.
The projects support climate change mitigation and economic development in Africa, the Americas and Asia in a range of ways (see chart). More than 75 % of the emission reductions in 2014 were from renewable energy, including an award-winning project distributing fuel-efficient cookstoves to households. Another project restores degraded land by planting sustainably managed rubber trees.
Other collaborations in 2014 to develop sustainable finance include:
- Working with the Energy Efficiency Financial Institutions Group on ways to scale up finance for energy-efficient buildings. The study concluded that despite the importance of energy efficiency, current investments are less than half what is needed to achieve Europe’s 2020 energy efficiency targets. Recommendations included improving data on energy consumption and costs as well as strengthening building energy standards and processes for Energy Performance Certificates. The report had a significant impact on the European Commission’s policies.
- Joining more than 1,000 businesses and 44 countries supporting the World Bank’s “Putting a Price on Carbon” campaign. Signatories pledge to work for a carbon price applied throughout the global economy. We believe this will increase low-carbon investment and encourage innovation.
- Signing the New York Declaration on Forests, a non-binding political declaration supporting a global timeline to restore forests and cropland and to cut natural forest loss in half by 2020 and strive to end it by 2030. The statement was signed by 27 national governments, eight sub-national governments, 16 indigenous peoples groups, 45 non-governmental organizations and 34 companies from the consumer goods, commodity production, investment and banking sectors.
The business opportunities in low-carbon growth
The next 15 years will see around US$ 90 trillion invested in infrastructure in the world’s urban land use and energy systems – an average of US$ 6 trillion per year. The nature of these investments will shape future patterns of growth, productivity, living standards and the world’s climate system.
This planned infrastructure investment can support the transition to a low-carbon economy with only a modest additional cost, according to the New Climate Economy, which is the flagship project of the Global Commission on the Economy and Climate, a major international initiative with Deutsche Bank participation. It aims to help governments, business and society make better-informed decisions on achieving economic prosperity and development as well as addressing climate change.
The New Climate Economy report 2014 estimates that a combination of renewable energy, investment in fossil fuels, more compact cities and more efficiently managed energy demand would increase investment requirements by only US$ 27 billion a year – less than 0.5 %. And the higher capital costs could be fully offset by reduced operating costs such as lower fuel expenditure. Many low-carbon policies also deliver other benefits, including greater energy security, less traffic congestion and air pollution, stronger resilience to climate change, and reduced poverty.
Investing in a low-carbon economy is a cost-effective form of insurance against climate risk.
Engaging with our clients on ES issues
We consider risks to both communities and the environment as we support clients in various sectors. We actively promote and support renewable energy. However, we are aware that although this is a positive step in tackling climate change, renewable energy infrastructure may involve risks to people and the environment which must be managed appropriately.
Case study: Hydro power
Background
Hydro power is one of the key sources of renewable energy, but can also cause negative impacts. For example, large hydro projects may result in large-scale resettlement, lower water quality and biodiversity loss.
Deutsche Bank was asked to structure financing for a large hydro project in Africa.
ES risk evaluation
We evaluated the project proposal and applied our Environmental and Social (ES) Risk Framework. We then proposed measures to comply with our internal requirements for hydro power projects. The risk evaluation process involved:
Reviewing the Environmental Impact Assessment carried out by a local consultant on behalf of the client
Selecting independent international environmental and technical consultants to carry out due diligence in accordance with international standards such as the International Finance Corporation performance standards, the World Bank environmental, health and safety guidelines and the Equator Principles
Setting up a site visit with the client, advisors and stakeholders including Export Credit agencies
Agreeing an ES plan based on the due diligence conclusion that: “virtually none of the gaps and deficiencies are considered material, and can be addressed in the short to medium term”
Findings and actions
The high quality of the local ES impact assessment provided a basis for taking the project forward. However, areas still requiring action were identified: community engagement, biodiversity protection, and dam safety.
The advice of an international advisor was key for improving on community consultation, supporting the development of a formal resettlement action plan, and assessing the cumulative impacts of the project.
Our site visit with several stakeholders enabled us to address outstanding issues, meet affected communities, project owners and developers, and align the requirements of all the parties involved in the project.
Decision and follow-up
We approved the project with the condition to implement improvement measures and to establish monitoring by an independent consultant.