SUSTAINABLE FINANCE The current geopolitical climate is of
particular relevance to Deutsche Bank’s clients. The question of how to become more self-sufficient with regard to energy supplies, in light of spiking energy prices, is particularly pressing for companies, and we are able to support these efforts. For example, we recently assisted BASF
Group in the acquisition and construction of the world’s largest offshore wind farm off the Dutch coast, and structured the financing of this complex project. This transaction was groundbreaking in many respects. At a time when energy security is being discussed everywhere, the company has invested significantly in a wind farm itself in order to reduce its dependence on third parties. At the same time, it is an important step for BASF to become climate neutral by 2050. Among the renewable energy transactions
that Deutsche Bank has supported is the export finance partnership with China’s Sinosure for three onshore wind farms in Australia, with installed capacity of around 480 megawatts. As recently as 2016, only 175 megawatts of the country’s electricity came from renewable sources, while 22 years ago 83% of its power production came from coal.
Supply chains enter into focus When it comes to transitioning towards a net-zero economy, supply chains are of particular importance, given that up to 90% of an organisation’s environmental impact lies in its value chain – either upstream (in the supply chain) or downstream (e.g. the product use phase). At the same time, the geopolitical environment has done much to concentrate the corporate mind on bringing supply chains closer to home. As near-shore production would also shorten transportation distances, this could positively impact ESG alignment of suppliers. As the pressure for companies to track Scope 3 emissions and decarbonise their supply chains will continue, value chains of global retailers and original equipment manufacturers (OEMs) will be under scrutiny, pushing companies to seek green products, such as green steel or aluminium. This duty doesn’t end with the environmental considerations – social and governance factors are also moving into the spotlight, as the EU plans to hold to account companies responsible for forced labour, child labour, inadequate workplace health and safety, or biodiversity loss in their supply chains. This is where Deutsche Bank works with corporates looking to onboard sustainable supply chain finance (SSCF) programmes, in
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Supporting our clients in defining clear pathways towards net-zero is core to our sustainability strategy, which is why we actively engage in transition dialogues with our clients
order to incentivise their suppliers to enhance their ESG performance through preferential pricing. Therefore, SSCF programmes are a powerful tool to improve sustainable environmental and social practices across the entire client supplier ecosystem. Yet, monetary incentives only act as a signal: once the systems are in place, suppliers need to demonstrate how they are or are not achieving the required KPIs – with data providing hard evidence of sustainable behaviour. This allows buyers to cluster suppliers according to their ESG performance and adjust procurement strategies. Suppliers unwilling to start their ESG journey may no longer be used. Partnering with Deutsche Bank, German consumer goods company Henkel is one of the first companies to have linked an existing supply chain finance programme to the suppliers’ ESG ratings. By improving their ESG rating, suppliers can reduce financing costs in the supply chain. The prerequisite for this is that they have a corresponding ESG rating. Initially, Henkel suppliers in Europe, which are integrated into the existing supply chain finance programme with Deutsche Bank, can benefit from the new structure. Next, the programme will be expanded to include suppliers outside Europe.
Transition dialogues As the world steps up its efforts to meet climate objectives, it raises a further question: what will happen to assets where no transition is possible? In the past, we saw divestment strategies, but given the need to also get traditionally ‘brown’ sectors onto transition paths, it is expected that engagement and responsible ownership will
play a more important role in public debate. As such, essential questions need to be addressed. Could divestment alone decrease emissions? Who might be the best owner of harmful assets? Do governments need to intervene? It is a controversial debate, but one that needs to take place. The world might be better off with a responsible run- down overseen by transparent reporting and stakeholder pressure. Supporting our clients in defining clear
pathways towards net-zero is therefore core to our sustainability strategy, which is why we actively engage in transition dialogues with our clients. While we want to learn what their transition strategies look like, our clients want to hear more about how we can support specific sustainability initiatives and empower them to provide transparency to investors. As outlined above, corporates’ access to capital will be increasingly bound to credible sustainability strategies and measurable outcomes. In this regard, accurate data will be key for corporate decision-making and imperative for the risk management of financial institutions. So far, however, the lack of standardised and consistent ESG data presents a challenge. To tackle this issue, Deutsche Bank has, for example, teamed up with SYSTEMIQ, TLGG Consulting and SINE Foundation to sketch a potential solution on how to improve access to, and sharing of, high-quality ESG data along companies’ value chains – which is the foundation of an ESG data commons. The bank plans to increase the volume of ESG financing to more than €500bn by year-end 2025, as announced at our Investor Deep Dive in March 2022. In this way, Deutsche Bank is not only making a contribution to fending off environmental and human catastrophe, but also, on a more immediate note, forging the way towards more sustainable businesses and more resilient communities around the globe.
Lavinia Bauerochse is Global Head of ESG at Deutsche Bank Corporate Bank, and a member of its Divisional Executive Committee. She is responsible for the Corporate Bank’s sustainable finance dialogue with corporate clients, as well as defining the Corporate Bank’s ESG strategy and offering. Lavinia is a Standing Committee member at the Green and Sustainable Finance Cluster Germany.
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