250th anniversary of the Pfandbrief: Interview with Dr. Günther Bräunig

Dr. Günther Bräunig Chairman of the Board of Managing Directors, KfW

KfW has declared sustainable finance as an integral part of its funding policy. How do you think green bonds and green covered bonds can contribute to a climate-friendly and sustainable economy?

Due to transparent appropriation of funds, green bonds and green covered bonds have raised awareness of climate and environmental protection amongst a broad range of capital market players, and have given financial intermediaries a new sense of responsibility. The Green Bond Principles, among other things, are setting transparency benchmarks. The precise understanding that investors have about which funds they are investing in, seamless ex-post reporting on results, and validation by independent third parties constitute new standards for financial products. Green bonds therefore serve as a “sustainability blueprint” for social and sustainability bonds, as well as green loans. This has also led to company heads putting more and more emphasis on green business activities.

The importance of green (covered) bonds for the market as a whole is also reflected in the fact that the EU is developing an EU Green Bond Standard, in addition to taxonomy and climate benchmarks. This standard is closely aligned with the Green Bond Principles and also creates a framework for the capital market at the same time. In a first step, the taxonomy defines what qualifies as sustainable from an environmental perspective in the EU. The close link between the EU Green Bond Standard and the taxonomy helps to channel capital flows into relevant activities, while simultaneously reducing potential risks to the reputation of issuers and investors. KfW strongly supports the close alignment of a minimum standard for green Pfandbriefe with the proposed EU Green Bond Standard. This is an important step for financing the investments to be made in the coming years in both new buildings and existing properties. 

However, green (covered) bonds can only be one element when it comes to anchoring sustainability in the capital market and focusing the financial market on achieving the objective of a carbon-neutral economy by 2050. We need sustainable leadership that questions the traditional focus on more and more growth, defines a new concept of growth and drives new technologies forward. The integration of sustainability and a holistic and proactive review of current corporate strategies and business models with a view to the transition to a carbon-neutral economy are essential for banks and companies.

What initiatives or standards relating to sustainability in the (financial) economy would you like to see from politics at a national and international level?

Your question about “initiatives or standards” makes a key distinction. Certainly, the EU is already active to a welcome extent with the standards it has already presented or is currently developing while implementing its action plan on financing sustainable growth. However, we should not forget that voluntary initiatives from the sector are also having a significant impact, such as the “Task Force on Climate-related Financial Disclosures” (TCFD), the international “Network for Greening the Financial System” (NGFS) and the “Green and Sustainable Finance Cluster Germany” (GSFCG). Voluntary and legislative initiatives should go hand in hand and complement each other sensibly.

I would like the new European Commission to maintain its tangible enthusiasm for more environmental and climate protection. Europe can take the reins and lead the world to a more sustainable economic and financial system, and effectively exploit the resulting opportunities. To do this, the EU member states must join forces with the European Commission and Parliament. Another crucial factor will be to win over the general public for the proposed “Green Deal”.

The German government’s “Climate Cabinet” recently took important steps in this direction. In addition to the comprehensive package of measures, it was also decided to further develop KfW as a transformative development bank. We see this as a clear mandate to KfW to assume even more responsibility in future for the climate-friendly transformation of the economy and society. In this context, I would like to see efficient interplay between regulatory law, price incentives and funding, so that Germany’s commitment to the climate can unfold to full effect and, in doing so, meet the environmental, economic and social challenges in equal measure.

As the largest German development bank, KfW has various subsidiaries with different business activities. What role does the Pfandbrief play in the Group’s refinancing strategy?

Pfandbriefe do not play any role in KfW’s refinancing strategy; we refinance KfW exclusively via senior unsecured bonds. The reason is simple: due to the German government’s explicit and direct guarantee, we can obtain more favourable refinancing rates than Pfandbrief issuers. IPEX, on the other hand, has a Pfandbrief licence and uses Pfandbriefe in intragroup refinancing. IPEX can therefore secure AAA-rated funding for loans eligible for cover funds, in particular ECA-backed loans.

And what is your wish for the Pfandbrief?

Change is the driver of the Pfandbrief’s continuity. The harmonisation of the European Pfandbrief market is laying the foundations for the Pfandbrief to continue its unique success story in the years ahead. Our wish for the Pfandbrief is for it to remain an integral part of the capital market in future, given its particularly high quality.