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Pfandbriefe setting sustainable standards

In covered bonds, Germany produced the first ESG issue and the first green benchmark. As the 250th anniversary of the Pfandbrief is celebrated, Sascha Kullig, head of capital markets at the Association of German Pfandbrief Banks (vdp), tells Sustainabonds how the industry body is promoting sustainable finance with new standards.

"Some regulatory ideas might prevent the market from developing further, rather than boosting it." Sascha Kullig, vdp

Sustainabonds: Is the Pfandbrief an appropriate instrument for sustainable
finance?

Sascha Kullig, vdp: The Pfandbrief is the perfect product for sustainable finance since sustainability is its DNA. It is a long term funding tool for refinancing long term loans, based on a long term sustainable valuation. In 250 years the Pfandbrief has proven as a
reliable product even in crisis situations for both issuers and investors. Moreover, it has often heralded innovation, most recently towards sustainable finance.

Sustainabonds: The first Pfandbrief in the field of sustainability was five years ago, but the number of issuers is still relatively limited. Do you expect much growth in issuance of green/social/sustainable Pfandbriefe?

Kullig, vdp: German Pfandbrief banks are market leaders in the area of green/social/sustainable covered bonds. Five banks issued roughly EUR5bn of green/social/sustainable Pfandbriefe. This shows the strong commitment of German Pfandbrief
banks to making their contribution to achieving the climate targets. However, compared to the outstanding volume of Pfandbriefe there is still room for improvement and we are confident that more banks will follow the green road, since
sustainability is not a trend that will just disappear; rather, it will become a core element for all financial market participants.

Sustainabonds: What are the association and its members doing to promote green/social/sustainable activity?

Kullig, vdp: Several Pfandbrief banks already offer a green loan, incentivising the financing of green buildings, which is not an easy exercise, given the current low yields and the high competition in the market. The vdp and its members active in the market for sustainable Pfandbriefe are currently
working on standards for green Pfandbriefe. This became possible because the trademark rights were thankfully transferred from Berlin Hyp to the vdp. The aim is to strengthen the product and to encourage even more Pfandbrief banks to use the green Pfandbrief.
So far, the focus is on green buildings. The fact that buildings are responsible for roughly 40% of energy consumption in Germany shows that this sector plays a very important role in achieving the climate goals. The green Pfandbrief Standard will be based
on ICMA’s Green Bond Principles, set limits for energy demand/CO2-emissions, and address important aspects like transparency, third party review and impact reporting.

...the full Interview you find at our information area for download. Please also visit the website of sustainabonds for getting more information about the topic.