Berlin Hyp set to be first bank to issue sustainability-linked bonds

Berlin Hyp is set to become the first bank to launch a sustainability-linked bond next week, a 10 year senior preferred issue tied to a sustainability performance target of a 40% reduction in the carbon intensity of buildings financed by its loan portfolio.

The mandate for the forthcoming issue was announced today (Friday), with bookrunners Crédit Agricole – also sustainability-linked bond structuring advisor – Commerzbank, DZ, HSBC and LBBW expected to launch the new issue next week after investor meetings starting on Monday, subject to market conditions.

Italian corporate Enel sold the first sustainability-linked bond in September 2019 and the market has taken off since Sustainability-Linked Bond Principles were announced in June 2020. Issuance has, however, thus far been dominated by corporates.

Berlin Hyp will be the first bank to issue the new instrument, and also the first issuer with a KPI exclusively linked to buildings. The German lender was the first European bank to issue a benchmark green bond when it sold the first green covered bond in 2015, and is the European commercial bank with the most green bonds outstanding.

According to Bodo Winker-Viti, head of funding and investor relations at Berlin Hyp, sustainability-linked bonds (SLBs) represent a logical development in the bank’s strategy, building not only on its previous green capital markets activity but importantly on a sustainability agenda it unveiled in August 2020.

The KPI for Berlin Hyp’s SLB is the carbon intensity reduction rate of its loan portfolio and its sustainability performance target (SPT) is a 40% reduction from a 2020 baseline (38.6kgCO2/m2) by 2030 – in line with what it has already committed to in its sustainability agenda.

“The most important goal of this agenda is reaching climate neutrality – not only for ourselves, but also for our whole portfolio – by the end of 2050, in line with the climate path set by the Federal Republic of Germany,” he told Sustainabonds. “To meet the Paris Agreement goals, this is how much we have to reduce carbon emissions by in the building sector.”

Second party opinion provider Sustainalytics said it considers the chosen KPI to be “strong” based on its applicability and the relevance and materiality to Berlin Hyp’s sub-industry, while the SPT is “ambitious and demonstrates industry leadership”.

Winkler-Viti (pictured) said that beyond matching Berlin Hyp’s commitment to achieving climate neutrality, issuing SLBs has complementary purposes.

“We can use this new product to make others aware of what we are doing,” he said, “and to set a good example and perhaps encourage others to follow. It demonstrates very clearly to both the capital markets but also the real estate sector that something needs to be done in these sectors.

“And we naturally want to further broaden our investor base,” he added. “Berlin Hyp is 100% refinanced via capital markets, so a broad investor base is in itself an important target, and this new product can contribute to that.”

The SLB framework features interim targets to be met along the way to the 2030 target, but Winkler-Viti said a 10 year maturity matching the length of the overall path was most appropriate for an inaugural issue. In line with previous SLBs, investors will receive a coupon step-up if the issuer fails to meet its target, in the final coupon.

Berlin Hyp’s last benchmark was a €500m long six year green Pfandbrief on 16 March, and Winkler-Viti said the bank will continue to issue green bonds alongside its new SLBs.

ABN AMRO