Berlin Hyp: Germany’s green pioneer in real estate financing

Dirk Bartsch, head of ESG investing at Berlin Hyp, explains why the bank’s green bonds are attracting interest from domestic as well as overseas investors. By Nicol Dynes.

Sustainability has been a central component of Berlin Hyp’s business strategy for years.

The bank specialises in large-volume real estate financing for professional investors, and provides German savings banks with a range of products and services. It has played a pioneering role in developing sustainable refinancing products in capital markets.

Berlin Hyp has also promoted the financing of sustainable real estate as a way of transforming the property market and contributing to reaching climate neutrality.

Real Asset Impact asked Dirk Bartsch, head of ESG investing at Berlin Hyp, to explain how the bank is implementing its vision for sustainable business operations, a sustainable business portfolio, transparency, ESG capabilities and ESG risk management.

Berlin Hyp ended the summer in style, reopening the market with a green mortgage Pfandbrief that attracted €5.8 billion of investor demand. The largest order book ever, and 45% of the €1 billion bond was placed abroad. Did you expect such interest from overseas investors?

Back in May, there was record demand for a Berlin Hyp bond with the debut issuance of our social Pfandbrief. We never expected that we’d be able to almost double this with our green Pfandbrief issuance after the summer break.

We are very proud that our ESG bonds meet with such great interest among investors. The interest shown by foreign investors demonstrates our standing in the international capital market, and that the issue of sustainability is becoming increasingly important internationally.
We are very pleased about this trend.

Given the success you have had so far, what role will green finance play in delivering your ESG strategy? How do you plan to expand your leading position in the ESG capital market?

At Berlin Hyp, we have a very clear goal: to become the most modern real estate financier in Germany. We understand that we can only achieve this by acting in accordance with the principles of sustainability and aligning all of our business activities with such principles.

Berlin Hyp’s approach to sustainability encompasses four dimensions, each of which addresses all aspects of sustainability/ESG, and we have set up an ESG target vision.

One aspect of our vision is our sustainable business portfolio. We believe that focusing on sustainability in our business portfolio is key to achieving our overall sustainability targets. A large number of our customers are already adopting measures to make their business models more sustainable.

It is important for us to support our customers in transforming their buildings into more energy-efficient and sustainable properties. We therefore offer different green-loan products. Sustainable refinancing instruments are another sustainability building block in our value chain. As early as 2015, we issued the first green Pfandbrief in the market.

We were also the first bank in the world to issue a sustainability-linked bond (SLB) and thus directly link our refinancing to our climate targets.

In addition, we issued a social bond this year, and plan for sustainable refinancing instruments to account for 40% of the bank’s capital-market funding mix by the end of 2025.

Earlier this year you revised your green bond framework, becoming one of the first banks to align your lending activities to the EU Taxonomy. Is it helpful in expanding the financing of energy-efficient properties or does it increase complexity?

One of our goals is for one-third of loans in Berlin Hyp’s portfolio to be for energy-efficient green buildings by 2025. Eligible business is defined in the green bond framework and takes into account the EU Taxonomy’s buildings and construction criteria. The one-third target ensures continued consideration of energy efficiency in Berlin Hyp’s future lending decisions and demonstrates the growing importance of financing green buildings.

The early implementation of the requirements of the EU Taxonomy took place in dialogue with customers and employees in order to identify the challenges and areas of development arising from regulatory developments, and to adapt the credit process accordingly. Even if it may increase the complexity in some places, we think this is an important way forward for the EU. Therefore, we are of course pleased to go along with it.

At the end of last year, Berlin Hyp published its ambitious and comprehensive ESG vision for sustainable business activities. Your stated goals include climate-neutral operations by 2025 and a climate-neutral portfolio by 2050 at the latest. How achievable is that?

Berlin Hyp chooses to play an active role in reaching the targets set by the Paris Agreement and the climate protection plan of the Federal Republic of Germany. The bank not only seeks to achieve climate neutrality in its own operations, but also links carbon-reduction targets to buildings it finances.

The bank seeks to make its entire loan portfolio completely climate neutral no later than 2050. To achieve this goal, the bank, in the first instance, aims to reduce the carbon footprint of its loan portfolio by 40% between 2020 and 2030.

We have set ourselves this target because we believe that it is achievable, and we are currently on track to achieve the interim goal by 2030.

The ESG vision also commits you to the establishment of 100% portfolio transparency and the incorporation of ESG risks into the risk-management framework. How is that progressing and what are the challenges?

Establishing 100% portfolio transparency is the prerequisite for a systematic determination of energy performance, carbon and climate risks within Berlin Hyp’s entire loan portfolio. The recording of all energy performance certificates (EPC) in Berlin Hyp’s loan monitoring system and their analysis is one aspect.

As a regular green bond issuer, the bank’s loan monitoring system already contains energy-efficiency data for all the constituents of its green finance portfolio. Until the year-end of 2023, it also aims to complete the collection of EPCs for all financed buildings that are not included in that portfolio. Using loan-book-wide, EPC-based energy-efficiency data, Berlin Hyp will then be able to calculate its entire loan portfolio’s carbon emissions more precisely.

Precise knowledge of CO2 emissions is a vital prerequisite for an accurate determination of transitory and physical risks via scenario analyses. We are well on the way to achieving our goals concerning transparency.

Collaboration is key to achieving ambitious targets. Internally, you have committed to a clear allocation of sustainability-related responsibilities throughout all areas of the bank. How is that working out in practice?

ESG is a priority issue at the highest levels of the Berlin Hyp organisation. The supervisory board monitors Berlin Hyp’s climate strategy on an annual basis, while the management board presents the company’s overall strategy to the supervisory board, is responsible for the implementation of this strategy and has the authority to make decisions regarding important aspects of implementation.

The ESG corporate function and the ESG-risk corporate function are the central cross-divisional and cross-departmental functions. These act as a type of delegation path between the management board and the ESG organisation.

The separate functions for addressing business aspects and risks are meant to ensure that adequate attention is paid to all facets of ESG.

Here, the analysis of the impact of climate phenomena and events on loan, market and operational risks is the responsibility of the chief risk officer, while the identification, measurement, monitoring and management of such risks are delegated to the divisions and departments via the ESG-risk corporate function.

‘It is enormously important that the entire real estate industry works together when we talk about achieving climate targets.’

Dirk Bartsch, Berlin Hyp

The chair of the board of management and the chief market officer are responsible for strategic positioning on ESG issues, while the ESG corporate function (business) coordinates activities to ensure consistent implementation of the ESG strategy.

From our point of view, this division is working very well at the moment. Of course, we also keep an eye on the cooperation here and regularly check whether changes or adjustments are necessary.

Externally, you have joined Ecore and was the first real estate lender to join the Madaster platform. How is that going and how important is it to reach out to the wider industry to encourage ESG compliance?

By joining the Ecore initiative we want to participate in developing a scoring standard that makes sustainability in real estate portfolios transparent, measurable and comparable, and thus serves as a basis for continuous improvement as we move ahead on the path to carbon neutrality.

Berlin Hyp is a so-called Kennedy member of the Madaster network. Madaster is an online platform that is used to register buildings and all the materials and products they contain.

The platform makes it possible for property owners and other stakeholders to store, manage, enrich and share data about their properties. This facilitates recycling and reutilisation and eliminates waste in a system that transforms buildings into reservoirs of materials.

The construction of our new corporate headquarters for Berlin Hyp also marks a major step towards achieving more sustainable banking operations.

We will bring our new building project to Madaster and thus be able to gain direct experience. From our point of view, it is enormously important that the entire real estate industry works together when we talk about achieving climate targets. Only together can we tackle the major challenges that lie ahead.

What about the S in ESG? Back in May there was record demand for the debut issuance of  your social Pfandbrief. There is growing awareness of social responsibility and topics such as diversity and inclusion. What are you doing to integrate these into your corporate culture?

Berlin Hyp’s view of social responsibility involves several aspects. For example, we believe that offering our employees an environment with many opportunities is just as important as addressing issues that have an impact beyond our own business operations.

Concerning our commitment to diversity and inclusion, Berlin Hyp treats all its employees equally and fairly, regardless of age, gender, ethnic origin, world view or sexual orientation.

We are committed to diversity, and view this as an opportunity. Berlin Hyp’s code of conduct provides managers and employees with clear guidance for their day-to-day activities. By joining the United Nations Global Compact and signing the Diversity Charter, the bank has publicly underlined its position.

To integrate these aspects into your corporate culture we offer seminars for employees. Recently, on international diversity day, we organised a diversity workshop with external moderation for our employees. This was very well received and we would like to continue offering such formats.