Only «Green» in mind. Borislav Ivanov-Blankenburg’s, CEO&CCO for Deutsche Bank in Russia and Stefan Hoops’, Head of the Corporate Bank, Deutsche Bank AG, interview for PRIME.ru
Green financing and responsible investing have caught the attention of both bankers and private investors alike, with the green bond market growing at a breakneck pace. Today, Borislav Ivanov-Blankenburg, Deutsche Bank CEO&CCO for Russia, and Stefan Hoops, Head of Corporate Banking at Deutsche Bank, join Prime to discuss this issue. They will also explain how Russia can increase foreign investment in the country and why bankers continue to back the oil, gas and metallurgy industries, while rebutting alcohol and tobacco producers in the name of ESG.
What ESG investment products can you bring to Russia?
Our main goal is to help clients transform themselves to meet the recognized international criteria that the global market defines. As a result, our goal is not only to offer products, but to work with the client all the way through the transformation and help them reach all necessary KPIs and meet all the global criteria.
We already provide green loans in Russia - we closed two of these deals in 2021. Our goal is to grow our green lending portfolio significantly over the next three to four years. Globally, we are looking to make 25-30% of our loan portfolio "green" in the next three to four years, and by 2030 - the entire loan portfolio will meet ESG criteria.
However, this is not an easy process. Mainly because the criteria have not yet been fully defined and there are still many outstanding questions. The criteria will be fully formulated and finalised in the coming years, but our main goal is to advise clients and show them how to follow the transformation path.
Yes, we already provide such financing, with certain criteria, but they are different in each individual case. One example could be - how much do you need to reduce emissions by, etc... The main thing is to continue working with the company in an advisory role, as this allows us to deal with changes to the criteria, the speed at which you need to develop the market, and ESG principles, which will also change in the coming years.
What should Russian companies interested in attracting ESG financing pay attention to?
Here we need to pay attention to two things that are typical for Russia. Firstly, supply chains. That is to say, companies need to follow each stage of the chain, no matter what industry it works in, be that metal, gas, or anything else. It is also necessary to think about the final product. If you compare companies from different countries in the same sector, the one with the most open and cleanest supply chain will have the advantage.
Secondly, and historically, typical foreign investors in Russia are funds focused on emerging markets. We see a trend that everyone is now interested in ESG investments.
Russia's ability to attract foreign investments will be much higher if companies focus on following ESG principles. And this is the approach we discuss and recommend to companies in Russia.
How can we track "green" investments?
Here we have a problem in terms of information quality, but companies in the fuel, energy and metallurgy sectors, for example, stand out in terms of good quality and transparent information. However, the smaller the company, the more difficult it is to track this issue.
There are internal KPIs within companies, but the issue is in external third-party assessments, with a rating agency or unified criteria deciding what does and what doesn’t count as ESG.
We also have clear rules on how to counteract and disclose greenwashing. We have a separate dedicated unit, but unfortunately this is not common practice.
How important is it for investors to put their money in these types of projects? What is their priority: environmental, social or governance issues?
In terms of private equity, clients actually want to invest in a sustainable and ethical way, in line with ESG principles. Investing with ESG in mind has really captured the attention of investors.
There is also strong demand for ESG financing from the corporate side of the business. For example, the global green bond market is experiencing tremendous growth, and this is seen across the globe, not just by us at Deutsche Bank. Our corporate banking division alone has provided nearly $120 billion in funding. And here, of course, the main question is the taxonomy of the data, that is, how the company complies with the ESG principles.
In the past few years, there have been several trends in this direction. We are already ready to look at ‘E’ and ‘S’ in the abbreviation ESG, that is - environmental and social responsibility. I think that ‘G’ or ‘governance’ has long been important to investors, meaning that even if the company is large, they won’t invest in if it has poor governance.
For the environmental component, the question is whether you will have certain project financing, for example, to make production "greener". The focus here is that if you are providing funding to certain business and industry segments, then you need ESG criteria. For example, the reduction of CO2 emissions and setting appropriate KPIs.
The social component has recently attracted no less attention from the investment community. But this is the most difficult component of the ESG agenda as it has unclear criteria and boundaries of what is bad and what is not. It is clear, for example, that child labor is definitely unacceptable, but it is unclear whether the production of tobacco or alcoholic beverages is seen as "bad" or not.
Do you believe that sectors with a ‘bad’ reputation will have difficulty finding funding?
We will not continue funding these sectors, in line with our client's requests and choices. This is our position.
We have already touched upon the issue of financing the transformation of production - from "dirty" to "green". This is a real challenge for banks and corporations alike. Imagine that 95% of everything the company does is wonderful and clean, but the remaining 5% is tainted by old production methods on outdated equipment. It will be a real challenge for businesses to sell this 5% to anyone, so that the company is then considered 100% green.
But who would be prepared to buy this 5%? Who will agree to purchase the Company’s one obsolete production unit? Maybe someone who doesn't care about ESG criteria, or who doesn't care about openness and transparency? And you can imagine the potential negative impact on the environment if lots of major companies try to offload their ‘dirty’ production to other parties.
We discussed this issue at this year’s SPIEF with companies and Russian banks, agreeing that clear criteria need to be set so that companies can embark on the path of transformation.
Deutsche Bank placed its first green bonds a year ago. Are you planning new green or social bonds in the next year or two?
Yes, we have experience in issuing our own green bonds. In fact, we are one of the world’s most successful banks in this regard. We are certainly exploring the possibility of issuing green bonds but are also looking at other structured instruments for green financing.
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Green financing and responsible investing have caught the attention of both bankers and private investors alike, with the green bond market growing at a breakneck pace. Today, Borislav Ivanov-Blankenburg, Deutsche Bank CEO&CCO for Russia, and Stefan Hoops, Head of Corporate Banking at Deutsche Bank, join Prime to discuss this issue. They will also explain how Russia can increase foreign investment in the country and why bankers continue to back the oil, gas and metallurgy industries, while rebutting alcohol and tobacco producers in the name of ESG.
What ESG investment products can you bring to Russia?
Our main goal is to help clients transform themselves to meet the recognized international criteria that the global market defines. As a result, our goal is not only to offer products, but to work with the client all the way through the transformation and help them reach all necessary KPIs and meet all the global criteria.
We already provide green loans in Russia - we closed two of these deals in 2021. Our goal is to grow our green lending portfolio significantly over the next three to four years. Globally, we are looking to make 25-30% of our loan portfolio "green" in the next three to four years, and by 2030 - the entire loan portfolio will meet ESG criteria.
However, this is not an easy process. Mainly because the criteria have not yet been fully defined and there are still many outstanding questions. The criteria will be fully formulated and finalised in the coming years, but our main goal is to advise clients and show them how to follow the transformation path.
Yes, we already provide such financing, with certain criteria, but they are different in each individual case. One example could be - how much do you need to reduce emissions by, etc... The main thing is to continue working with the company in an advisory role, as this allows us to deal with changes to the criteria, the speed at which you need to develop the market, and ESG principles, which will also change in the coming years.
What should Russian companies interested in attracting ESG financing pay attention to?
Here we need to pay attention to two things that are typical for Russia. Firstly, supply chains. That is to say, companies need to follow each stage of the chain, no matter what industry it works in, be that metal, gas, or anything else. It is also necessary to think about the final product. If you compare companies from different countries in the same sector, the one with the most open and cleanest supply chain will have the advantage.
Secondly, and historically, typical foreign investors in Russia are funds focused on emerging markets. We see a trend that everyone is now interested in ESG investments.
Russia's ability to attract foreign investments will be much higher if companies focus on following ESG principles. And this is the approach we discuss and recommend to companies in Russia.
How can we track "green" investments?
Here we have a problem in terms of information quality, but companies in the fuel, energy and metallurgy sectors, for example, stand out in terms of good quality and transparent information. However, the smaller the company, the more difficult it is to track this issue.
There are internal KPIs within companies, but the issue is in external third-party assessments, with a rating agency or unified criteria deciding what does and what doesn’t count as ESG.
We also have clear rules on how to counteract and disclose greenwashing. We have a separate dedicated unit, but unfortunately this is not common practice.
How important is it for investors to put their money in these types of projects? What is their priority: environmental, social or governance issues?
In terms of private equity, clients actually want to invest in a sustainable and ethical way, in line with ESG principles. Investing with ESG in mind has really captured the attention of investors.
There is also strong demand for ESG financing from the corporate side of the business. For example, the global green bond market is experiencing tremendous growth, and this is seen across the globe, not just by us at Deutsche Bank. Our corporate banking division alone has provided nearly $120 billion in funding. And here, of course, the main question is the taxonomy of the data, that is, how the company complies with the ESG principles.
In the past few years, there have been several trends in this direction. We are already ready to look at ‘E’ and ‘S’ in the abbreviation ESG, that is - environmental and social responsibility. I think that ‘G’ or ‘governance’ has long been important to investors, meaning that even if the company is large, they won’t invest in if it has poor governance.
For the environmental component, the question is whether you will have certain project financing, for example, to make production "greener". The focus here is that if you are providing funding to certain business and industry segments, then you need ESG criteria. For example, the reduction of CO2 emissions and setting appropriate KPIs.
The social component has recently attracted no less attention from the investment community. But this is the most difficult component of the ESG agenda as it has unclear criteria and boundaries of what is bad and what is not. It is clear, for example, that child labor is definitely unacceptable, but it is unclear whether the production of tobacco or alcoholic beverages is seen as "bad" or not.
Do you believe that sectors with a ‘bad’ reputation will have difficulty finding funding?
We will not continue funding these sectors, in line with our client's requests and choices. This is our position.
We have already touched upon the issue of financing the transformation of production - from "dirty" to "green". This is a real challenge for banks and corporations alike. Imagine that 95% of everything the company does is wonderful and clean, but the remaining 5% is tainted by old production methods on outdated equipment. It will be a real challenge for businesses to sell this 5% to anyone, so that the company is then considered 100% green.
But who would be prepared to buy this 5%? Who will agree to purchase the Company’s one obsolete production unit? Maybe someone who doesn't care about ESG criteria, or who doesn't care about openness and transparency? And you can imagine the potential negative impact on the environment if lots of major companies try to offload their ‘dirty’ production to other parties.
We discussed this issue at this year’s SPIEF with companies and Russian banks, agreeing that clear criteria need to be set so that companies can embark on the path of transformation.
Deutsche Bank placed its first green bonds a year ago. Are you planning new green or social bonds in the next year or two?
Yes, we have experience in issuing our own green bonds. In fact, we are one of the world’s most successful banks in this regard. We are certainly exploring the possibility of issuing green bonds but are also looking at other structured instruments for green financing.
link to publication - https://1prime.ru/Interview/20210617/833951895.html