Deutsche Bank eyes tie-ups with Chinese peers on green finance deals

Deutsche Bank, one of two European banks allowed to tap the Chinese central bank’s green finance funding pool, is seeking to form partnerships with institutions in China to drive transactions that meet European climate standards.

“Deutsche Bank is looking to partner with local Chinese financial institutions so that they can lead on the financing side, while Deutsche Bank can lead on the advisory side,” he told the Post via video link from Singapore on the sidelines of a conference on Tuesday.

“This way the Chinese companies can show that their products are sustainably procured and manufactured, with key performance indicators built into their financing that allow them to substantiate those claims.”

Such advisory service is attractive to Chinese clients, and Deutsche Bank will also seek to support them with their foreign exchange and other cross-border transactions, he said.

The scheme offers subsidised loans at an interest rate of 1.75 per cent, equivalent to a discount of 72 basis points in the funding cost of green loans, according to a China International Capital Corporation report.

It allows major banks to first lend to qualified carbon-reduction projects at the prime lending rate. The banks can then borrow up to 60 per cent of the project loan principal from the PBOC at a cheaper interest rate.

Last week, Deutsche Bank published its climate transition plan, which contains additional net-zero targets for the coal mining, cement and shipping sectors.

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For coal mining clients, it aims to slash financed emissions by 49 per cent by 2030, rising to 97 per cent by 2050. For cement clients, the goal is a 29 per cent reduction in greenhouse-gas emissions per unit of output by 2030, rising to 98 per cent by 2050.

The release of the plan is the second phase of the bank’s effort to set net-zero pathways for carbon-intensive industry sectors financed through its €107 billion (US$113 billion) corporate loan book.

The bank’s fossil fuels-related financing to group-level companies has fallen steadily to US$7.5 billion last year, from US$21.2 billion in 2016 when the global Paris Agreement on climate change came into force, according to a report published last August by a group of non-government organisations, including Reclaim Finance and BankTrack.

Total financing by the world’s 60 largest commercial banks fluctuated between US$738 billion and US$801 billion between 2016 and 2021, before declining to US$668 billion last year.

A year ago, Deutsche Bank reviewed 41 transactions in carbon-intensive industries that were above €25 million, and which would lead to an increase of more than 1 per cent in financed emissions in a sector.

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Some 150 client groups in the sectors with the highest emission intensity made up nearly all of the banks’ financed emissions from fuel combustion and bought energy in those sectors, said Joerg Eigendorf, Deutsche Bank’s global chief sustainability officer.

The bank engages with these clients to agree on key performance indicators and targets aligned with the bank’s decarbonisation targets, he added.

“Now we can have a dialogue with these clients based on clear indicators,” Eigendorf said. “That means we can start to manage down [our financed emissions] via emission budgets.”

The bank is also helping clients to raise financing to adapt to the impacts of climate change. For example, in Asia it has helped real estate firms work with government entities to collaborate on projects to repair receding shorelines due to storms and floods.

“On our part, this involves adjusting the financing and setting up the repayment plan so that the costs are manageable,” Khan said.