// Green Bonds in NORD/LB

We talked to our colleague Philipp Bank from the Markets business segment about how the green bond has developed at NORD/LB and what the challenges will be in the future.

When was the first green bond issued in the NORD/LB Group and what was the background?

We identified sustainability as a topic for the future years ago. Since 2016, we have therefore been working intensively on the Green Bond financial product. At that time, the first green bond issues were also offered by non-governmental issuers. At the then Deutsche Hypothekenbank - a former subsidiary of NORD/LB and since July 2021 responsible for commercial real estate business at NORD/LB under the brand "Deutsche Hypo - NORD/LB Real Estate Finance" - we set up a lighthouse project in the real estate sector. When issuing Green Bonds, the bank funds itself through bonds whose funds raised are used exclusively for ecologically sustainable financing. In our case, it is the financing of particularly energy-efficient buildings, so-called green buildings. Here, the property-specific data requirements for customers were expanded and the bank's processes were adapted.

Our first Green Pfandbrief was finally issued successfully in November 2017. At the time, this was the second issue of a Green Mortgage Pfandbrief worldwide.

How has the issue developed at NORD/LB in recent years?

The momentum has steadily increased in recent years - both on the market and at our bank. After the successful implementation of the Green Bond, we thought about how we could also take sustainability into account on the assets side. The consistent addition was therefore the granting of Green Loans, where customers receive interest rate advantages for financing energy-efficient buildings. Since 2019, Green Loans have also been offered in addition to Green Bonds.

In the former Deutsche Hypothekenbank, a total of €1.388 billion has been raised via Green Bonds since 2017. In addition to the issuance of Green Mortgage Pfandbriefe in benchmark format, uncovered Green Bonds and promissory note loans were also issued as private placements. In 2020, the product range was expanded to include Green Term Bonds for municipalities.

NORD/LB also has a Green Bond Programme. What is this programme about and what is the aim?

With the full integration of Deutsche Hypo into NORD/LB on 1 July 2021, NORD/LB took over the Green Bond Programme. It is now being further developed at NORD/LB and will be supplemented in the future by NORD/LB's ecologically sustainable lending business. The bank currently assesses the energy-efficient buildings of commercial real estate customers on the basis of sustainability certificates and energy performance certificates. With the help of these documents, the characteristics of the respective properties can be assessed and a sustainability score determined. Only properties that meet the Green Bond minimum standards are considered for the Green Bond programme. In addition to energy efficiency, criteria on the distance to local public transport and possible soil sealing with development of the property are also included in the assessment of the property. Furthermore, the framework regulates clear exclusion criteria with regard to main tenants from controversial business fields, such as the weapons industry. Finally, the properties of the green buildings are published in a green bond reporting.

What does NORD/LB's current asset pool look like?

The current asset pool as at 30 July 2021 comprises green buildings worth just under € 3.5 billion. Of these, office buildings with air conditioning (42%), residential buildings (21%) and department stores and shopping centres (15%) make up the majority. 59% of the financed green buildings are less than 250 metres from public transport, 80% of the financed green buildings were built on already sealed land - the so-called brownfield. A large proportion of the properties built on greenfield sites are residential buildings, for example in new development areas. At 62%, most green buildings were constructed in Germany.

What are the advantages of a green issue for NORD/LB?

By issuing Green Pfandbriefe and also financing Green Buildings, the bank as a financial intermediary supports investors as well as project developers and tenants in the environmentally friendly design of living space. NORD/LB thus measurably promotes the reduction of CO2 emissions and environmentally conscious behaviour in society.

In addition, we have addressed new investors through green funding and have thus been able to expand our investor base.

What challenges does the bank currently face with regard to green finance and what will they be in the future?

Of course, the liquidity management of a green asset pool is associated with an increased workload. For example, it has to be checked regularly whether the properties still meet all the necessary requirements. For example, if energy performance certificates or sustainability certificates of green buildings expire and no updated documents are submitted by the borrower, then the property loses its green bond eligibility and is removed from the asset pool.

In addition, as part of the European Union's measures to create a European quality standard in the form of the EU Taxonomy and the EU Green Bond Standard, both the demand and the requirements for issuers will increase. We at NORD/LB will also be required to constantly improve our products. However, we have a very good starting point and are dealing intensively with all the challenges.