Up to now, there had been no visible advance. Bankers scratched their heads over how to fashion suitable criteria that banks could link SLBs to, which would be material, relevant and ambitious, as demanded by the Sustainability-Linked Bond Principles.
Berlin Hyp found an answer. It will reduce the carbon intensity of all its lending by 40% in 10 years.
This is not just an answer, but the right answer. For years, climate-conscious investors have been asking banks to reveal the carbon footprints, not of their operations, which are trivial, but of the activity they finance with loans, bonds and equity deals.
Still, very few banks have done this. ABN Amro is an honourable exception. The rest come up with a lot of excuses, which mostly amount to ‘we haven’t got the data’. These whinges are not convincing.
Banks that can price structured derivatives can work out the carbon emissions of their client books. Where the data is imperfect, they can estimate.
HSBC has published research into the carbon footprint of the European corporate bond market. This kind of analysis could be applied to banks’ portfolios.
This week, Jefferies produced impressive research in which it built from scratch its own ESG rating scheme for banks, emphasising their carbon exposure — with surprising results.
Forget the EU Taxonomy and green loan percentages, which are clumsy, indirect metrics. The true measure of whether a bank is making climate change worse or better is the emissions it finances.
SLBs based on this, like Berlin Hyp’s, could be some of the most genuinely valuable sustainable finance transactions yet seen.