Sustainable funding is booming. In the past year, the issuing volume of sustainable transactions has once again risen significantly despite the COVID-19 pandemic. Even in difficult times, sustainable business management seems to be a high priority for companies. But what advantages does sustainable funding offer companies?
Sustainability improvement loan
Over the years, the range of funding instruments that take account of economic, environmental and social aspects has become more complex and diverse. Banks can use products such as green bonds, credits or green "Schuldschein" loans to specifically finance sustainable projects such as wind farms or sustainable real estate.
But they can also use ESG rating-based funding to encourage companies to gradually make their business model more sustainable. The sustainability improvement loan at ING is based on this principle. The loan interest rate is linked to the improvement of certain sustainability criteria (ESG ranking). The more sustainably the company develops, the lower the interest rate – and if the company develops less sustainably, the interest rate is higher. This distinguishes the sustainability improvement loan from a green loan, which funds an investment that has already been classified as sustainable.
DWS leads the way
Last year, ING in Germany has originated the first sustainability improvement loan for a residential property with DWS. The loan has a volume of €16.5 million with a term of 10 years. In May 2020, DWS acquired the "Maestro" residential complex in Rijswijk, the Netherlands, for its open real estate mutual fund, “grundbesitz Fokus Deutschland”. Measures to improve energy efficiency aim to reduce the interest margin of the loan in the long term. The percentage of apartments that achieve an energy certificate of class "c" or higher as a result of the measures is recorded in detail. This means that new windows or insulation measures can help improve ING's score and lower the interest margin.
DWS not only benefits from competitive funding compared to "conventional" funding products, but they can also reduce funding costs further in the long term and operate sustainably. For ING, this was the first sustainability improvement loan in the area of real estate finance in Germany and underpins its claim to be a pioneer in sustainable finance.
Read the press release on the deal here.