Deutsche Bank disclosed new criteria Friday that will govern what financing and investments it can consider sustainable as it works toward a target of exceeding EUR 200 billion ($235.8 billion) in such transactions in the next five-and-a-half years.
The Frankfurt-based bank’s Sustainable Finance Framework defines global rules for classifying fixed-income and securities transactions, capital market products and financing offers as sustainable.
It includes sector-specific thresholds and eligibility criteria, in addition to criteria that apply to the bank’s Environmental and Social Due Diligence process, through which each financing project will also be scrutinized.
Europe’s eighth-largest bank by assets in May revealed its goal to significantly expand financing in the environmental, social and governance space, as well as to grow its portfolio of sustainable assets under management in the coming years.
The framework “is one precondition for enabling us to become a trailblazer in this area in the financial sector,” Deutsche Bank CEO Christian Sewing said.
“It helps us provide our clients with the clarity they need and the guidance they require regarding ESG financing and ESG financial products — including their own transformation to a sustainable business model,” he said.
Recognizing growing investor appetite for sustainable products, Deutsche Bank created an ESG investment banking team this year. The company also adopted a new policy this week to quit its global activities in coal mining in the next five years. Deutsche Bank financed $68.9 billion in fossil fuel projects between 2016 and 2019, according to the Rainforest Action Network, with the level of financing trending downward during those years.
But Deutsche Bank was also the 11th-most prolific underwriter of sustainable bonds during the first half of the year, according to Refinitiv, with $5.2 billion in bonds representing 2.7% market share. It also issued its own first green bond last month, which it said would raise funds to refinance its own sustainable projects, such as expanding renewable energies.
Deutsche Bank said the new framework is aligned “on a best effort basis” with the European Union’s ambitious taxonomy, but, “There is still too little data available in some cases to carry out the complex evaluations required concerning whether a project meets EU standards.”
However, sustainable investment rating agency ISS ESG gave the bank credit for trying, and for aligning its sustainability parameters with the International Capital Market Association’s principles for green and social bonds.
“Even if the taxonomy does not fully align with the activity-specific criteria defined by the EU Taxonomy, Deutsche Bank is among the first international banks to explicitly refer to this market guideline in its group-level sustainability policy,” the agency said in its second opinion of the framework.
The agency’s analysts gave the framework a positive review overall, but dinged the bank with a “C” rating for its overall sustainability performance. While Deutsche Bank achieved a “very significant outperformance” in sustainable investment criteria, the agency said, it ranked below the industry average regarding business ethics.
The opinion took note of “severe and very severe controversies relating to weaknesses in anti-money laundering controls, allegations of anti-competitive behavior and aiding tax evasion in the U.S.”
Deutsche Bank was forced to pay EUR 15 million ($17.7 million) in December for lapses in money laundering compliance. And two weeks ago, shareholders alleged in a lawsuit that the bank and its CEO lied in public disclosures about compliance operations and dealings with disgraced financier Jeffrey Epstein.
On Tuesday, the bank reported a second-quarter profit of EUR 61 million ($71.9 million), with revenues of EUR 6.3 billion ($7.4 billion).