In 2020, Deutsche Bank pledged to allocate up to €200bn (US$233bn) of its balance sheet for sustainable finance by 2025. To emphasise and reiterate the commitment, at the start of this year it brought forward the timeline to 2023.¹ “This demonstrates how much Deutsche Bank is putting its investment and balance sheet behind this drive around sustainable finance,” says Rachel Chia, Head of Project Finance, Renewables, in Asia Pacific (APAC) at Deutsche Bank Corporate Bank.

Chia recently took up what is a her newly created role as the bank sees significant opportunity in this space with the demand in APAC for energy, and particularly for sustainable energy infrastructure, growing rapidly alongside its population and economies.

The drive towards sustainability is also prompted by the Bank’s core clients and the big oil majors, which are diversifying into the renewables sector. Traditionally, the strength in Deutsche Bank corporate bank’s portfolio has lain in reserve-based lending to the oil and gas sector,² so it makes sense for Deutsche Bank to attract its clients into the renewables space in line with its corporate DNA.

Sustainability is a core pillar in Deutsche Bank’s transformation strategy, with the Bank stressing its commitment to supporting the transition to a zero-carbon economy. “It is important for Deutsche Bank to follow its clients to help them grow in the sustainable/green financing sector in the different markets in the region,” says Chia.

The sustainability strategy also reflects how the market is moving. “If we do not follow the trend on sustainable/green financing and continue to sit behind what we traditionally do in corporate banking, we will be left behind the curve,” Chia explains. “It makes a lot of sense for Deutsche Bank to catch this wave right now.”

For Deutsche Bank to be successful in the renewables space, having a strong human resource infrastructure is important, says Chia. “To be able to arrange project financing in the renewable energy sector requires relevant expertise in terms of structuring,” she adds. “Project financing is very demanding – from due diligence to financial close – compared to regular corporate financing. Execution certainty is key to clients and for Deutsche Bank to be successful, we need to have good people who understand how to structure deals and bring value to the table.”

“Producing electricity using solar and wind technology is more expensive as compared with the traditional coal and gas power plants until economies of scale can be achieved”
Rachel Chia, Head of Project Finance, Renewables (Asia Pacific), Deutsche Bank

For Chia, what is central to ensuring the success of the renewable energy sector from the start are robust government policies. “If you look at Europe, which is more mature than Asia in terms of green financing, their success is mainly due to government policies, including the provision of subsidies at the initial phase,” she notes. “This comes as producing electricity using solar and wind technology is more expensive as compared with the traditional coal and gas power plants until economies of scale can be achieved.”

So too for Deutsche Bank, which sees pockets of opportunities across APAC are those markets where the renewable energy sector is driven by government policies. They include countries that have pledged to achieve net zero emissions by 2050, such as Japan, New Zealand and South Korea. Chia also sees opportunities in countries that have strong green federal government regulations.

One example is Australia, whose large-scale renewable energy target is a federal government policy designed to ensure that at least 33,000 gigawatt-hours (GWh) of the country’s electricity comes from renewable sources. This target was met at the end of January 2021 and will be maintained to 2030.³ This has generated investment of US$10bn or more and is adding at least 3GW of renewable energy capacity every year.⁴

Says Chia: “We are looking at Australia, which is one of the most active renewables markets in Asia-Pacific, including in M&A. We hope to generate between three to five transactions in Australia next year as we start to grow our footprint in project finance non-recourse renewables transactions. The aspiration is to be a reliable and credible project finance bank in Australia and make a big difference in this market.”

Chia also sees more opportunities in Taiwan, which has attracted huge investments in offshore wind projects on the back of a strong government policy. In 2019, Deutsche Bank was a mandated lead arranger in the NT$95bn (US$3.40bn) equivalent non-recourse term facilities for Yunneng Wind Power Company for the construction of a 640MW offshore wind project located in Yunlin, Taiwan. This was the largest non-recourse financing raised for an offshore wind project in Asia-Pacific to date, as flow reported in the July 2021 article “Taiwan’s green energy revolution”.

Another project in 2020 also saw Deutsche Bank act as a mandated lead arranger: the NT$90 billion project financing for Changfang Wind Power Company and Xidao Wind Power Company for the construction of a 589MW offshore wind farm located in Changhua, Taiwan. These offshore wind projects support Taiwan’s energy transition policy to focus on renewable energy sources and develop 10GW of offshore wind capacity.⁵

Chia, though, cautions against certain risks for investors in markets such as Taiwan. One is concentration risk because of the huge amount of investment required in each offshore wind project. She says there are at least 10 more offshore wind projects scheduled to launch in Taiwan over the next 10 years. “We need to understand the concentration risk – either at the borrowers, technology or market level. This is one risk that we need to evaluate internally before we can expand further,” she explains.

There is also an emerging risk in the global supply chain logistics and Chia reports a severe shortage of vessels capable of transporting bigger wind turbines. The latest turbines are now capable of producing 12MW to 13MW of electricity, up from the previous 9MW, so the vessels must be customised to transport these models.

What should help fulfil Deutsche Bank’s ESG commitment to its shareholders and to the market is the ESG Centre of Excellence (ESG COE), which the Bank established in Singapore in May 2021 the first one it has set up by globally.⁶

The ESG COE will work across each business division of Deutsche Bank, focusing on execution of ESG transactions, new product development, and advisory services, including sharing of global best practices with Asian regulators and regional bodies such as the Association of Southeast Asian Nations (ASEAN) and the Asia-Pacific Economic Cooperation (APEC). It will also provide innovation at the nexus of ESG and fintech to develop new products that address gaps in the ESG market, including impact monitoring, data management and payments to unbanked communities.

The ESG COE will also help Deutsche Bank’s clients in terms of ESG advisory, such as how to make their supply chain greener, which Chia says will be a key aim going forward. “If your supply chain is not green, you are going to lose your competitiveness,” she notes. “There is now a discussion in Europe about imposing a carbon border tax on top of the supply chain just to ensure that companies align themselves to climate change.”

This article was first published in The Asset in November 2021

Rachel Chia discusses up and coming natural resources finance issues raised in this article in the following three-minute video.

Sources

¹ See https://bit.ly/2ZlU8d8 at db.com
² See also the flow case study on reserve-based lending 'Net zero in the North Sea' at flow.db.com
³ See https://bit.ly/3HSOWPq at industry.gov.au
⁴ See https://bit.ly/3HSOWPq  at industry.gov.au
⁵ See 'Taiwan’s green energy revolution' providing further background on these projects at flow.db.com
⁶ See https://bit.ly/3xleznd at db.com