RBI’s ESG issuance and capital markets services – helping meet clients’ sustainability goals
RBI follows a “profit-with-purpose” business model with explicit alignment of its activities with social, environmental and economic responsibility. We help develop sustainable economies and support our customers’ transition to zero carbon activities.
Our success and ability to focus on “doing good” and “avoiding harm” is intrinsically linked to sustainable development targets. For more than 130 years Raiffeisen has taken a responsible leadership role to support sustainable use of natural resources to achieve long term prosperity of the societies we operate in. The RBI Group’s sustainability drive extends across our business divisions, with this article focusing on how RBI’s ESG issuance and capital markets services can help meet our clients’ sustainability goals.
Austria’s leading green bond issuer
Green bonds constitute a fundamental part of our sustainable financing strategy, and the RBI Group is Austria’s largest issuer of green bonds. Within its Green Bond Framework, RBI has defined a wide range of eligible green assets in the areas of green buildings and clean transportation, thereby providing both RBI and its customers a variety of new opportunities to contribute towards the EU’s carbon reduction targets.
RBI’s green bond programme aims to offer products to both retail and institutional investors focusing on climate-resilient investment opportunities. The RBI Group has already issued green bonds in four currencies and intends to further broaden the possibility for regional investors to purchase green bonds and other sustainable investments in their own currencies during 2021. Social and sustainability linked debt is also a growing focus for the group in CEE and CIS markets.
Focused on supporting clients’ ESG capital markets needs
RBI is not just a leader in terms of its own green issuance but has also grown to become a leading regional bank when it comes to supporting and advising corporate and institutional clients who seek to raise sustainable financing. Our offering includes:
Preparatory advisory services: We offer in-depth advice on the suitability of various sustainability formats tailored to a client’s business and sustainability strategy:
- Behaviour-based financing: Our teams support clients in drafting their sustainability-linked finance framework, including the definition of sustainability performance targets. If no framework is being drafted, we provide case-by-case advice on the preferable sustainability format (ESG rating vs KPI link).
- Activity-based financing: Based on the use-of-proceeds concept, RBI advises on the sustainable finance framework including, but not limited to, the definition of ESG investment targets.
If no framework is defined, RBI provides case-by-case support on management and allocation of proceeds and on impact reporting.
External service providers: Where capital markets are to be tapped, we advise clients on the selection of both the second-party opinion (SPO) providers and the ESG rating agency offering the best fit.
ESG rating advisory: The universe of ESG rating agencies is relatively young. The significant increase in demand for ESG ratings and second-party opinions for issuers has brought ESG rating agencies right into the centre of the financial community. We expect the current wave of consolidation to continue. Against this backdrop, we offer clients our assistance in obtaining the optimal ESG rating result.
Core financing transaction support: Last not least, being a universal bank, we finance our clients in all roles suitable to their needs, i.e. as arranger, bookrunner and lender. RBI operates across all instrument classes starting with bilateral loans (including ECA-covered loans), project finance, syndicated loans and club loans as well as Schuldschein loans, bonds and private placements.
Focusing on prospects for 2021, RBI’s Corporate DCM Head Michael Bures expects this year to be a watershed year for CEE ESG related issuance.
Helping clients make their liability structure more sustainable
ESG ratings and ESG KPIs (key performance indicators) are becoming ever more important factors for RBI’s corporate customers. Many of them are convinced that shifting their focus to these factors will not only improve their general reputation but will also have a measurable financial impact on their company’s future.
After successful launches of several sustainable products in corporate finance (green and social loans, ESG-linked loans) over the last two years, the introduction of ESG-linked derivatives is the next logical step for RBI to support their corporate customers’ sustainability ambitions.
“In many conversations and meetings with RBI’s corporate clients it turned out that their rationale is much more than “greening” their hedging portfolios. Many of them are convinced that it is a suitable way to demonstrate seriousness about their sustainability strategies and commitments. By linking more of their existing “green” and “non-green” liabilities to their company’s individual ESG targets, they will increase management focus on ESG topics as a long-term business driver,” says Florian Wehle from RBI’s Corporate Customer Division.
One of the products RBI’s corporate customers are considering using is the “ESG-linked swap”. This instrument is a combination of a standard interest rate swap with an ESG element. The ESG-linked swap enables RBI’s corporate customers to hedge their liabilities against adverse interest rate moves while simultaneously giving them an extra incentive to improve their sustainability score.
The ESG element includes a payment that is linked to a company’s sustainability targets. The achievement of these targets is determined based on the development of a company’s ESG rating score or other ESG-based KPIs.
The sustainability targets defined in the terms of the swap are tailor-made to the respective customer and industry. Only ESG ratings from recognized agencies are used as a reference in the ESG linked swap. In the case of individually agreed ESG KPIs, an independent auditor will review whether the defined goals have been achieved.
If the corporate customer manages to hit the agreed targets (i.e. improve its ESG rating or specific ESG KPIs, such as raising its recycling quota) a “bonus amount” will be paid from RBI to the customer. An additional incentive could be added to have the customer pay a “penalty amount” via RBI into a pre-agreed sustainable project if defined ESG goals have not been achieved by the end of the swap maturity (i.e. the ESG Rating has deteriorated).
Looking ahead, Harald Schönauer from RBI’s Structured Solutions said he expects ESG-linked swaps to progressively increase in importance in CEE during 2021 as corporate customers in the region seek to bolster their sustainable finance credentials from all sides.
The RBI Group is not only a leading issuer of Green Bonds in Austria but is also at the forefront of providing ESG financing solutions and investments to its client base in Austria and across the CEE/CIS regions. To get in touch with one of our ESG product experts please contact email@example.com (Debt Capital Markets), firstname.lastname@example.org (Capital Markets), email@example.com (Capital Markets Corporate Sales), firstname.lastname@example.org (Corporate Customers) or email@example.com (Institutional Clients).