Berlin Hyp is seen as a leading candidate to issue the first green covered bond after its head of credit treasury and investor relations yesterday (Thursday) set out what he thinks a Green covered bond should look like and with the German bank being the owner of trademark “Grüner Pfandbrief”.

Any green covered bond would follow in the footsteps of a Eu300m ESG (environmental, social and governance) Pfandbrief from Münchener Hypothekenbank in September that was the first covered bond in the field of socially responsible investment (SRI). That MünchenerHyp issue financed loans to housing cooperatives that were part of its mortgage cover pool.

Bodo Winkler, head of credit treasury and investor relations at Berlin Hyp, shared his thoughts on the topic yesterday (Thursday) at a European Covered Bond Council (ECBC) plenary in Amsterdam during a panel on green covered bonds.

Panel moderator Tanguy Claquin, managing director and head of sustainable banking at Crédit Agricole CIB noted that the issuer has trademarked the term Grüner Pfandbrief (Green Pfandbrief) – online records suggest that Berlin Hyp applied for the trademark in 2009 and registered it in 2010, has also trademarked the English translation, and has registered web domains based on the words grüner-pfandbrief and green-pfandbrief for a similarly long period.

“I like the connection between sustainability and covered bonds,” said Berlin Hyp’s Winkler. “I think these two are a good fit.

“The Pfandbrief is an old product that has survived many difficult periods in history, so it is sustainable as well.”

Winkler recognised that MünchenerHyp had put down a marker in the SRI field with its ESG Pfandbrief, saying that he liked the strong link to Green Bond Principals created by bond market participants under the auspices of the International Capital Market Association (ICMA). He also commended the link between the ESG Pfandbrief and the assets both at launch and on an ongoing basis, with the commitment to finance new projects in the future, and also the project being just one part of the ESG concept being implemented across the bank.

“It should set a benchmark for future issues,” he said.

However, Winkler noted that MünchenerHyp’s issue was linked to socially responsible assets rather than green assets.

“We are talking about green covered bonds and about mortgage finance,” said Winkler. “In MünchenerHyp’s deal there was no link to properties but to the behaviour of the borrowers.

“There should be a link to properties in the first real green covered bond so it should be linked to the financing of green buildings.”

Winkler said that it should be much easier to issue a green covered bond backed by commercial real estate mortgages than residential mortgages given the prevalence of certification schemes for commercial properties that can aid third party opinions. He noted for example that at the entrance to ABN Amro’s headquarters – in which yesterday’s ECBC was held – had a sign testifying to the building having met a “gold standard” according to one such certification.

Energy efficiency should be a factor in such certification, said Winkler, while others could also be used to define eligible assets, such as water efficiency and social factors such as the rights of tenants. He said that it might also be deemed that controversial industries could not be hosted in the building since such use would be a negative for socially responsible investors – as well as potentially a reputational risk for the lender.

Winkler said that – as for MünchenerHyp’s ESG issue – any green Pfandbrief would not be backed by a distinct cover pool but rather a portion of the existing cover pool given that having a second mortgage cover pool is not allowed under Pfandbrief legislation.

MünchenerHyp has meanwhile become a Climate Bonds Partner, a programme run by the Climate Bonds Initiative to help develop green bonds.

“There is enormous opportunity to develop a green covered bonds market in Europe,” said Rafael Scholz, head of treasury at MünchenerHyp. “By creating a refinancing market for green mortgages we believe we can help accelerate the shift to sustainable housing.

“The Climate Bonds Initiative have been a leading force in the development of this concept, and we will be working with them and other Climate Bond Partners to make sure this market fulfils its potential. We invite other Pfandbrief and covered bond issuers to join us.”