Driving sustainable change through ESG impact measurement

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How do you effectively track progress in ESG initiatives to understand their impact? 

The explicit mandate of the ESG Centre of Excellence was to structure transactions - ESG transactions in APAC that meet global sustainability standards.

So, the deals themselves are true to Asian realities, but they meet global sustainability standards.

Now, the way we do this is to pick the right metric that helps our clients demonstrate their progress towards their stated ESG goals.

We pick metrics that are credible, that are measurable and achievable.

And by credibility, I mean the metric must go to the heart, the core of the ESG sustainability issue, so that any expert in the world, anywhere in the world, who takes a look at a transaction says, “okay, we are talking about this transaction and the client is reporting progress along this metric, yes, that sounds very right.” So, the right way of measuring progress.

Second the metric must be measurable. We can't leave it to interpretation. It has to be very specific, quantifiable and measurable.

And then the metric has to be achievable. It can't be too ambitious, or you know it can't be too lenient, that oh, the client already met the metric as of last year.

So that is a balance that we strike, when we pick specific, credible, measurable, and achievable metrics for our clients. And that is how we help our clients establish their credentials in the ESG market.

How did Deutsche Bank assist the data centre company AirTrunk in structuring their ESG metrics to measure impact?

In the data centre industry, there is a metric which is used which is power usage efficiency, which speaks to the efficiency of power usage in the data centre operations.

So most data centres have not used this metric as part of a sustainability linked loan.

They use it as part of what's called use-of-proceeds transactions where the client does not need to set a specific target.

In this particular case, we helped AirTrunk, not just use Power Usage Effectiveness (PUE) as a Sustainability Linkedin Loan (SLL) Key Performance Indicator (KPI), where they were able to demonstrate how over time they became better and better at PUE, but we also said, your power usage is very efficient in your operations, not just in design.

We also help them use water usage efficiency because there is a trade-off between electricity and water usage in the operations of a data centre that was very unique.

And finally, we helped them come up with a metric about gender pay gap. And that’s not just for data centres. Globally, It's a very, very big issue.

At every, transaction we do, we agree with the client upfront that this is exactly how you would measure this particular KPI.

So going in, the client is very clear, this is how a particular KPI is measured. And then during implementation, during the loan tenure itself, the annual progress that the client is making each year on this particular metric, is independently verified by a third party.

And that is what comes back to us. It's part of our loan governance that, the client will have to report to us how they're doing every year.

How do you ensure the accuracy and reliability of ESG measurements and reporting?

There is a lot of confusion in the market around sustainability and transition. People tend to use these terms interchangeably when they are very distinct concepts.

In short, sustainability is to do more of the good stuff and transition is to do less of the bad stuff. And the relationship between these two is critical.

So, for example, the approach that we take from ESG Centre of Excellence is that we help our clients articulate the business transition metrics - how in time going forward, how can they demonstrate to the market that they are transitioning that business from doing less of the bad stuff to doing more of the good stuff?

That is something that we have a very unique way of approaching and helping our clients. And then also on the taxonomy, the Singapore Asia taxonomy has a very, very specific way in conceptualizing and defining transition. And that is they do so along two lines.

One is that a transition can't last forever. There has to be a sunset date by when. Sunset date can be ten years from now.

But by then the client will have transitioned and second, transition calls for incremental change. So, each year the client will have to demonstrate on a metric how it is improving. Over time, it is doing less of the bad stuff and then more of the good stuff.

So, all this comes down to specific metrics that are chosen.

What key technological advancement do you see shaping the future of ESG in Asia Pacific?

It will be the democratization of carbon foot printing.

Each of us, companies, clients, institutions, financial institutions need to understand what is our carbon footprint, what is our scope one, two and three?

How much of the carbon in the atmosphere are we accountable for?

And this is very important and critical in terms of democratizing how to measure this carbon foot printing.

There are a number of players in the market now, and we would like to see them increase in the future. And that will help us get deeper into our supply chains and our clients’ supply chains, because that is where a lot of emissions are coming from.

But the deeper you go into supply chains, the smaller the firms get and the less resources they have.

They just don't have the wherewithal to report on their own carbon footprint.

And so, as long as we have many players come into the market, the cost of measuring how much carbon we are putting in the atmosphere comes down. That is what the market needs right now.