Why Deutsche Bank plans to boost its investment in green bonds?

Deutsche Bank said it’s working to boost its investment in green bonds to €1bn ($1.1bn), joining competitors including Citigroup and Barclays in tapping profit from the quickly growing market.
The Frankfurt-based institution has invested €200mn in green bonds and intends to expand that starting with purchases of a 10-year issue from the World Bank, according to a statement from Deutsche Bank yesterday. The funds are for the bank’s liquidity reserves.
The decision adds to evidence that the green bond market is blooming after issuances of securities linked to climate projects more than doubled to a record $38.8bn last year, according to data compiled by Bloomberg. The securities are earning “attractive returns,” said Alexander von zur Muehlen, the bank’s group treasurer.
“The Green Bond market has matured during 2014, and the size and number of offerings has substantially increased making green securities viable and prudent liquidity buffer investments,” von zur Muehlen said in the statement.
Investors are snapping up bonds to finance the global expansion of clean energy, promoted by governments from the US to China to tackle climate change. The debt, issued by development banks or by project sponsors themselves, offers investors an alternative to volatile equities.
It’s also increasing the flow of cash for clean-energy developments in nations from Spain to Romania, which have reined in support for the industry. Investment in clean energy rose 16% last year to a record $310bn, according to Bloomberg New Energy Finance.
KfW Group, Germany’s state-owned development bank, sold $1.5bn of green bonds in the US in 2014 after receiving demand for $2.5bn of the securities.
Deutsche Bank ranked eighth in terms of underwriting green bond deals last year, trailing Skandinaviska Enskilda Banken, Bank of America Corp and Credit Agricole, according to Bloomberg data. Investors included BlackRock and Calvert Investment Management have bought the securities.
Deutsche Bank’s goal is cautious compared with other banks. On Wednesday, Citigroup said it would lend, invest and facilitate deals worth $100bn by 2025 to support projects that will fight climate change and protect the environment. Bank of America Corp said in 2012 it would support $50bn in deals for low-carbon initiatives, and Goldman Sachs Group announced a $40bn program the same year.
For Deutsche Bank, the securities will be held as part of its liquidity reserve investments. Growth will be focused on new primary market investments in eligible sovereign, supranational and agency issued bonds, it said.
A coalition of banks that include Bank of America Corp, JPMorgan Chase & Co and Credit Agricole created a common set of criteria for green bonds in January 2014 to act as a catalyst for the development of the market.
Citigroup’s $100bn ambition builds on an earlier goal to arrange $50bn in deals that the bank set for itself in 2007 and achieved in 2013, three years ahead of schedule.
“Simply put, it is a $100bn investment in sustainable growth,” Chief Executive Officer Michael Corbat said in a speech on Wednesday in New York. “These efforts do not constitute philanthropy, nor do they represent costs. In fact, they reduce costs.”