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Sustainable economic activity

Transparency is key

In 1975, a 35-year old Yale University economist published a paper under the title "Can We Control Carbon Dioxide?"

At that time, he would have had no idea of the impact his publication would have in future: today, the paper is regarded as the origin of the 1.5 degrees goal adopted by 197 contracting parties 40 years later at the UN Climate Change Conference in Paris. In 2018, the author of the paper, William Nordhaus, received the Nobel Prize in Economic Sciences for his economic research on climate protection.

The Paris Agreement in 2015 was the first time ever an actual figure was determined with the potential to set a guideline for climate protection around the world. Furthermore, the 17 Sustainable Development Goals (SDGs) entered into force in 2016, defining the concept of sustainable development, and providing governments and companies with a clear blueprint for their own sustainability activities.

Data, data, data

The 1.5 degrees goal and the SDGs have contributed substantially to sustainability being far more transparent and binding today. Measuring progress and actions is now easier, as is reviewing their contribution to sustainable development. However, data is indispensable, which in turn requires transparency.

What has been customary for economic target systems for a long time is only gradually becoming established for sustainability goals: clear and valid indicators, connected within a management system and used to identify developments, recognise risks and derive forecasts. Due to a lack of fundamental data, at times such indicators are hard to define.

Aareal Bank Group has systematically worked on defining, collecting and analysing such indicators in the past years, aiming to analyse business processes not only from an economic, but also from an ecological and social perspective, and managing the Group based on a large number of financial and non-financial indicators. Not least due to this, sustainability aspects have increasingly been integrated into the Group's strategy in the past years. Today, decisions are made based on a holistic business strategy.

Holistic property valuation

This holistic approach is evident, for example, in the step-by-step expansion of indicators for the Structured Property Financing segment. As of 2020, energy efficiency or green-building certificate data, or background information on renovations (already carried out or scheduled) will thus be among the standard evaluable key indicators at portfolio level. This data doesn't only give an overview of the share of sustainable properties in the financing portfolio, but also serves to identify potential risks at an early stage, to develop appropriate financing instruments, and to comply with increasing reporting obligations.

Since a growing number of institutional investors are showing an interest in the risks emanating from climate change on their investments, Aareal Bank Group has initiated a pilot project with Carbon Delta. The Swiss environmental fintech and data analytics firm - established in 2015 and acquired by MSCI Inc. in autumn 2019 - specialises in the calculation and analysis of climate change risks. The aim of the pilot project initiated during the year under review is to transfer the methods developed by Carbon Delta to the property sector, thus providing property investors with analyses on climate change risks. [Additional information on the result might need to be added at the beginning of the year]

Process transparency

In the Consulting/Services segment, Aareal Bank Group helps clients in the digitalisation of their processes, thus making them simpler: the apps, portal and platform solutions of the Aareon Smart World digital ecosystem not only enable the efficient and resource-friendly exchange of data – they also enhance the transparency of processes for everyone involved, thanks to digital networking. The amount of available information facilitates numerous analyses, also in view of non-financial performance indicators.

Other products and services in the Consulting/Services segment also improve the overview of business activities in a targeted manner, thus enabling the definition and consideration of sustainability indicators. Providing digital solutions for mass payments across different industries, Aareal Bank enables enterprises in the housing and energy industries to benefit from sustained process efficiency.

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