KfW has been a key driver of mainstreaming green bonds in Germany. KfW Development Bank has been developing innovative instruments to promote sustainable businesses and finance in developing countries. KfW engagement to foster systemic change toward a sustainable financial system is limited.
Disclaimer: KfW Group is comprised of four institutions: KfW Development Bank, KfW IPEX Bank (International project and export finance bank), DEG (private sector finance in developing and emerging markets) and a branch for domestic lending and support. Unless specified otherwise, the provided information concern the entire KfW Group.
Innovative instrument case study
Case Study: Climate push for German SMEs
The EU Taxonomy for Sustainable Economic Activities functions as a guideline and label to distinguish sustainable from unsustainable economic activities for investors. The EU regulation that puts the taxonomy formerly in place will require companies with at least certain number of employees and turnover to disclose their activities against the criteria of the taxonomy.
The EU Taxonomy will put additional reporting requirements on SMEs in Germany.
As part of its domestic promotional business, KfW offers a lending instrument to accelerate German SME’s compliance with the EU Taxonomy’s provision for substantial climate contribution. The lending instrument focuses on climate-friendly production methods, energy generation, sustainable transport and green IT solutions.
Aligned with the criteria of the EU Taxonomy, KfW sets out a detailed list of activities for each area of investment. As an example, the criteria list for energy generation outlines thresholds and requirements for investment in electricity generation. Geothermal energy solutions, for instance, would have to prove and emission performance standard of less than 100g CO2/kWh while solar energy is financed without conditions.
The lending instrument, therefore, does not only function as an investment tool but also as an awareness tool to prepare SMEs for the impact of the EU Taxonomy.