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Proposals to reform KfW as an innovation and investment agency

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Green bank – a modern glass building with green leaves.
Green bank – a modern glass building with green leaves. Photo via Adobe Stock.

In this report, E3G examines proposals to reform KfW as an innovation and investment agency on the pathway to climate neutrality.

Summary: KfW and climate neutrality

Germany’s Kreditanstalt für Wiederaufbau (KfW) is among the largest development banks in the world with €564 billion in assets (December 2020).

Financing sustainable development in Germany, the European Union and in the global south, the bank group is an allrounder and key asset for Germany’s economic, development and climate policy implementation.

The new German government’s coalition agreement envisages the transformation of the KfW, into an innovation and investment agency. KfW can make a crucial contribution to putting Germany on the path to climate neutrality by 2045 and integrating climate targets into trade, foreign and development policy.

To this end, action is needed in the following five areas:

  1. Reform of the KfW mandate: The KfW Law should be reformed to enshrine the central task of achieving Germany’s climate neutrality by 2045 (and the corresponding consequences regarding development policy) in the banking group’s mandate.
  2. Alignment of governance structures: The goal of climate-neutral transition is institutionalised and anchored in the bank’s “DNA”. The mandates of the sustainability teams in KfW’s branches should be expanded to ensure group-wide coherence on achieving climate-related targets. Increased cooperation and dual-reporting to the group’s management board as well as to the boards of the individual branches will further promote a uniform group-wide approach. Expansion of the board of directors to include members from civil society is also crucial. Additionally, instruments such as impact-based, variable remuneration will incentivise the workforce.    
  3. Further development of KfW’s mission-oriented approach: The dynamics of the climate-neutral transition require that KfW’s mission-oriented ambition is harmonised with Germany’s domestic and international climate policy goals. Specific missions are being developed that specify both KfW’s role in shaping a sustainable financial system and its tasks in financing the transition in key sectors. The International Energy Agency’s “net zero report” will form the basis for KfW’s strategic direction. 
  4. Leveraging KfW investments: With the help of five investment principles, promotion and cooperation with intermediary financial institutions will be more strongly focused on the transition to a climate-neutral society. Central to this are targeted support for innovation, risk mitigation and scaling of investments, as well as technical and financial support for the development and implementation of transition plans. 
  5. KfW’s role in national and international climate protection: KfW’s responsibilities should be clearly formulated in the German government’s announced climate-related legislative initiatives and in the context of the German G7 presidency. The goal is to drive the transition in key sectors, both nationally and internationally, with maximum impact. The focus is on fostering innovation as well as leveraging private, transformational investment. 

Download the report in English here.

This report is also available in German. Lesen Sie hier den Report.

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