KfW Research: German businesses invested significantly more in climate action in 2022

• KfW Climate Barometer shows price-adjusted rise of 18% to EUR 72 billion
• Two thirds of businesses have at least partly enshrined climate action in their strategy

Despite the economic uncertainties caused by the energy crisis, businesses in Germany increased the volume of climate action investment in the country to EUR 72.2 billion in 2022 (2021: EUR 55.1 billion), according to the KfW Climate Barometer 2023 of KfW Research. The growth was 31% in nominal terms, or EUR 17 billion, which was still a respectable 18% rise in real terms, that is, adjusted for inflation-induced price increases. Companies invested most often in green mobility, followed by projects involving the generation or storage of electricity or heat from renewable energies and energy efficiency measures in existing buildings.

“Climate action as an area of investment has become measurably more relevant for German businesses”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“In 2022, one in seven euros of total new corporate investment already went to climate projects, while in 2021 it was just one in eight. Thus, the volume of investment in climate projects has grown significantly over time and also gained in importance in comparison with other areas of investment. But despite the welcome growth in climate investment last year, there is still a lot of work to do. In order for Germany to become climate-neutral by the middle of the century, we estimate that on average around EUR 120 billion will have to be invested by the private sector every year. The investment gap decreased noticeably in 2022, to be sure. In this challenging environment, that is very encouraging, but even greater efforts need to be made to close the gap in the long term.”

Investment in climate action is likely to have been boosted not only by the sharp rises in fossil fuel prices, which made investments in energy efficiency and the use of renewables more attractive, but by pull-forward effects resulting from the foreseeable increases in the cost of debt capital and rising prices for capital goods, particularly in the first half of 2022. Large enterprises contributed most to the growth in climate investment. Medium-sized enterprises with 10 to 49 employees (+65% in nominal terms from EUR 7 billion to EUR 12 billion; +49% in real terms) and large SMEs with more than 50 employees (+61% in nominal terms from EUR 7 billion to EUR 11 billion; +46% in real terms) both massively increased their spending in this area on the previous year. Climate investment by large enterprises, which the KfW Climate Barometer also covers, rose by a nominal 29% (from EUR 28 billion to EUR 36 billion; +17% in real terms). Investment by micro- and small businesses, on the other hand, remained nearly constant in nominal terms, at EUR 10 billion and EUR 3 billion. Adjusted for inflation, however, that was a decline of -11% and -5%.

Around 490,000 businesses in Germany invested in climate action in 2022. That was one in seven (13%) of the close to 3.8 million businesses in Germany. The share of businesses investing in climate action thus fell on the previous year (-10 percentage points). The main cause for this decline was a sharp drop in the number of investors among micro- and small businesses (-13 and -9 percentage points), which dominate aggregate business trends because of their large number. In all other company size classes, the share of businesses with climate investments either increased or remained steady. What likely played an important role in this was that smaller businesses responded to energy price rises less frequently with investment measures in the areas of energy efficiency and renewables (18% in SMEs with fewer than 10 employees vs. 81% in large enterprises). Moreover, smaller firms experienced reduced profitability in 2022, which probably made them more inclined to direct remaining available funds to other investment measures such as those that were urgently needed in order for them to stay in business.

Decarbonisation also gained in strategic importance for many businesses. Nearly two thirds of all businesses in Germany have now at least partly enshrined climate action in their corporate strategy – 10 percentage points more than in the previous year’s survey. In doing so, SMEs were able to make up for some lost ground both with a view to both enshrining climate action in their corporate strategy and gaining greater awareness of their own carbon footprint compared with large enterprises, which already demonstrated significantly higher activity in these areas in the previous year. However, the finding that 70% of businesses still have not developed any concrete plans to reduce greenhouse gas emissions shows that there is still room for them to improve in putting their climate action strategy into practice. This applies to small and medium SMEs in particular.

Overview of other important findings of the KfW Climate Barometer:

• Businesses that made at least one climate-related investment spent significantly higher amounts on those investments. Each SME with a climate-related investment spent EUR 106,000 on average (2021: EUR 44,000; a nominal increase of +140% on the previous year). The strongest increase was reported by micro-businesses. They expanded their average investment amount by a nominal 122% to EUR 50,000 (2021: EUR 23,000).
• A sector comparison revealed that the share of manufacturing firms that invested in climate-related measures (18%) was significantly higher than those of companies in other sectors (services 12%, commerce 11%, construction 9%).
• Companies funded most of their climate investments from own resources (from 42% of the volume in micro-businesses to 91% in large enterprises). These included internal financing from own profits, intra-group funding and, to a lesser extent, shareholder contributions. SMEs used bank loans and promotional funds more often than large enterprises to finance their projects.
• Economic and financial aspects continue to pose the most urgent barriers to companies’ investments in climate-related measures. Half of all businesses (50%) regard the uncertainty about the cost-effectiveness of the investment as a very relevant or rather relevant barrier. Lack of financial resources was mentioned by 45%. Difficulties in sourcing climate technologies, skilled labour shortages and lack of information on how they can reduce their own greenhouse gas emissions were further important investment barriers, particularly for SMEs.
• The current edition of the KfW Climate Barometer surveyed the attitude of businesses towards Germany’s goal of becoming climate-neutral for the first time. The findings are encouraging: A clear majority of around 60% of enterprises in Germany support this goal at least in part. So far, only few businesses have a climate neutrality goal of their own, but that share also grew noticeably from 10% in the previous year to 15%.

The KfW Climate Barometer by KfW Research can be found at:
www.kfw.de/klimabarometer

The dataset:

The business survey for the KfW Climate Barometer was conducted by GfK GmbH on behalf of KfW Group. Around 11,500 businesses took part in the survey, which was conducted between 6 February 2022 and 16 June 2023.