KfW to launch innovative funding instruments in 2024

• Bank plans to raise EUR 90-95 billion in 2024
• New “KfW Green Bond Framework”: Biodiversity, Climate Action Campaign for Corporates and international financings are innovations in “Green Bonds – Made by KfW”
• First tokenised KfW bond is in preparation

KfW plans to raise EUR 90-95 billion in international capital markets to fund its business operations in 2024. Of this volume, EUR 10-13 billion is to be raised through the issuance of “Green Bonds – Made by KfW”.

“With our flexible strategic positioning and our highly liquid bonds, we believe we are well prepared to achieve a high funding volume again”,

declared Tim Armbruster, Treasurer of KfW Group, on the occasion of this year’s capital market press briefing in Frankfurt. He is also convinced that the innovative spirit of the business sector Financial Markets will contribute to successful funding operations in 2024.

KfW has aligned its “Green Bond Framework”, under which the promotional bank has been issuing green securities since 2014, to current developments and expectations of its international investors. Supplementing the existing project categories “Renewable Energy”, “Energy Efficiency/Green Buildings” and “Sustainable Mobility”, the following project categories will be added to the new framework from 1 January 2024:

• Biodiversity: In addition to climate change, the loss of species diversity is one of the most immediate threats that must urgently be tackled. KfW has much to offer here: It was among the most active financiers in the field of biodiversity in 2022. KfW now offers its investors the opportunity to contribute to preserving biodiversity, for example with reforestation projects via “Green Bonds – made by KfW”. “We want to activate the forces of the international capital markets to preserve biodiversity, in other words, raise investor awareness around the world and mobilise their financial contributions”, declared Armbruster.

• Corporate investments for climate change mitigation: Investments by enterprises to mitigate greenhouse gas emissions play a key role in the transformation to a climate-neutral world. KfW’s promotional programme finances climate-friendly technologies in the real economy that make a significant contribution to climate action in accordance with EU Taxonomy. These include, for example, investments in low-carbon production processes or systems that generate electricity or heat from renewable sources.

For the first time, international financings made by KfW, both in the context of international cooperation as well as project and export finance, can be attributed to the “Green Bonds – Made by KfW”. KfW thus responds to its investors’ request for diversification.

The new KfW Green Bond Framework is aligned with the current edition of the Green Bond Principles (ICMA) and has obtained a second party opinion from Morningstar Sustainalytics. It includes, for the first time, a review of the green bond assets for their substantial contribution to climate action and compliance with the EU Taxonomy Minimum Safeguards on occupational safety and human rights. KfW also continues to regularly report on the use of funds and the environmental and climate impacts of its green bonds (allocation and impact reporting).

Germany’s largest promotional bank also aims to push ahead with the digitalisation of its issuing business to develop relevant optimisation potential. After the very successful digital projects completed in the current year, KfW is planning to issue its first “tokenised bond” in 2024. This is a digitalised financial product that can be recorded on a decentralised database such as a blockchain. By issuing its first tokenised bond, KfW will be further testing the possibilities offered by the German Electronic Securities Act (eWpG) and fulfil its role as a catalyst of innovation in this field as well.

Funding highlights of 2023

Since the beginning of the year, KfW raised around EUR 90 billion in the international capital markets to fund its traditional promotional business.

“We got through this year very well. Despite the volatility unleashed by multiple crises, changes in the policies of various central banks and rising interest rates, we are concluding our funding operations of 2023 on a successful note”,

declared Armbruster.

KfW raised the liquidity of its bonds yet again by issuing its very first new Benchmark Bond of EUR 6 billion and increasing many of its 45 outstanding Euro Benchmark Bonds to up to EUR 7 billion. Around 45% of its outstanding Euro Benchmark Bonds now have a minimum volume of EUR 6 billion. Also noteworthy is its first issuance of a “USD-Dual-Tranche Benchmark Bond” with maturities of two and seven years and a nominal volume of USD 6 billion in total.

The main funding currencies were the euro, which represented 54% of the funding volume since the beginning of the year (EUR 48.6 billion) and the US dollar, which had a comparatively high share of 29% (nominal amount USD 28 billion). With a nominal volume of GBP 7.35 billion, KfW is the largest SSA issuer after the UK Government. The same is true with respect to the Australian dollar. KfW is by far the largest foreign SSA issuer in the Australian capital market. Thanks to its excellent market access it has raised a nominal amount of AUD 6 billion this year and lastingly reinforced its market leadership position in this segment.

Currency diversity, which is a feature of KfW’s reputation, was also evident in the “Green Bonds – Made by KfW” in 2023. Overall, 22 green transactions were carried out in nine currencies (EUR, AUD, NOK, GBP, CAD, CNY, SEK, USD and HKD), raising a net equivalent of around EUR 12.9 billion, of which around EUR 10 billion with euro denominated bonds. Hence there was no shortage of liquidity in this segment either. The KfW Green Bond with a 10-year maturity and a nominal volume of EUR 3 billion boasted a record order book of EUR 34 billion.

KfW this year exceeded the EUR 70 billion mark for green bonds issued and remains one of the world’s most significant issuers in this market segment.

In the area of digitalisation, after issuing its successful D7 bond at the end of 2022, KfW issued its first Commercial Paper (money market funding instrument) via the digital communication platform Onbrane in the first half of 2023. This was soon followed by the first transaction using the “transport currency” method in the derivatives business in collaboration with LCH Swap Agent, a subsidiary of the London Stock Exchange.

Service:
For detailed facts and figures on KfW’s funding activities in the capital market as of 30 November 2023, please click here.