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KfW Green Bond Portfolio

KfW has been building up a global green bond portfolio since 2015 with the support of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). The original target volume of the green bond portfolio of EUR 1 billion was increased to EUR 2 billion in 2017, and a target corridor of EUR 2 to 2.5 billion was introduced in 2021. After the postulated targets were reached, KfW and BMUV agreed to terminate the promotion mandate, which expires at the end of 2023.

Motivation and Goals

With its investments in green bonds, KfW pursued the goal of fostering the topic of sustainability as part of its capital market activities by financing environmental and climate protection measures via a capital market-based instrument and at the same time promoting the development of qualitative standards with regard to transparency and impact of green bonds.

KfW has invested a total of around EUR 3.4 billion in green bond issues from 64 issuers up to and including October 2023 and, in addition to the quantitative market development, has also kept an eye on the qualitative development of green bonds. It has defined minimum requirements for the quality of the green bonds to be purchased and supported issuers in improving quality through its involvement in new issuances and downstream green bond reporting. The minimum criteria related, among other things, to the project categories (e.g. renewable energies, energy efficiency, sustainable mobility projects and biodiversity), including the presentation of the objectives and expected impact of the projects, the project selection process, the allocation of funds, reporting and qualified verification by a third party (e.g. in the form of a second party opinion). The minimum requirements were tightened over time and most recently also extended to the issuers themselves, who had to demonstrate a credible, holistically sustainable approach.

KfW has also been actively involved in the development of globally accepted standards as part of its long-standing membership of the Executive Committee of the Green Bond Principles (GBP). Over the years, Social Bond Principles, Sustainability-linked Bond Principles and Sustainability Bond Guidelines have been developed. A particular focus of the commitment was also on the development of a reporting framework. The Handbook Impact Reporting, which was developed in collaboration with KfW, summarizes the principles and recommendations for reporting by green bond issuers.

The green bond market has continued to grow dynamically since the start of the mandate in 2015. The annual issue volume has increased from a few billion euros to EUR 465 billion in 2022, while the total volume of outstanding green bonds amounted to over EUR 1.9 trillion at the end of October 2023 (market data from Bloomberg). The significant growth in the volume of green bond issues over the promotional period and the establishment of qualitative standards are evidence of a development in the capital market towards greater transparency, from which issuers and investors benefit in the long term. With the development of its green bond portfolio, KfW has made a substantial contribution to this, bringing the almost ten-year promotion of the market segment to a successful conclusion.

Key Portfolio Figures

As at the end of October 2023, the volume of the green bond portfolio amounted to EUR 2.5 billion. Covered bonds account for the largest share at around EUR 1.3 billion or 50%, followed by supras/agencies (21%), bank bonds (18%), public-sector bonds (9%) and ABS (2%). As of the reporting date, German issuers accounted for the largest share with 33% of the total volume. Since the start of investments in 2015, KfW has mobilized a total of EUR 3.4 billion through 122 investments and has contributed to the promotion of green projects with 64 issuers from 16 countries through its involvement.

The majority of the projects supported by the investments as of the reporting date are energy efficiency measures. This is followed by renewable energy projects and sustainable mobility projects.