Double portrait of Stefan Wintels and Christian Lindner
Mobilisation of private capital

Mobilisation of private capital

„Shaping the future“

Federal Minister of Finance Christian Lindner, currently Chair of the KfW Board of Supervisory Directors, and KfW CEO Stefan Wintels about the role that private capital plays for the transformation, the new energy policy and the attractiveness of green investments.

Christian Lindner
Portrait of Christian Lindner during conversation

has been Chairman of the FDP since 2013 and Federal Minister of Finance since 2021. In 2023 he is Chairman of the Board of Supervisory Directors of KfW by rotation.

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Federal Minister, mobilisation of private capital has become part of your agenda. How come?

CHRISTIAN LINDNER Today we know that we need to fundamentally change the way we live and operate. The challenges are enormous: digitalisation, decarbonisation, demographic change. If we want to preserve what has been achieved in seven decades of the Federal Republic, we need to transform. To cope with this transformation, we will have to spend trillions of euros over the next several years and decades. This cannot be mobilised by the state alone. That is why we need private investors and framework conditions that make investment in new technologies and sustainable development attractive.

You have been the Chair of KfW’s Board of Supervisory Directors since the beginning of the year. In this context, how do you view your promotional bank, which is turning 75 in November this year?

LINDNER KfW was a Trümmerfrau, a German expression for the women who cleared the rubble after the war. KfW was a builder, it was a moderniser, KfW was a crisis manager. Now it is to take on the role of driver. We want KfW to support innovation, make its market-oriented expertise available and make a contribution to leveraging private capital. Not as an extended workbench of state subsidy policy, rather as a market-based instrument between the free play of market forces and the regulatory laws and government budget of the state. After 75 years, it is fair to say that KfW was something akin to the seed investor of the Federal Republic of Germany. Now KfW’s idea of enabling private business risk must become even stronger.

Stefan Wintels
Portrait of Stefan Wintels during conversation

has headed the state promotional bank KfW since the end of 2021. Mobilising private capital and optimising the promotional impact are part of the transformation agenda he launched.

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KfW Research has calculated that we will need 5,000 billion euros by 2045 for climate transformation alone. Mr Wintels, is this dimension holding you back in your role as a motivator?

STEFAN WINTELS I am very confident, because in the 75 years that it has existed, KfW has repeatedly contributed to overcoming crises at home and abroad and emerging from them stronger. Our self-image is still “shaping the future”. As a driver, but above all as an “enabler” – “trailblazer” – we want to make it possible for people as well as companies to take responsibility. The enormous challenges can only be overcome if everyone fulfils their responsibilities. We are already seeing encouraging examples. Germany is reinventing itself once again. The transformation into a sustainable, digital and resilient Germany has begun!

What makes you say that?

WINTELS As KfW, we are close to market events at the interface between politics, business, finance and the general public. Both in the recognition of particularly innovative entrepreneurs and in our own financing practice, we experience that the inventive and entrepreneurial spirit of Germany is very strong. We also see crises as opportunities in Germany. A good example in two respects is the expansion of the LNG infrastructure in Brunsbüttel. On the one hand, the infrastructure was completed incredibly quickly and, on the other hand, the energy transition was directly taken into account. The infrastructure is designed in such a way that it will be able to process green hydrogen further down the line.

At the same time, many things are not progressing in Germany, for example in the area of digitalisation. Minister, can Germany still be a role model in the transformation?

LINDNER I believe that the new energy policy that we have set ourselves in Germany can act as a model. Our aim is to switch our energy supply to renewable – as I call it – freedom energy, which makes us more independent from other regions of the world and which is ultimately also economical. Because solar energy is cheaper than fossil fuel. The transformation, the path to it, must not lead to structural failures.

What do you mean by that?

LINDNER That we have to enter the phase in which returns can actually be achieved. If we get it right then our new energy supply will be an advantage. Fossil energy sources will be not only environmentally but also economically problematic due to the requirements of green finance and taxonomy. From my point of view, nuclear energy, at least in its current form, is also associated with question marks from a cost-effectiveness perspective. On the one hand, because the uranium price will also rise at some point if we strive for a renaissance of nuclear energy. And on the other hand, because we have the often unresolved question of permanent disposal sites. I therefore believe that our path – renewable freedom energies with innovative energy imports, synthetic fuels, hydrogen, CCS technologies – offers a huge opportunity for the coming decades, both economically and environmentally.

KfW Capital

invests in German and European venture capital funds that invest in companies in the growth phase in Germany and thus strengthen their capital base.

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Mr Wintels, are green investments really profitable in the long-term?

WINTELS Absolutely. This is already the case today, for example with green bonds. The first green bond – it’s difficult to believe – was issued in 2007. It was 2014 when KfW launched the first Green Bond in Germany; the volume was only 43 billion US dollars, and last year we already had 630 billion US dollars in Green Bonds. This is an annual growth of almost 50 per cent. This suggests that there is incredible demand for green investments.

Why is this the case?

WINTELS Because sustainability removes risk. We are already seeing that companies with equally well-functioning business models without a credible sustainability strategy are traded at lower multipliers than companies with a clear sustainability strategy.

LINDNER We have a narrative in Germany that the ecological transformation necessarily involves abandoning growth and economic progress. My conviction is fundamentally different. Green investments or, in other words, investments in the environmental transformation can generate new growth themselves, because in the end we offer products and services with more efficient, more innovative methods. Because we develop system and technology know-how that we can export to the world. This environmental and digital transformation presents an enormous opportunity for our country to not only change itself, but also the world through top German products and services. And this brings good returns for all those who invest.

Mr Wintels, how does KfW contribute to this?

WINTELS 75 years of KfW means 75 years of experience in shaping change. Our aim has always been to provide investment incentives, stimulate private financing and mobilise private capital – both nationally and internationally. Up to now, the focus has been on mobilising private capital through debt capital – i.e. issuing loans. Now it’s all about the modular system to expand equity-like instruments and thus to help establish a self-sustaining ecosystem.

What’s already in your modular system?

WINTELS I would like to give you four examples. Firstly, we have funded a number of impact funds in developing countries and emerging economies, such as the Fund, which finances sustainably-producing companies in agriculture and fisheries. Here, one euro from the government budget raises more than 17 times the amount of sub-loans. Secondly, at the last COP27 climate conference, we launched the world’s first promotional platform for financing green hydrogen. It offers great potential for leveraging further public promotional funds, KfW’s own funds and private financing. Thirdly, I would like to mention our Venture Tech Growth Financing programme, which directly finances start-ups in Germany. It has recently been substantially expanded. By 2030, we will be providing 1.2 billion euros in revolving funds for joint financing with private lenders across all growth phases. And fourthly, we must remember to mention our subsidiary KfW Capital in this context. KfW Capital acts as an investor, investing in German and European venture capital funds …

Portrait of Chrisitan Lindner
Summit meeting

Chair of the KfW BoardFederal Minister of Finance Christian Lindner (left) and KfW CEO Stefan Wintels.

… and manages the Future Fund launched in 2021 for the German Federal Government. What role does it play in the transformation, Mr Lindner?

LINDNER We want to offer attractive framework conditions for start-ups in Germany. They play the role of an outsourced research department for our economy. They can do things that established SMEs do not want or that industry does not dare. In this respect, they not only produce great products and services, but also knowledge that we urgently need for the transformation. However, they have different needs across the phases from start-up to maturity and growth. In recent years, we have already created a number of instruments in the start-up and pre-start-up phases, such as the High-Tech Start-up Fund. We still lacked instruments for the growth phase of companies that want to gain market share or that we have to support on the global market. The Future Fund targets this area and is also important because it strengthens investors who allow our innovative start-up companies to grow with domestic capital. KfW provides these investors with a certain amount of security, which is often necessary for private investments.

You have spoken quite a bit about start-ups. What about the established companies?

LINDNER We are constantly considering how we can support the transformation of industry for SMEs, manufacturing and the trades. They require enormous investments in decarbonisation and digitalisation. Also those where the return on investment does not take place within a normal time horizon, but may take place later. However we naturally need to maintain value creation in our country. Here, we require ecosystems that not only provide financing, but also advice. KfW plays an important role here, in addition to private capital market players and banks.

Mr Wintels, you were an investment banker. How can you fall back on this experience now?

WINTELS Investment banks, especially if they are broadly based, offer their customers a financing mix of capital market and other financing offers. At its core, like all banks, it is about helping businesses, private and public sector budgets to implement their plans with tailored financing options. In the coming years, banks will have to accompany their customers in the transformation. Given the scale of the financing needs of this transformation, it will be important to take the requirements of investors, such as insurance companies, into account early on in larger projects. This mobilisation of private capital will be a key issue for KfW in the coming years in Germany, but also for our international activities.

How are you approaching the topic?

WINTELS We initiated the KfWplus transformation agenda at the beginning of 2022. By the end of this decade, we would like to further develop into the digital transformation and promotional bank. I strongly believe that we need to transform ourselves in order to support the transformation of the economy and society in a sustainable manner. In KfWplus, the mobilisation of private capital is the key factor in addition to optimising the impact. These two objectives are directly related. The mobilisation of private capital is not an end in itself. Instead, it primarily serves to make the desired promotional effect as efficient as possible. For the Federal Government, this means using budget funds sparingly, while for private investors it means reducing risks.

A last question for both of you: will the money ultimately save the world?

LINDNER Money does not save the world. Love of freedom, ingenuity, and the willingness to take risks and responsibility save the world. But capital is a necessary medium for achieving concrete real economic results. Incidentally, we also have a considerable amount of capital, both privately and publicly. And that’s why we will have taken a major step forward by 2030 in the areas of climate action and digitalisation in all spheres of life. And in doing so we will have secured the foundations of our prosperity and social cohesion.

WINTELS I think that, in this decade of decision, everyone should ask themselves, whether privately or as a company: Do I live up to my own responsibility? This also applies to investors. If we invest our money in such a way that it also benefits the future, then I am very optimistic that capital can play a very constructive and crucial role. Society, politics, banks, industry and also the capital market are part of the solution.

Published on KfW Stories on 11 April 2023.