The KfW? “We should copy it” – banker
Each year, Germany’s KfW invests 25 times the initial annual capitalisation of the UK’s Green Investment Bank GIB. Today’s draft GIB legislation only serves to reveal the gulf in ambition with our competitors. The KfW Bankengruppe granted EUR 25.3 billion for investments in environmental and climate protection in 2010, a third of its investments. The UK provides GIB with a one-off £3bn budget over the fiscal cycle, and has yet to set its green mandate. Meanwhile, the AAA-rated KfW funds energy efficient construction and rehab in the private sector, offshore wind and geothermal power, municipal modernisation projects and “climate-friendly local public transport systems.”
As the GIB coalition argues today:
“GIB legislation is a pillar in the development of a low carbon economy. The bill must be strengthened to cement its operational independence and green mission. The bank has been prevented from borrowing independently and high carbon investment is not ruled out. If the bank cannot borrow it has no hope of acting as a major catalyst for growth and job creation when the UK is in the midst of an economic crisis.”
KfW’s green drive was borne out of a coalition of unions, community and business organisations, led by the German trade union confederation (DGB). The DGB developed with the affiliated unions a programme to renovate existing buildings by energy saving and energy efficiency measures, with the annual work programme exceeding 300,000 jobs in recent years. Since 2001, KfW loans have helped insulate over 2m homes.
The KfW is serious about meeting Germany’s climate change targets of a 40% cut by 2020 and 80-95% by 2050, so it decided to deal with housing without delay. The same needs to happen in the UK. The key is very low interest rates, currently 1-2%. These are delivered via KfW’s top credit rating, topped up by further government subsidy of the interest rate. In 2011, the state put in just under €1bn, which KfW turned into €6.5bn in loans, which created a total investment of €18.5bn – that’s a 20-fold leverage on the state subsidy.
A last word to Richard Barwell, RBS economist quoted in today’s FT:
“The Germans have found a way of channeling cheap funds to SMEs [through the KfW] without breaching State Aid rules. We should copy it.”