OUR focus in financial centre NRW
Financing the transformation
One of the central tasks of our time is to transform an entire federal state. The economic transformation is about safeguarding good, future-proof jobs and creating new ones. A shift in awareness is on the horizon with regard to the transformation as a whole. To safeguard jobs here in NRW, we need future-oriented products and processes. This means that these are workable in the long term and, above all, are sustainable, climate-neutral and competitive. And this transformation needs to be financed.
How much should be invested?
Great efforts are needed to transform the economy and to make it sustainable. The climate-neutral and digital transformation in NRW calls for high investment and financing volumes – by both the private and public sector.
The German Economic Institute (IW) estimates that up to 70 billion euros would have to be invested in NRW every year, including replacement investments. This corresponds to around ten per cent of Gross Domestic Product for the federal state.
This presents new challenges for mid-sized companies in particular, but also for financial institutions. Business models need to be optimised for the transformation and for sustainable finance. The future viability of companies depends on how well they implement this change process.
Who is financing the investments?
There is enough private capital available in NRW to finance the climate-neutral and digital transformation, a resilient energy supply and renewable energies. Given the sheer scale of what is required, the central problem for transformation financing is ensuring that private capital is actually invested in NRW. This means that investors and capital seekers in NRW need to be brought together. A reliable framework and suitable risk-appropriate return prospects for companies are necessary for the transformation of business models.
The banking industry will play a key role in financing sustainability and digitalisation. In addition, the opportunities for companies on the capital markets must be increased. Insurance companies can safeguard sustainable business practices and are of great importance as institutional investors. State development banks can play an important flanking role providing impetus and anchoring projects. This is because most of the necessary investments will nonetheless need to be financed without public aid.
The aim is to invest in sustainable future technology and to secure a more resilient energy supply. However, many companies first need to strengthen their equity base before they can seek loans for financing new investments. Crises such as the coronavirus pandemic and the Ukraine war have eaten into companies’ equity to a great extent.
Financing the digital transformation in NRW not only means financing high investment volumes but also ensuring that the right financing instruments are available for each of the business models. These include for example loans with indemnity against liability, mezzanine capital, funds, private equity and venture capital. There are many different challenges facing companies of varying sizes and stages of innovation. Financial products need to be optimised to find the right financing mix in each case. After all, a start-up with a new business idea needs a different kind of financing than an established mid-sized company that wants to make its products digital and climate-neutral.
New ideas for financing the transformation
Innovation and cooperation open up new opportunities for sustainable finance. To speed up the transformation, there is a need for new ideas, a structured collaboration and even better networking among players. The financial sector needs to play its part in the transformation of companies. The central parameters here are volumes, fit and risks. To coordinate these, companies should be networked more with banks, insurance companies and investors.
- Networking all relevant players in North Rhine-Westphalia more effectively will close information gaps. Fin.Connect.NRW aims to minimise financing gaps.
- Companies are given expert advice in finding the right transformation strategy for them.
- Fin.Connect.NRW aims to raise North Rhine-Westphalia’s profile for funds and other potential investors.
- By the same token, companies that are looking for capital market financing should also be able to locate these funds more easily (e.g. bonds, private equity).
- Fin.Connect.NRW can help large companies to find partners for a syndicated financing with multiple lenders (syndicated loans).
- Through Fin.Connect.NRW, start-ups and scale-ups should be able to have better access to venture capital. This is because, with the necessary financial freedom, start-ups in particular can create innovative solutions and tap into potential, including in collaboration with established companies.
Effects of EU taxonomy and sustainability reporting
Financial sector players are dealing with the effects of the EU taxonomy. The EU taxonomy has changed the business environment, necessitating changes to business practices. It aims to mobilise investments and steer them into ecologically sustainable areas.
The financial sector must also take ESG (Environmental, Social and Governance) criteria into account in all investment, loan and insurance decisions. In addition, companies have to prepare an in-depth sustainability report – including information about their supply chains. Companies’ social responsibility is continuing to grow in importance (CSR). Fin.Connect.NRW communicates the necessary information through various events.
Previous Fin.Connect.NRW events, which have been well documented, demonstrate how this is done. These can be downloaded from the website. The expert report by the German Economic Institute (IW) contains recommendations for further courses of action.
Links to the topic
Deutsche Bundesbank: Finanzierung der Transformation
EU: Nachhaltige Finanzierung
EU: Platform on Sustainable Finance
EZB: Banks must focus on climate risk
Förderinstrumente der NRW.BANK
Förderinstrumente der KfW
Förderinstrumente der Europäischen Investitionsbank
Förderinstrumente des Europäischen Investitions Fonds
Studie zur Leistungsfähigkeit der NRW-Industrie und ihrer Transformation
Was ist Transformation?
EU: Platform on Sustainable Finance
More on transformation financing
Planned events relating to sustainable and digital transformation can be found in our event calendar. We look forward to seeing you there!
In the news blog, you will find the latest information and reports on past events on digital transformation and how it is financed.
Further information on this topic is available from our cooperation partners.