KfW gives outlook on funding plans in 2022 and expands its Green Bond Framework

• KfW expects funding volume of EUR 80-85 billion in 2022, including at least EUR 10 billion ‘Green Bonds – made by KfW’
• Diversity of KfW´s funding currencies is attractive for investors around the world and contributes to KfW´s promotional programmes with favourable conditions

Investors around the world have piled into ‘Green Bonds – Made by KfW’ in 2021. The promotional bank has raised the equivalent of more than EUR 16 billion (just under 20% of its total issuing volume for 2021) through 37 green transactions in 13 different currencies. That was twice the volume of the previous year and comprises record issues in euros, US dollars and Australian dollars. The high green bond volume in 2021 was due to very strong demand, especially for the loan programme ‘Energy-efficient construction’, and persistently high investor demand.

That makes KfW not only Germany’s largest green bond issuer but currently the world’s second largest issuer in this market segment after France. “We are extremely satisfied with the way our market presence has evolved in the past seven years. As one of the pioneers in this market segment we have made a significant contribution to implementing green bonds in the international capital markets. We offer investors liquid green bonds in various currencies, which is why they value us. That motivates us to continue driving forward the clearly visible transformation in the capital market”, explains Tim Armbruster, Treasurer of KfW.

KfW’s Green Bond Framework has now been updated and will have the following features from 1 January 2022 onwards:

• The promotional programme ‘Energy-efficient construction’ that expired in the summer of 2021 will be replaced by the ‘Federal Funding for Efficient Buildings’ (BEG) programme.
• The promotional programmes for ‘Sustainable Mobility’ (numbers 267-269) have been newly included in the framework.
• The promotional programme ‘Renewable Energy Standard’ remains part of the Green Bond Framework.
• The updated Green Bond Framework is aligned with the ICMA Green Bond Principles published in June 2021 and features
• an updated Second Party Opinion by Cicero, Oslo.

“Our investors can rest assured that they will receive comprehensive and transparent reporting from us on how their capital is used”, adds Armbruster.

In the current year KfW successfully conducted its refinancing via green and conventional bond issues on the capital markets with a record volume of EUR 82 billion (as of 15 December 2021). The key basis for KfW’s successful refinancing is its diversified and flexible structure as well as its ability to perfectly align its own funding ambitions with the expectations and requirements of international investors, which it has demonstrated again in 2021:

In total, up until mid-December KfW issued 211 bonds in 15 different currencies in the international capital markets, making an important contribution to securing the attractive conditions of the promotional bank’s loan programmes. 21 benchmark transactions in euros and US dollars for the equivalent of almost EUR 50 billion represented 61% of the funding volume. The bank accommodated the request of many investors for longer bond maturities by issuing a Euro Benchmark Bond with a maturity of 15 years – with an excellent result. This year KfW also successfully expanded its presence in the US dollar market, which is of strategic importance for a global issuer such as KfW (total volume of public bonds in USD +50% compared to the pandemic-induced decline in 2020) and issued the largest USD green bond in the green bond market worldwide. The volume of private placements tailored to individual investor needs grew significantly in 2021, with investors also showing increasing interest in private placements in green format in a noteworthy 7 different currencies.

With its debut issues which are linked to the newly created Sterling Overnight Interbank Average Rate (SONIA) and the Secured Overnight Financing Rate in USD (SOFR), it has also completed the family of new reference interest rates in the core currencies, so it is well positioned for the future.

To refinance the KfW Special Programme to support the German economy in the COVID-19 crisis, KfW drew down around EUR 39 billion in 2020 and a further EUR 3 billion in 2021 under the Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds - WSF). The outstanding volume of refinancing funds is currently around EUR 36 billion. In early December 2021 the German Federal Government and KfW extended the deadline for applications under the KfW Special Programme until 30 April 2022.

Outlook on KfW’s funding activities in 2022

Based on current group business sector planning, KfW expects to issue bonds with a volume of EUR 80-85 billion in 2022.
The bulk of funding will be in euro and US dollar benchmark bonds, which achieve volumes of EUR/USD 3 to 5 billion at initial issue. The liquidity of bonds is also a key concern of investors, which KfW intends to accommodate in the best possible way in 2022. The bank therefore plans to increase selected outstanding Euro Benchmark Bonds up to a volume of EUR 7 billion. Besides, from January it will approach the international capital markets again with its tried and tested strategic approach. “Investors can expect a broad range of bond formats and, above all, a wide variety of currencies from KfW. Due to this diversification, our funding significantly contributes to the provision of promotional loans at favourable terms and, thus, to fulfil our mandate”, says KfW’s treasurer.
With respect to its Green Bonds, KfW currently expects to issue liquid Green Bonds in large volumes and different currencies in the coming year in a total volume of at least EUR 10 billion.

Should the need arise to adjust its funding volume during the year, KfW as a reliable and transparent issuer will inform its investors and other stakeholders accordingly, as has been the proven best practice of KfW´s Capital Markets Division for a long time.

Impact management: more transparency for investors

Investors are increasingly taking a holistic view of issuers, and green bond investors in particular rightly expect comprehensive reporting on the use of funds and the impact of financing operations conducted with bond proceeds. KfW provides this on a regular basis.

In the context of its tranSForm project the promotional bank is very intensively working on preparing a group-wide impact management which will complement the already established annual SDG mapping. The aim of this complex project is to be able to make the actual impacts of KfW financings transparent for all stakeholders. Around 40 impact indicators have already been established and validated for the group and will flow into a group-wide impact management (further indicators are currently under preparation). Work on IT implementation is also underway.

Further milestones were achieved within the scope of tranSForm in 2021:

• Preparation and implementation of six scientifically based sector guidelines for particularly GHG-intensive sectors to steer KfW’s new commitments towards greenhouse gas neutrality; further sector guidelines are being developed.
• Design of a comprehensive GHG accounting system as a complementary monitoring instrument.
• Further expansion of the ESG risk management system, for example by taking first steps to establish a new ESG risk profile database for assessing ESG risks for each business partner. TCFD reporting, which was introduced in 2019, will also continue.

Service:

• You will find information on all highlights of KfW’s funding – green and conventional – and its strategy, currencies and investor groups in the handout accompanying the press release: Handout "Invest in the everlasting. Funding Highlights in 2021 and Outlook for 2022"(PDF, 800 KB, non-accessible)

• More on the development of the KfW project tranSForm:
Status report
Group-wide impact management system
Sector guidelines – Financing in accordance with the Paris Climate Agreement