Focus climate strategy 

The German government actively supports the internationally agreed goal of limiting the anthropogenic global temperature increase to 1.5 degrees Celsius. This calls for a comprehensive decarbonization of the global economy. With the climate strategy for the guarantee instruments of foreign trade promotion, which entered into force on 1 November 2023, the Investment Guarantees will be aligned with the 1.5 degree path. The aim of this climate strategy is to bring the projects of German investors abroad - covered by Investment Guarantees - in line with the Paris Climate Agreement, the decisions of the G7 summits in Elmau and Hiroshima as well as the statement of the United Nations Climate Conference 2021 (COP26) in Glasgow including its side letter. Progress in implementing this strategy is measured by what is known as greenhouse gas (GHG) footprint of the portfolio. The footprint captures all greenhouse gas emissions associated with federally covered investments abroad. In line with the Paris Agreement, the GHG footprint is to be reduced to Net Zero by 2045 in advanced economies and by 2050 in developing and emerging economies.

With the climate strategy for Investment Guarantees, the Federal Government actively supports German investors in the transformation towards a climate-neutral and competitive economy. Green and innovative investments can be covered on much more attractive conditions in the future. This will strengthen the competitiveness of German industry in the long term, as the necessary decarbonization of the economy will lead to higher demand for these technologies globally. For effective implementation of the climate targets, the climate strategy of the Investment Guarantees is composed of various elements that build on each other. These elements are used to prepare the decision to issue a guarantee. This not only supports the decarbonization of Germany's foreign trade, but also the transformation of target countries abroad.

The climate strategy for Investment Guarantees is based on two pillars: climate-friendly projects benefit from preferential coverage conditions, while coverage exclusions are gradually introduced for projects that contradict the 1.5-degree pathway. From 1 November 2023, every investment abroad covered by the German government will be classified in one of three climate categories:

• Projects in the "green" category make a significant contribution to the 1.5 degree pathway and therefore qualify for enhanced coverage terms.
• Projects in the "white" category do not conflict with a 1.5 degree pathway and remain eligible for funding under normal conditions.
• Projects in the "red" category are not compatible with a 1.5 degree pathway and are therefore excluded from coverage.

For the vast majority of German foreign trade supported by the guarantee instrument, the coverage options remain in place. Especially the innovative German SMEs, e.g. in the classic mechanical engineering sector, already meet the requirements of the climate strategy with highly efficient products and production facilities. The classification into the categories is made on the basis of the general climate assessment within the framework of the environmental, social and human rights assessment or, for the energy, chemical and transport sectors, on the basis of the Sector Guidelines.

To give investors planning security in the transition to low-carbon business models, this climate categorization is carried out using recognized international standards. For all applications for Investment Guarantees, a climate assessment is carried out by comparing the projects with minimum as well as best-in-class benchmarks. An investment is classified in the "white" category and remains eligible for support regarding climate aspects if the foreign project complies with the climate-relevant requirements of the Environmental, Health, and Safety (EHS) Guidelines of the World Bank Group (minimum benchmark). Projects for which no benchmarks are available also fall into the "white" category. If the project furthermore complies with the relevant requirements of the EU Taxonomy (best-in-class benchmark), the investment is classified in the "green" category and qualifies for coverage relief. Projects that do not comply with the requirements of the EHS Guidelines and cannot ensure compliance in the future even through contractually anchored coverage requirements are classified in the "red" category and would be excluded from coverage.

For relevant sectors of the Investment Guarantees, the classification into the three climate categories is based on specific Sector Guidelines instead of the general climate assessment. These Sector Guidelines contain direct decision criteria for the climate policy eligibility of applications for Investment Guarantees. The Sector Guidelines were initially developed for the three key sectors of energy, chemicals, and transport. Key sectors are those that are associated with particularly high greenhouse gas emissions and are significant in the portfolio of Investment Guarantees. The climate policy Sector Guidelines and the decarbonization pathways and decision criteria mapped therein were developed on a science- and evidence-based basis using the Net Zero Emissions by 2050 scenario of the International Energy Agency (IEA). In addition, the Sector Guidelines were consulted with business and civil society. The results of this exchange have been incorporated into the final versions of the Sector Guidelines.

The Sector Guidelines focus on the emission-intensive sectors of the Investment Guarantee portfolio. Accordingly, they will apply to three sectors or subsectors in the future: 1) energy (fossil fuels and climate-friendly energy), 2) chemicals and 3) transport (production of passenger cars and light commercial vehicles).

Incentives to invest in climate-friendly projects in developing and emerging countries are introduced through the following preferential cover conditions for projects in the "green" category:

• Reduction of the guarantee fee by 20 %[1] ,
• Reduction of the deductible in the event of a claim from 5% to 2.5%,
• Extension of the guarantee period by five years to 20 years (if this is possible taking into account legal protection), and
• Waiver of the application fee for projects that can be directly categorized as “green” due to their sector affiliation at the time of application. These are renewable energy projects and projects for the production of green hydrogen.

In addition, the incentives for renewable energy projects already adopted in 2020 will continue to apply to suitable projects. This includes the comprehensive coverage of payment risks from power purchase agreements within the framework of the so-called “break of contract” coverage. The German government also offers this coverage for renewable energy projects for non-central government power purchasers and for all countries with applicable investment promotion and protection regulations. To provide project developers, investors, and financing banks with planning security at an early stage of the project, it is possible to obtain an early indication of the scope of possible coverage with Investment Guarantees.

[1] Even in combination with other incentive measures of the investment guarantees, the fee rate will never be less than 0.4 % p.a.

The Climate Strategy will be reviewed for the first time in 2025 and regularly every 3 years thereafter for current developments in order to take into account updates to the underlying standards and scientific scenarios and at the same time ensure planning security for foreign trade.

The diversification strategy goes hand in hand with the climate strategy for the federal guarantee instruments. A cumulation of incentives is possible, whereby the guarantee fee can be reduced by up to 0.4 % p.a. This results in particularly attractive conditions for investments in renewable energies, transformation technologies and climate-friendly showcase projects in the countries benefiting from the diversification strategy.