Coronavirus effects weigh on German SMEs’ climate investments – development bank

The economic impact of the coronavirus crisis is pouring cold water on the climate investment plans of Germany's small and medium-sized enterprises (SMEs), development bank KfW says in a new report. "Only 47 percent of SMEs have carried out their 2020 investments as planned," the KfW found, adding that this would be a much greater drop than after the financial crisis in 2008. "The investment increase that had been weak in the last years anyway has now come to a full stop," the bank writes, arguing that the crisis has exacerbated a "target conflict between securing financial resilience and making crucial investments into the future."

According to the KfW, the COVID-19 crisis is hampering preparations to exploit emerging business opportunities in climate-friendly technology and digitalisation and would cut investments by SMEs alone by about 40 billion euros this year, which at least could help make large-scale bankruptcies unlikely. However, investing in climate-friendly technology would be necessary to consolidate their position in the future, the KfW concluded. "Economic policy should therefore aim to set the right conditions and incentivise investments through seed funding and induce future growth" in the two "key areas" climate and digitalisation. Secure investment conditions, for example through a "predictably rising CO2 price signal" could further help to create a favourable environment for SMEs, the KfW added.

Continuously high investments in energy efficiency and renewable power by Germany's vast SME sector are seen as a prerequisite for achieving the country's aim of having a climate-neutral economy by 2050. The government has sought to couple its coronavirus recovery package for businesses with aspects of its Climate Action Programme introduced in 2019, akin to the EU's linking of elements of its Green Deal to the bloc's own pandemic recovery programme.