The new CEO of DEG is clear as to his priority. “I want us to offer even more advisory services than we have up until now.” Roland Siller believes, “If you look at how impact investment is moving forwards, the energy transition is a priority.”
“We have strong ‘know-how’ here, strong DNA,” Siller says. He wants DEG to further strengthen its advisory services and help companies in their transformation.
Siller says that DEG have existing advisory programmes already, but he “plans to look into building a subsidiary where we would unite these services and (he) would like them to grow.” He tells Impact Investor he plans to bring an advisory services subsidiary into existence before the end of the year.
Rather than focusing on governance aspects of investments, such as challenges like liquidity and proper ESG management controls, he believes “to increase our impact, transformation and climate advisory services is the way forward. This is an area where we have knowledge.”
As an example of what that advice might look like, Siller cites a Georgian company DEG supported as an anchor investor and advisor in the successful placement of the country's first green bond. Proceeds improve water supply and wastewater disposal and support the company’s transformation.
Pandemic focused the mind
Clarity on DEG’s future direction came to Siller as a result of the pandemic. “Our promotional funds in areas such as healthcare and continued payment of wages were in high demand.” In total, over €50mn went into co-financing of Covid-19 response measures.
Prior to his appointment as CEO in July, Siller worked at DEG’s parent KfW for over twenty years. He held a number of senior development positions and lastly was Director General of Strategy (and Latin America). As such he was centre stage to KfW’s Covid response.
Net zero carbon
DEG is engaged in its own transition plans. They have reiterated their plan to be net zero carbon by 2040 and to transform their portfolio.
Along with the other European development finance institutions (DFIs) they committed in November of last year to phase out fossil fuels and mobilise private sector climate finance.
“I just had my first calls with our offices abroad and …there is high interest …to see that companies are preparing for energy transition,” Siller says.
He admits though he has yet to fully consider what we do with legacy investments in “delicate sectors” but “we are undertaking a review to examine the impact of any of these investments. It is not our aim to move out of all sectors, but to transform the economy and make it viable.”
“Indirect relationship” with the German government
In expanding its advisory services, DEG can build on one of its strengths – good diversification globally. This is an advantage in terms of risk management but also in terms of learning from different regions and applying that knowledge in different areas.
Siller calls them “‘South to South’ innovations. Things learnt in Asia applied to, say, Africa.” Africa is a definite priority. DEG is particularly proud that it increased new commitments in Africa by 12% in 2020.
The priorities of the government do influence geographical priorities. The German federal government and the federal states own KfW, which is DEG’s parent group. Siller speaks of “an indirect relationship.”
He admits “There is a political agenda overall, but there is no influence on day-to-day decisions and there is very much freedom of structuring (deals).”
Certainly, DEG has a development policy mandate, namely financing private-sector companies and assisting them as they move into developing countries. And there are representatives of different ministries on the supervisory board.
Focus on Africa
“The German government has a strong will to invest more in Africa – you've seen Angela Merkel’s initiative for Africa – inviting more German companies to get involved,” Siller says.
Through ‘Africa Connect’ DEG has been offering European companies a new financing product for investments in Africa since the summer of 2019.
Investments in reform-oriented African countries are specifically promoted and facilitated through a special model of risk-sharing, to attract even more German companies to invest in Africa.
Africa is also important to Siller personally. “As a student, I chose an internship in Africa when everyone else wanted to go to North America.”
There he realized “how much potential there is in people.” He says: “I came across really bright entrepreneurial people who had no optimal start in life because the government couldn’t pay their professors’ salaries.”
Since then, Siller says he has “seen what is possible in countries where the political governance has improved, and human capital has been unleashed.”
Gender lens investing “major priority”
Naturally, therefore, gender lens investing is also important. Siller: “It is an important part of impact and will remain a major priority for us – this is a constant. I am convinced that the upside is considerable, and the impact enormous. We take the 2X Challenge commitment very seriously.”
The 2X Challenge is the high-profile global gender finance initiative founded by the G7 DFIs, and chaired by DEG’s dynamic VP Jessica Espinoza. Strengthening women’s economic empowerment has important multiplier effects. Women in developing countries reinvest up to 90% of their income into their families and communities, especially in nutrition, health and education, which constitutes a much higher rate compared to men.
When asked what he is most proud of, Siller cites a human capital example. “I certainly am very proud of our investments in the 2000s in microfinance for KfW. We helped build and ‘scale’ important players around the world.”
He invested in the first microfinance bank in Afghanistan. That was very successful over the last twenty years, in very harsh circumstances.
What of Afghanistan now? “I am optimistic – at least on two fronts. The impact from the millions of girls we helped send to school and the fact that 60% of the population are under twenty.”
Closer co-operation between DFIs
Siller says “Cooperation with other DFIs is more important to us than ever.” Again, this is something that became clear during Covid when travel restrictions made it difficult to develop a good pipeline. “It is only with good cooperation, particularly with the other European DFIs that we can do this.”
A pipeline of good reliable projects is also very important to Siller because “it might be the means by which we will attract private finance. This is something I would like to develop further and to build on our relationships with institutional investors.”
At the moment, co-financing with other DFIs is about two-thirds of DEG’s investments. “I think it’s very important that we all put national concerns behind us, and cooperate more together. Think of the impact we could have if we worked more together as a group – particularly in Africa.”