DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH has a development policy mandate to finance and advise private enterprises that invest in developing countries as an important driver of employment and income. For this purpose, it provides them with long-term financing in the form of loans and participating interests on market terms from its own funds. These investments in developing countries are often made possible under challenging conditions. DEG’s current portfolio is worth EUR 9.9 billion and covers around 600 investments.
Our work focuses on making effective contributions to the global Sustainable Development Goals (SDGs). These contributions are measured regularly and document developments and successes of DEG's work: According to our 2022 portfolio analysis the co-financed companies employed around three million people and generated local income of EUR 209 billion in the partner countries in 2022 alone.
In addition, in its partner countries DEG specifically champions resource-efficient business practices and the use of renewable energies and advises the co-financed companies on these aspects. DEG’s renewable energies portfolio is currently worth around EUR 1 billion. Co-financed renewable energy projects produced 35 TWh of green electricity for over 33 million people in 2022, thereby avoiding more than 24 million tonnes of CO2 emissions.
Before committing any funds, DEG carries out careful environmental and social due diligence. Taken as the benchmark here are the current IFC Performance Standards of the International Finance Corporation, the international standard for environmental and social aspects of private sector investment. In certain cases financing by DEG is excluded from the outset.These include undertakings that involve forced or child labour or destruction of high conversation value areas. These activities and areas are summarised in a publicly accessible . During the term of investments, DEG regularly reviews and provides support with the implementation of environmental and social measures and action plans agreed with the companies. A team of environmental and social experts takes care of this at DEG, with support from external specialists.
As a learning organisation, we are constantly expanding our expertise in these important areas of activity and continuously refining processes. That includes looking in detail at challenging developments in individual investments, working to achieve improvements and fostering exchange with local communities and civil society. Evaluation processes are also continuously refined in this way. In recent years we have further expanded our sustainability department, among other measures, and we hold regular talks with internationally recognised environmental and social experts.
Already in 2014 DEG set up a publicly accessible Complaints Mechanism that is open to individuals and organisations that feel that they have been adversely affected by an investment co-financed by DEG. The complaints submitted to this instance are checked and processed by an independent committee of experts.
In addition, we focus on ensuring that the information we provide is as comprehensive as possible, including in annual financial statements and annual Development Reports. Since as far back as 2015, the DEG website has also provided investmentrelated information on the investments financed using DEG’s own funds after financing is approved. This includes information about the customer, the purpose of the investment, the financing volume and the environmental and social category. The customer must give consent before this information is published.
DEG’s disclosure policy is regularly reviewed and redefined. For instance, for certain landrelated investments which, as a general rule, are particularly relevant in terms of their environmental and social aspects, since 2020 we require customers to publish a summary of the environmental and social action plan on the customer’s website.
DEG’s investments also include investments in the agricultural sector, which for instance help to improve local value creation and the supply of agricultural products. DEG acquired a 15.8% stake in the agricultural company PAYCO in 2013. The company breeds livestock and grows crops including soya, maize, cotton and rice. DEG’s investment has allowed the company to expand its irrigation systems, grow rice for the first time and build up sustainable wood production facilities. The company converted the use of around 800 hectares of land in 2016/17 after obtaining approval that it had requested several years previously from the relevant authorities. According to the information provided to DEG, the company has not applied for or carried out any additional clearcutting since then.
DEG has set itself the goal of achieving a climateneutral portfolio by 2040, following the three principles of “a) avoid, b) reduce, c) offset”. That means that a) it will not finance companies with high emissions if they do not show any willingness to transformation and continue to work with outdated technologies. With regard to b), DEG provides extensive advice to existing and prospective customers on climate protection issues and supports them in reducing their carbon footprint. Finally, it initiates active climate neutrality management in order to achieve its intended goal by offsetting its remaining emissions through investments in carbon sink projects.
DEG currently holds a stake worth around EUR 7.9 million in the company Arbaro, which invests in sustainable forestry projects in Latin America and Africa. The projects are certified in accordance with the widely recognised, leading CO2 certification standard VCS (Voluntary Carbon Standard), administered by VERRA (Verified Carbon Standard). Portfolio companies are FSC-certified. This also includes clear rules on the use of pesticides, which is checked in annual audits. In addition, Arbaro operates a complaints mechanism that is also open to people outside the company.
DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH has a development policy mandate to finance and advise private enterprises that invest in developing countries as an important driver of employment and income. For these investments, it provides them with long-term financing in the form of loans and participating interests on market terms from its own funds. We reach these companies in two ways. On one hand, we finance enterprises directly by providing loans or equity capital. We also provide capital to local banks and other financiers, such as investment companies, which in turn supply mainly small and medium-sized enterprises (SMEs) in developing countries with the long-term financing they need.
Our work focuses on making effective contributions to the global Sustainable Development Goals (SDGs). These contributions are measured regularly. In 2022, companies co-financed by DEG employed around 3 million people and generated local income of EUR 209 billion in partner countries.
The IFC Performance Standards, the international standards for environmental and social aspects of private sector investment, are a key benchmark for our work with private sector enterprises in developing countries. Further information about our standards is available at:
DEG will always take seriously any questions about, or criticism of, its methods of operation and projects that it has co-financed. It maintains an active, regular dialogue with various stakeholders, including representatives of civil society.
DEG specifically champions resource-efficient business practices and the use of renewable energies in its partner countries. The risks and consequences of climate change are having a particularly noticeable impact in less developed countries. DEG’s renewable energies portfolio is currently worth around EUR 1 billion. Co-financed renewable energy projects produced 35 TWh of green electricity for over 33 million people in 2022, thereby avoiding more than 24 million tonnes of CO2 emissions.
DEG complies with the “Fossil Fuel Exclusion List” of the EDFI, an association of European development finance institutions that aims to support the private sector. This specifies which investment projects are excluded from financing by EDFI members:
DEG has not approved any financing for investment in coal or oil (HFO) projects since 2014. Gas-fired power plants have been co-financed only when this helps to ensure a more stable energy supply in less developed countries. Around EUR 119 million has been provided for four gas-fired power stations since 2014.
As part of its focus on impact and climate, which it introduced in 2022, DEG has resolved to reduce greenhouse gas emissions in line with the Paris Agreement’s 1.5° goal in order to make its portfolio climate-neutral by 2040. On this reduction path, we are concentrating on providing targeted support to new and existing customers with appropriate advisory services and on actively accompanying them through the necessary transformation.
By providing financing for banks and investment companies such as private equity funds, DEG is helping to close existing gaps in funding for local companies. Participating interests in private equity funds serve to provide small and medium-sized enterprises in developing countries with the capital they need.
DEG does not provide any financing that is not transparent and does not use any structures designed for tax avoidance. It adheres strictly to all laws and relevant guidelines, taking into account any adjustments to such regulations and standards.
Moreover, the financing that DEG provides to private equity funds may be used only for business ventures in developing countries. This is stipulated in a contract and checked. For every transaction, the company that is to be co-financed and relevant partners such as customers and suppliers are checked before approval for potential indications of activities that are relevant to compliance. The beneficial owners in each case are clearly identified at regular intervals through KYC (“know your customer”) checks.
The private equity funds that DEG invests in acquire an interest in an average of eight to ten portfolio companies. These are usually small and medium-sized enterprises in developing countries, operating in sectors such as manufacturing or renewable energies. The SMEs that are financed in this way are important economic actors in developing countries: they create jobs, provide further training for employees and generate considerable local income.
Several investors normally invest in such private equity funds. Private investors often shy away from the risk of investments when structures in the investment countries can be expected to be unstable – which is frequently the case in developing countries. That means that private lenders are often willing to invest in enterprises in developing countries when they can do this via companies based in established destinations. This can reduce the country risk in the actual investment country – due to legal uncertainty or political instability, for example – which is particularly important when investors from different legal systems are involved. Investment in private equity funds is an effective tool for mobilising the necessary private capital for small and medium-sized enterprises in developing countries.
The Development Finance Institutions (DFI) BIO of Belgium, CDC of the UK, DEG of Germany and FMO from the Netherlands have announced that they will cease to be lenders to PHC, the operating company of three longstanding palm oil plantations in the Democratic Republic of Congo (DRC). The group of DFIs have sold their respective debt interests to Maku Holdings, an affiliate of Kuramo Capital Management.
Kuramo Capital Management is an African-led investment company and has been a significant PHC investor since 2017.
The lenders will explore if proceeds from the transaction can be used for the benefit of local communities near the PHC-plantations Boteka, Lokutu and Yaligimba. This potentially includes supplementing the implementation of the mediation outcomes, facilitated by the Independent Complaints Mechanism (ICM).
The conclusion of the role of the group of DFIs as lenders to PHC is an important step in the company’s long-term and ongoing rehabilitation, which began in 2013 when CDC first committed capital to the business and continued in 2015 when BIO, DEG and FMO became lenders. Since then, PHC, the former subsidiary of Feronia Inc., has been brought back from the brink of collapse. Furthermore, the production of palm oil, which is all sold domestically in the DRC primarily as cooking oil, has risen and thus the company’s ability to employ thousands of people has been significantly improved.
PHC has, since the initial investment by the DFIs, implemented requirements stipulated in an Environmental and Social Action Plan (ESAP) which was contractually agreed between the company and the DFIs as a condition to their investments. PHC has continued to make significant progress with the implementation of the updated ESAP of 2020.
PHC will continue implementing its ESAP following the transaction. Furthermore, the ongoing mediation process with local communities will continue. This process was initiated in 2018 by representatives of local communities through the Independent Complaints Mechanism (ICM) from DEG and FMO. The ICM will continue to receive funding to facilitate this mediation process independent of the DFIs ceasing to be lenders.
The Independent Expert Panel (IEP) of the ICM is composed of social and human rights experts with a proven track record in mediation and remediation. The IEP has now appointed an experienced mediator who has been approved by both the representatives of local communities and the company.
Against the background of DEG being mentioned in media coverage on the Pandora Papers, we would like to issue the following information.
DEG’s development policy mandate is to finance and advise private enterprises investing in developing countries as key drivers of employment and income. For those investments, DEG provides such enterprises with long-term financing on market terms from its own funds. No taxpayers’ money is used. DEG reaches private enterprises in its partner countries in two ways: One way is to finance them directly with loans and equity investments. The other is to provide capital to local banks and other financiers, which in turn supply mainly small and medium-sized enterprises (SMEs) in developing countries with financing tailored to their needs. This enables these local enterprises to grow and develop.
DEG is aware of the general framework conditions in developing countries, including the challenges in respect of good governance. It therefore examines potential investments with special care before any decision is made to allocate funds.
DEG also finances local commercial banks in Panama. DEG provides these banks with long-term investment capital, which in many cases is unavailable to them locally, in order for them to grant loans to local small and medium-sized enterprises. We operate here on the subsidiarity principle in relation to commercial banks. Analyses of the development impact of the banks financed in Panama have shown that these institutions provide loans to some 17,000 SMEs, around 10,000 of them in Panama. The remaining 7,000 SMEs are also based in the region.
In addition, DEG offers advisory services to the enterprises and banks it co-finances in order to support them and develop their knowledge in areas such as environmental and social management, corporate governance, resource efficiency and training. Various advisory services have also been provided to the banks co-financed in Panama, for instance on topics such as risk management or environmental and social management.
For every project, and especially those in countries such as Panama, DEG carefully examines various aspects before providing loans or equity capital. These aspects include the corporate structure, shareholders and beneficial owners. The beneficial owners in each case are clearly identified at regular intervals through KYC (know your customer) checks. Our own specialists, supported by external experts, examine economic, technical, legal, environmental, social and corporate governance aspects. We also regularly draw upon external expertise for assessment purposes, including for integrity checks and audits.
The so-called use of funds contract with receiving banks specify that the funds provided by DEG are earmarked for the purpose of lending to SMEs. The banks must provide DEG with documentation showing that the funds have been used accordingly. The use of funds is secured by contractual guarantees and regularly verified.
DEG adheres strictly to all laws and the relevant German government guidelines. The measures undertaken prior to providing finance also include checking the co-financing company and relevant partners for possible indications of money laundering or other activities relevant from a compliance perspective.
We firmly believe that transparent information about the way we operate and our financings helps us fulfil our development mandate. DEG is therefore in regular dialogue with various stakeholders, including civil society. We always take tip-offs and criticism regarding co-financed projects seriously and follow them up accordingly. Another part of our transparency work, which we are continuously enhancing, is the publication of comprehensive information, including annual reports and annual development reports.
Since 2015, the DEG website has also contained a database of investment-related information on the investments financed using DEG’s own funds. These publications each contain information about the respective customer, the purpose of the investment, the financing volume, and the environmental and social category. Publication is subject to approval of the customer and is obtained individually. In 2020, DEG again enhanced its disclosure policy. For land-related investments (large investments in the agricultural sector with primary land use > 5000 ha as well as large renewable energy and mining projects), which, as a general rule, are particularly relevant in terms of their environmental and social aspects, a summary of the environmental and social action plan is published on the customer’s website following approval of the financing.