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DEG’s mandate and methods of operation

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 exclusion list. 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.

About DEG’s investments in the agricultural sector

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.

Information about DEG’s methods of operation and principles:

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: Our standards | DEG (deginvest.de)

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.

A focus on renewable energies and transformation advice:

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: Harmonised EDFI Fossil Fuel Exclusion List October 2020

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.

Advancement of small and medium-sized enterprises in developing countries:

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.