Benchmarking SME decarbonisation policies ‑ Country notes: Germany
Table of contents
This country note highlights recent decarbonisation trends in Germany, examines information on the environmental footprint of German SMEs, and outlines main government policies for SME decarbonisation. German SMEs account for 41% of GHG emissions in the business economy and play a central role in the country’s “Energiewende”. While 44% of German SMEs have climate neutrality plans in 2024 – double the EU average – they face significant implementation barriers such as high implementation costs and complex administrative reporting requirements. Funded through the Climate and Transformation Fund (KTF) and the German Recovery and Resilience Plan (RRP), the government provides a range of support measures for SME decarbonisation. Flagship funding instruments, such as the Federal Funding for Energy and Resource Efficiency in the Economy (EEW), provide SMEs with modular support at different stages of their decarbonisation journey. Uptake of these funding schemes is actively promoted through linked training and advisory services, including the Energy Efficiency and Climate Protection Networks Initiative (IEEKN) and the Mittelstand-Digital Innovation Hubs. Clean tech entrepreneurs are supported through dedicated R&D programmes such as SME-innovative.
Germany’s green energy transition, known as “Energiewende”, was launched in the early 2010s with the goal of phasing out nuclear and fossil fuels in favour of renewable energy sources while improving energy efficiency. As a result, the country has successfully decoupled its economic growth from energy demand and CO₂ emissions (OECD, 2023[1]) (Figure 1; Panel A). In 2022, renewables accounted for 39.4% of power generation, on par with the EU average of 38.2%. In the same year, the largest sources of CO2 emissions in Germany were the electricity and heat producing sector (around 38.9%), the transport sector (23%) and the industry sector (14.5%).1
Significant progress was made in the expansion of renewable energies, in particular solar photovoltaic. In the first half of 2024, renewable energy sources supplied approximately 57% of Germany’s electricity consumption. Germany aims to increase this share to 80% by 2030.2 GHG emissions dropped to 673 million CO₂-equivalent in 2023, marking a 46% reduction compared to 1990. This puts emissions below the threshold set by the Federal Climate Protection Act of 2021 which aims to achieve a 65% reduction of CO₂ emissions by 2030 and by 88% in 2040 (OECD, 2023[2]). While emissions in the energy and industry sectors declined significantly, those in transport and buildings remained high, missing sector targets for the third and fourth consecutive years respectively (Agora Energiewende, 2024[3]).
The 2024 amendment of the Federal Climate Protection Act introduced a more flexible approach towards achieving the sector targets, focusing on overall emissions reduction and cost-effective abatement between sectors.3 According to recent estimates from KfW (German state-owned investment and development bank), Germany will need massive investments of around EUR 5 trillion in technologies and infrastructure to achieve carbon neutrality, including EUR 500 billion in carbon removal technologies for hard-to-decarbonise sectors or sectors with diffuse emission sources such as agriculture (OECD, 2023[2]).
Source: OECD (2023[1]), OECD Environmental Performance Reviews: Germany 2023 (Panel A); and Eurostat Air emissions accounts by NACE Rev. 2 activity (2024), https://ec.europa.eu/eurostat/databrowser/view/env_ac_ainah_r2$defaultview/default/table (Panel B)
Following recent estimates of the OECD dashboard of SME greening and green entrepreneurship indicators (OECD, 2023[4]), German SMEs account for 41% of GHG emissions in the business economy, 4 percentage points above the EU average and 23% in manufacturing, 7 percentage points below the EU average (Figure 2; Panel A). The latter suggests a stronger presence of large companies in the energy-intensive manufacturing sector.
Note: Output weight is the SME share of value added at two-digit sector level. GHG emissions computed at two-digit sector level based on the application of an output weight corresponding to the SME share of value added. To calculate emission intensity, SMEs’ total GHG emissions are then divided by SMEs’ total value added.
Source: OECD calculations based on (OECD, 2023[4]).
According to the Eurobarometer Survey (2024[5]), 44% of German SMEs have a climate neutrality plan in place – more than twice the EU average of 21%. Furthermore, 12% of German SMEs have already achieved climate neutrality, compared to 4% on the EU average. On the other hand, a sizeable portion of 38% of German SMEs does not have a climate strategy and is not planning to implement one, against an even larger share of 53% across the EU on average (Figure 3).
Regarding concrete actions taken to achieve climate neutrality, 5% of German SMEs have not implemented any measures, on par with the EU average. The most commonly reported measure among German SMEs is the general reduction of company emissions, reported by 40%, slightly higher than the EU average of 34%. Furthermore, the adoption of new technological solutions (27% versus 31% on EU average) and the development of such solutions (18% versus 23% on EU average) are broadly in line with EU-wide trends. German SMEs show a slightly higher engagement in carbon offsetting, with 10% implementing offset measures compared to 6% at the EU level (Figure 4).
Note: Question: Does your company have a concrete strategy in place to reduce your carbon footprint and become climate neutral or negative?; (Excluding the following answer options: Don’t Know / No response; Other). The sum of percentages may not add up to 100% due to rounding of numbers.
Source: (European Commission, 2024[5])
Note: Question: What actions is your company undertaking to become climate neutral? (Excluding the following answer options: Don’t Know / No response; Other). The sum of percentages may not add up to 100% due to rounding of numbers.
Source: (European Commission, 2024[5])
German SMEs are on par with the EU average regarding the implementation of resource efficiency actions. The most common action taken by German SMEs is energy-saving (66%), followed by minimising waste (59%) and saving materials (52%) (Figure 5, Panel A). While German SMEs are less engaged in recycling activities (39% versus 47% EU average), they are more likely to use mainly renewable energy sources (36% versus 24% EU average). Consequently, German SMEs tend to focus more on energy efficiency and the use of renewable energy rather than waste management activities, possibly due to the higher economic benefits associated with reducing energy consumption. This is particularly relevant given that businesses in Germany face higher electricity costs than the EU average, paying on average EUR 0.1229 per kWh compared to EUR 0.1031 per kWh in the EU.4
German SMEs face several key barriers to implementing resource efficiency measures, often at higher rates than the EU average. One of the most significant challenges is complex environmental reporting requirements, reported by 33% of German SMEs compared to 26% across the EU. Additionally, the high costs of environmental actions pose a challenge for 31% of German SMEs, slightly above the EU average of 28%. Another notable barrier is the complexity of environmental labelling and certification, which 30% of German SMEs identified as a challenge, compared to only 20% at the EU level. While slightly less of a concern than in the EU overall, complex administrative procedures still present difficulties for many German SMEs, with 32% reporting this as a barrier, compared to 35% in the EU. On the other hand, a slightly higher share of German SMEs (28%) reported facing no difficulties in implementing resource efficiency actions, compared to 26% at the EU level (Figure 5; Panel B). When asked about policies to facilitate the adoption of resource efficiency measures, German SMEs most often reported grants and subsidies (34%), demonstration of new technologies (23%), database with case studies (21%) and self-assessment tools (20%) (Figure 5; Panel C). This highlights German SMEs’ preferences for both financial support and practical advice over, for example, regulatory incentives.
As a percentage of surveyed SMEs
Note: Top 5 items displayed in Panel A, B and C. Panel A: What actions is your company undertaking to be more resource efficient? ; Panel B: Did your company encounter any of the following difficulties when trying to set up resource efficiency actions?; Panel C: Which of the following would help your company the most to be more resource efficient?; Some answer options have been rephrased to improve readability.
Source: (European Commission, 2024[5]).
The Climate and Transformation Fund (KTF)
The Climate and Transformation Fund (KTF) is the central instrument of the federal government for promoting measures to achieve climate protection goals according to the Federal Climate Protection Act and for supporting the decarbonisation of the German economy. The programme expenditures in 2024 amounted to EUR 41.6 billion. A large portion of the expenditures went to energy-efficient building renovations (EUR 14.1 billion) and the expansion of renewable energies (EUR 18.5 billion). In addition, measures for the decarbonisation of industry, the promotion of hydrogen economy, investments in electromobility and semiconductor industries were financed from the KTF in 2024. The KTF is managed by the Federal Ministry of Finance (BMF). The budget items in the KTF are administered by the respective responsible federal ministries – in 2024, there were six ministries involved. The largest share of the expenditures went to the Federal Ministry for Economic Affairs and Energy (BMWE). The fund was financed in 2024 through federal reserves as well as revenues from the European (EU ETS) and national emissions trading (DIHK, 2024[6]).
The German Plan for Recovery, Transformation, and Resilience
Approved in 2021, the German recovery and resilience plan is the other major instrument to support Germany’s recent efforts to support SME decarbonisation. The plan combines reforms and investments to address the country’s specific challenges, with a strong emphasis on decarbonisation and digitalisation across all sectors. Around 40% of Germany’s Recovery and Resilience Plan budget (EUR 11.5 billion) is allocated to climate policies and the energy transition (OECD, 2023[2]). The plan was updated in 2024 to introduce a REPowerEU chapter in response to the energy market disruption caused by Russia’s war of aggression against Ukraine.5 The modified plan strengthened the green focus by devoting 49.5% of available funds to measures supporting climate objectives. Specifically, the plan prioritises industrial decarbonisation through renewable hydrogen, green mobility, energy efficiency in buildings (see details and SME-relevance of specific components in Box 1. ).
Component 1.1.: Decarbonisation (with an estimated budget of EUR 3.3 billion from RRF and EUR 3.5 billion from the Climate and Transformation Fund (KTF))
1.1.1 Investment support and reform: hydrogen projects within the framework of IPCEI (fuel and energy and pollution abatement) (EUR 1.5 billion from RRF + EUR 2.1 billion from KTF): SME participation positively affects the rating in the project selection process.
1.1.2 Investment support: Decarbonisation funding programme for industry (EUR 450 million from RRF + EUR 1.44 billion from KTF)
1.1.3 Investment support and reform: Pilot programme for carbon offset contracts (EUR 550 million from RRF)
1.1.4 Investment support: Project-related research (climate protection research) (EUR 60 million from RRF): In particular, 50% of this funding allocated to the R&D support programme SME-innovative (“KMU-innovativ”): Energy efficiency, climate protection and climate adaptation.
Component 1.2 Climate-friendly mobility (with an estimated budget of EUR 5.4 billion from RRF)
1.2.2. Investment support electromobility (EUR 75 million from RRF): Supporting procurement of electric vehicles and the development of electromobility concepts for commercial fleets, including charging infrastructure.
1.2.3. Investment support: Innovation premium to promote the purchase of electrically powered vehicles (EUR 2.5 billion from RRF): Purchase incentives for EVs accessible to individuals but also SMEs and entrepreneurs.
1.2.7. Investment support: Promotion of the vehicle and supplier industry for hydrogen and fuel cell applications in transport (EUR 546 million from RRF): Targeting supplier industry for hydrogen and fuel cell technology, in particular SMEs and start-ups.
Component 1.3 Climate-friendly construction and refurbishment (with an estimated budget of EUR 2.6 billion from RRF)
1.3.3. Investment support and reform: CO2 building refurbishment: efficient federal funding buildings - innovation promotion (EUR 2.5 billion from RRF): SMEs owning/ renting commercial buildings can receive grants and low-interest loans for energy-efficient renovations and upgrades.
Germany offers a range of initiatives to support SMEs in emissions monitoring at both the federal and state (Länder) level. These include free carbon footprint measurement tools, which provide businesses with an initial estimate of their CO₂ footprint and help identify key areas for improvement. In addition, there is investment support for energy management and monitoring technologies – particularly relevant for energy-intensive SMEs striving to better understand and optimise their energy flows.
CO₂ accounting tool for sustainable business practices “ecocockpit”
Since 2015, the Efficiency Agency NRW “efa” – on behalf of the Ministry of Environment of the federal state of North Rhine-Westphalia – offers an online tool that allows companies to create a CO₂ balance of their company and products.6 The online tool, based on the accounting standards of the “Greenhouse Gas Protocol”, is available at no cost. It is accessible in all other federal states through a co-operative agreement with the Climate Protection Business Network (UNK), a platform funded by BMWE, which co-operates with regional chambers of industry and commerce across Germany. 7
The ecocockpit is designed so that all sectors and company sizes can use it, helping them identify emission drivers across products, processes, and locations to determine Scope 1-3 GHG emissions, from raw material extraction to the factory gate. Scope 3 emissions – such as those from raw materials, auxiliary materials, and operational supplies – are given particular consideration, as they typically represent the largest share of total emissions. The results are summarised in a descriptive report that highlights the main sources of emissions in comparison to relevant benchmarks. The reporting function of the tool also generates a certificate which companies can use for customer communication. Across different federal states the offer is supplemented by training courses in the area of climate accounting, free of charge initial consultations on CO₂ footprint measurement, or subsidies for professionally prepared CO₂ balances through engineering firms.
With over 15 000 companies using the tool, it has proven to be an effective instrument for GHG accounting among German SMEs and in the region of Upper Austria. The tool will be tested from 2025 as part of a co-operation agreement between the efa and the Vietnamese province of Binh Dinh. The aim is to implement the ecocockpit at company level in the long term. One of the main reasons for introducing the tool in Vietnam is the growing global demand for transparency and reduction of CO₂, which is particularly important for exporting economies. Tools for balancing GHG emissions, such as the ecocockpit, are intended to support companies in this regard.
Funding support for energy management and monitoring as part of the “Federal Funding for Energy and Resource Efficiency in the Economy” (EEW)
Energy management and monitoring systems enhance efficiency by providing better control over energy and material flows, which is particularly relevant for energy-intensive SMEs, such as those in manufacturing. However, since they require specialised hardware and software, businesses need to make targeted investments. To support this, the “Federal Funding for Energy and Resource Efficiency in the Economy” (EEW) provides assistance at the federal level through funding module 3, which focuses specifically on energy management and monitoring technologies. This includes funding for the purchase and installation of energy management software, measurement and control technology, and sensors to optimise energy and material flows, as well as training for staff in using these systems. All companies can apply, but SMEs benefit from preferential conditions, including a higher subsidy rate8, with grant support available through BAFA (Federal Office of Economics and Export Control) or low-interest loans with partial debt relief provided by KfW.
From the launch of the funding programme in 2019 until 2023, more than 3 000 applications were approved, resulting in the allocation of approximately EUR 121 million. This, in turn, triggered an additional private investment of at least EUR 126 million over the programme period and estimated energy savings of 238 GWh in 2023 only. SMEs accounted for 38% of successful applications on a yearly average (Fraunhofer ISI, 2024[8]; BMWE, 2024[9]). Unlike other modules within the funding programme – discussed in more detail in the section on investment support – this module also attracted a higher number of applications from larger companies and more energy-intensive companies, possibly driven by higher potentials for cost savings through energy efficiency improvements or stricter regulatory requirements such as reporting on environmental indicators. This trend is reflected in data on sectoral uptake, with most funded businesses belonging to the energy-intensive manufacturing sector, particularly manufacture of fabricated metal products (14%), food products (11%) and rubber and plastic products (11%). Finally, the evaluation of the programme highlights that only 1% of funding applications targeted KfW loans, suggesting that grant support was perceived as more accessible and easier to obtain (BMWE, 2024[9]).
Most SME awareness and training programmes in Germany operate at the federal state or regional level. These initiatives are often implemented through regional innovation agencies, chambers of commerce, and other key actors. However, many of these programmes often integrate into broader national initiatives, such as networks of competence centres and innovation hubs, or guide SMEs to training and funding opportunities available on national or EU level.
Energy Efficiency and Climate Protection Networks Initiative (IEEKN)
The Energy Efficiency and Climate Protection Networks Initiative (IEEKN), launched in 2014, is a key measure under Germany’s first National Action Plan on Energy Efficiency. Since January 2021, the initiative was expanded by the government in collaboration with 21 industry associations and other partners. These corporate networks, each consisting of approximately 8 to 15 SMEs, begin with an energy audit and establish a joint network emission reduction target, which is then continuously monitored over a period of two to three years.9 Through these regular exchange meetings, accompanied by an industry expert, companies work together to improve energy and resource efficiency. Additionally, SMEs benefit from their membership in the initiative through preferential funding conditions for advice to set up transformation plans under funding module 5 of the EEW funding (see Box 2. ).
An evaluation of the programme shows that, until 2021, 285 networks were created, each achieving an average annual energy savings of 37.4 GWh and meeting 97% of their targeted energy reduction goals. Around 60% of these networks were cross-sectoral, while some were industry-specific or regionally focused. One success factor for energy savings within the programme was the high adoption rate of ISO 50001-compliant energy management systems, in place in around 40% of participating companies. However, a key challenge was the overrepresentation of large companies and the limited participation of small firms, which made up only 14% of all network members (Adelphi/ Fraunhofer ISI, 2021[10]). Due to resource constraints, these small firms are also less likely to adopt energy management systems. Building on the past success of the programme, the goal is to establish 300-350 new networks by the end of 2025 to achieve a reduction of 5 to 6 million tonnes of greenhouse gas emissions (BMWE, 2022[11]).
Network of Mittelstand-Digital Innovation Hubs
Germany supports SMEs, startups and the skilled crafts by the “Mittelstand-Digital”10 funding priority, helping them with their digital transformation and informing them about the opportunities and challenges of digitalisation. All services provided under the funding priority are impartial and free of charge. One pillar of the funding priority is the nationwide “Network of Mittelstand-Digital Innovation Hubs” (Mittelstand-Digital Zentren). The network of Mittelstand-Digital Innovation Hubs (2021 – 2026) comprised at its peak in 2023/2024 up to 29 hubs (as of December 2025, it comprises 22 Hubs) which support SMEs and the skilled crafts throughout Germany by providing expert knowledge, workshops and training sessions, demonstration centres, networking and information events as well as practical examples on the topic of digitalisation, including climate-related issues to support environmental sustainability.
The Mittelstand-Digital Innovation Hub “Klima.Neutral.Digital” (June 2022 to May 2025) educated so-called Climate Coaches11. The role of Climate Coaches is to support SMEs in identifying and implementing climate targets within the context of digital transformation. They are a network of individuals who contribute scientific expertise and practical experience in sustainability and digitalisation. Climate Coaches are available to SMEs nationwide at a large number of Mittelstand-Digital Innovation Hubs. Currently, the network consists of around 30 Climate Coaches who help SMEs to identify and implement climate targets. They provide impartial, vendor-neutral information and guidance on suitable digitalisation solutions, supporting SMEs in developing climate-related aspects of a sustainability strategy. Using technically sound quick checks and coaching sessions, the Climate Coaches identify key climate-related issues, analyse potential and highlight concrete options for action when searching for and implementing climate targets.
“Mittelstand-Digital” furthermore offers the “Digitalisation and Sustainability Toolbox”12 that brings together information, proposed measures, guidelines, and good practices relating to digitalisation measures that contribute to various aspects of sustainability. Contents are related to energy efficiency and energy savings, resource savings, reduction of climate-damaging waste products. The content is aimed at both SMEs that are still in the early stages of digitalisation and SMEs that are already well advanced in their digitalisation processes.
Federal Funding for Energy and Resource Efficiency in the Economy (EEW)
A major instrument to improve access to funding for SMEs and large companies in industry and commerce is the “Federal Funding for Energy and Resource Efficiency in the Economy” (EEW). This broad funding programme grew since its launch in 2019 and includes funding for energy and resource efficiency, projects for electrification as well as the production and use of hydrogen.13 From 2019 to 2023, nearly EUR 2.9 billion was allocated to decarbonisation projects. While SMEs accounted for 74% of all funding approvals, they received around 51% of the total funding (BMWE, 2024[9]). The difference in the number of funding approvals and amount of funding received is due to relatively larger projects implemented by larger companies, particularly in the technology-neutral module 4 and the funding competition (overview of all modules in Box 2. ).
Active since: 2019
Ministry in charge: Federal Ministry for Economic Affairs and Energy (BMWE)
Implementing partners: BAFA (Federal Office for Economic Affairs and Export Control), KfW (German state-owned investment and development bank), VDI/VDE-IT (Association of German Engineers / Association for Electrical, Electronic and Information Technologies – Innovation and Technology GmbH)
Financing volume: around EUR 1 billion per year (2024) (from the Climate and Transformation Fund (KTF), part of the federal budget)
The modules:
Module 1 promotes “cross-sectional technologies” in companies for highly efficient systems or aggregates for industrial and commercial use such as electrical motors, pumps, compressors, fans and the insulation of systems. With 80% of approved projects from SMEs who received two thirds of the funding from 2019-2023 (around EUR 9400 on average per company) this module is highly SME-oriented. Since 2024 only SMEs are eligible to apply for this module.
Module 2 on “process heat generation from renewable sources” supports companies to shift to renewable sources in their production processes. Investments in process heat from renewable energies are supported with 40% for large companies, 50% for medium-sized companies and 60% for small companies.
Module 3 supports the acquisition and installation of “measurement, control and regulation technology, and energy software” (this module is highlighted in detail in the section on “Monitoring emissions” above).
Module 4 on “energy and resource-related optimisation of plants and processes” promotes investments by companies that lead to lower GHG emissions in a technology-neutral manner. This module allocated by far the highest funding volumes (52% of total funding from 2019-2023), with an average support per company at around EUR 98 000. The module also had the greatest impact on GHG emission reduction (65% of total GHG emission reduction within the modules from 2019-2023) (see Figure 6). Unlike Module 1, the technology-neutral approach of the module allows companies to freely choose and combine technologies, as long as an overall energy-saving concept qualifies for funding and funding volume reaches at least EUR 10 000 per project. Small enterprises receive a 15% subsidy on eligible investment costs, while medium-sized enterprises receive 10%. Similar to other modules, smaller companies benefit from more preferential conditions in addition to a funding premium for projects with a GHG emissions reduction of at least 30%. From 2019-2023 SMEs accounted for 75% of all funding approvals and received around half of funding under this module for both smaller and larger projects. Most of the supported SMEs came from the energy supply sector (26%), followed by the manufacturing of metal products (12%) and the rubber and plastics (10%).
Module 5 on “Transformation plans” helps with the development of decarbonisation strategies supported by transformation plans. Medium-sized enterprises receive a 50% funding rate, while small enterprises receive 60%. Participation in Energy Efficiency and Climate Protection Networks (IEEKN) (see section on awareness and training) increases the rate by 10%. This module, in which only 21% of applications came from SMEs, often functioned as a “door opener” for other funding modules. From 2019-2023, 32 companies that had developed a transformation plan subsequently applied for funding in other modules, particularly in module 1. At the time of the survey, only 175 transformation plans out of 687 approved applications had been completed.
Module 6 on “Electrification of small enterprises” supports small companies that convert their plants, which were previously powered by fossil fuels, to electricity. While this module is smaller in terms of funding allocated, it successfully supported 251 projects of small companies in 2023 with an average of EUR 21 300 funding support per project. Interestingly, funding was strongly concentrated on electric forklift trucks accounting for 80 % of the approved projects.
The funding competition promotes decarbonisation in companies in a technology-neutral way – compared to module 4, companies can receive higher funding rates in the form of grant support (EUR 1.5 million on average) but have to face competition with other companies. Larger companies, often willing to take higher risks, are the main participants of the funding competition. In contrast, SMEs often prefer direct grants, particularly those from module 4, due to higher planning security.
Under the relevant modules, funding is available either through grants administered by BAFA or low-interest loans with partial debt relief from KfW. In 2021, the project partner VDI/VDE-IT was commissioned by the BMWE to manage the funding competition and transformation plans (module 5). Since 2023, VDI/VDE-IT is also responsible for supporting module 4 of the EEW.
Under the EEW funding, from 2019 to 2023 around 55 000 measures were implemented and led to an estimated GHG emission reduction of around 7 million tonnes CO2-equivalent per year (see Figure 6). The goal is to increase this to 62 000 measures to achieve a yearly GHG emission reduction of 10 million tonnes CO2-equivalent per year from 2022 to 2026 (BMWE, 2024[9]). This goal aims to be achieved, among others with the 2024 amendment of the EEW funding guidelines that simplifies the application process by removing bureaucratic hurdles, such as the previously mandatory calculation of additional investment costs. The amendments also introduce a higher funding premium for module 4 projects for those achieving at least 30% GHG emission savings.14
Note: The funding modules are: M1=cross-sectional technologies, M2= process heat generation from renewable sources, M3= measurement, control and regulation technology, and energy software, M4=energy and resource-related optimisation of plants and processes, M5= Transformation plans, M6=Electrification of small enterprises. In Panel C, according to the method of evaluation the “gross” GHG emissions reduction refers to the difference between the GHG emissions of a system using a reference technology and the GHG emissions of the implemented and subsidised energy-efficient technology (as opposed to net GHG emission reduction which would, for example, include spillover effects and exclude free-rider effects).
Source: (BMWE, 2024[9])
Federal Funding for Industry and Climate Protection (BIK) – energy-intensive industries
While the EEW funding, described above, is the broader funding instrument to decarbonise process and plants, particularly of SMEs in industry and commercial sectors, the Federal Funding for Industry and Climate Protection (BIK) supports the energy-intensive industries, particularly medium-sized companies in steel, chemical, and cement production, in investing in innovative climate protection technologies to reduce process-related greenhouse gas emissions (BMWE, 2022[11]). A second funding module also includes support for development and adoption of carbon capture and storage technologies. The previous “funding programme for decarbonisation in industry” ran from 2021 to 2023 and supported a total 29 projects with around EUR 578 million. The current programme, organised as annual funding competitions, is set to run until 2030 with a total budget of approximately EUR 2.6 billion, funded in part by the federal Climate and Transformation Fund (KTF) and the EU Recovery and Resilience Facility (RRF).15 The funding opportunities are generally larger, and part of more complex projects compared to EEW funding, with minimum project sizes starting at EUR 500 000 for SMEs and EUR 1 million for large companies.
Federal funding for efficient non-residential buildings
As highlighted in the introduction, GHG emissions from buildings remained high in 2023, missing sector targets for the fourth consecutive year (Agora Energiewende, 2024[3]). To address this, the BMWE in co-operation with the KfW provides a variety of financing instruments accessible to SMEs. These include grants for energy audits (following DIN EN 16247) and energy consulting for renovation concepts, or new construction of energy-efficient buildings (with up to 50% of auditing and consulting costs) as well as low-interest loan with a maximum repayment subsidy of 20% for the renovation or construction of energy-efficient buildings.16
The energy audit system in Germany
In line with the latest EU legislation, specifically Directive (EU) 2023/179 on energy efficiency17, the Energy Efficiency Act 2023 (EnEfG) expanded obligations for energy-intensive companies at the end of 2023. Since then, firms with an average total final energy consumption over 7.5 GWh per year must implement an energy management system (EnMS) or environmental management system (EMS), regardless of their SME status. Additionally, companies consuming at least 2.5 GWh per year are required to develop and publish implementation plans for economically viable energy-saving measures (BAFA, 2025[14]). Consequently, energy-intensive SMEs are mandated to implement a certified management system or at least publish plans for energy savings.
BAFA (Federal Office of Economics and Export Control) controls the fulfilment of energy audit requirements. To support the audit process, BAFA published a public list of qualified energy auditors and, in co-ordination with the BMWE, developed a guideline to help auditors prepare energy audit reports in line with the standard DIN EN 16247. To increase SME voluntary uptake of energy audits, grants for energy audits of buildings (see above) but also for plants and systems are available under the federal funding for energy consulting services. For example, SMEs with annual energy costs exceeding EUR 10 000 can receive a grant covering 50% of the energy auditor’s fee, up to a maximum of EUR 3 000, to support certification under DIN EN 16247. Additionally, the Energy Efficiency and Climate Protection Networks Initiative (IEEKN) plays a key role in promoting the uptake of energy audits but also in providing sector-specific guidance and long-term monitoring of energy efficiency improvements.
SME-focused R&D programmes for climate action
Thematic initiatives – “SME-Innovative” for climate protection and energy efficiency
The German government, namely the BMWE and the Federal Ministry of Research, Technology and Space (BMFTR), implements a range of R&D programmes to support the decarbonisation of SMEs with the aim of leveraging their innovative potential through collaboration in research consortia and networks. To illustrate, one thematic key programme of the BMFTR is “SME-Innovative (“KMU-innovativ”) for climate protection and energy efficiency”, launched in 2024. Equipped with EUR 30 million from the RRF, the programme promotes the important role of SMEs in the development of new technologies for climate change mitigation and adaptation.18 It aims at supporting industrial research and development of processes, products, or services of SMEs in collaboration with partners from science and industry (Bundesministerium der Finanzen, 2022[7]).
Other R&D flagship programmes supporting SME decarbonisation
In addition to thematic initiatives like “SME-innovative”, other flagship R&D programmes, such as the “Central Innovation Programme for SMEs (ZIM)” with a budget of EUR 694 million in 2023, make important contributions to a wide range of innovations related to sustainability and climate protection (BMWE, 2022[11]). Compared to “SME-Innovative”, which targets cutting-edge research in specific high-tech industries, the ZIM programme is a broader, technology- and sector-neutral funding scheme that provides extensive support to a wide range of SMEs. While SMEs may be less directly involved in major industry-led research consortia, also major R&D initiatives like Manufacturing-X support their long-term decarbonisation efforts. With a budget of EUR 150 million funding support for R&D consortia, Manufacturing-X aims to establish a common industrial data ecosystem. It also strives to develop digital tools that facilitate transparency on GHG emissions and sustainability-focused decision-making across the entire product lifecycle and value chain. These standardised tools are designed to be easily accessible to SMEs (OECD, Forthcoming[15]).
Financial support for Green Entrepreneurs – Green equity by KfW capital and EIF
The German government, together with the state-owned development bank KfW, plays an active role in shaping markets for highly innovative green entrepreneurs who are driving the decarbonisation of the economy. In 2023, KfW Capital, investment subsidiary of KfW Group, tasked with strengthening the supply of venture and growth capital for innovative technology companies in Germany – launched the Green Transition Facility.19 Equipped with a total of EUR 100 million in funding, this facility is designed to invest in VC funds that specialise in climate tech and other climate-relevant sectors, as defined by the EU Taxonomy for Sustainable Finance. The Green Transition Facility was established in response to the significant challenges many climate-tech-focused venture capital (VC) funds face in raising capital. By addressing part of this financing gap, KfW Capital aims to support the growth of the sector while investing on equal terms alongside private investors, contributing a maximum 19.9% of a fund’s total volume (KfW Capital, 2023[16]).
In addition to KfW’s green equity instruments, also the European Investment Fund (EIF) (part of the European Investment Bank), which focuses on supporting innovative European SMEs and startups, plays an important role in developing climate-targeted equity instruments across the EU, including Germany and other EU Member States. Similar to the described KfW Capital instrument, EIF follows an intermediated financing model – investing in venture capital funds and providing advisory support to sustainable fund managers which in turn invest in innovative startups that drive decarbonisation. In practice, this means that, in addition to providing funding to green VC funds that meet EIF’s investment criteria, EIF establishes a formal contract with each fund, provides capacity building support and sets specific KPIs including on environmental objectives. For example, in the case of a VC fund investing in climate tech startups, these KPIs can include targets for CO₂ emissions reduction. The compensation of fund managers (carried interest) is linked to the achievement of these KPIs to ensure that financial incentives are aligned with environmental performance. To strategically support green fund managers, EIF has developed a comprehensive online tool called the “Green Guide for Fund Managers”20. The guide helps fund managers navigate EIF’s Climate Action and Environmental Sustainability criteria and assess whether potential investments comply with these requirements.
EU support for debt financing for SME climate action – EIF’s InvestEU Sustainability Guarantee Programme
EIF also plays a key role in supporting debt financing for SMEs in Germany and across Europe. Its main instrument is the “InvestEU Sustainability Guarantee Programme”, which targets green investments by European SMEs, Small Mid-Caps, individuals, and housing associations. The programme allocates EUR 5.5 billion for SMEs from 2021–2027.21
Under the programme EIF collaborates with financial intermediaries such as promotional and commercial banks to provide favourable loan conditions for green investments. The guarantee covers a significant share of the risk, such as 70% of losses for uncapped guarantees, on loans or investments made by financial intermediaries. To support SMEs in assessing project eligibility under the guarantee programme, the “Sustainability Guarantee Tool”22 provides online guidance to evaluate investments in line with the EU Taxonomy for green activities including investments for climate change mitigation, circular economy and sustainable agriculture activities.
The successful uptake of the Sustainability Guarantee across EU countries demonstrates its effectiveness in mainstreaming green lending in the market, following a two-sided approach by 1) reducing the risk of financial intermediaries for green investments and 2) delivering advisory services such as the online tool and a dedicated helpdesk to integrate sustainability criteria into SME lending.
Legal developments in Germany and the EU
Sustainable reporting requirements are mostly set at the EU level through the Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosures Regulation (SFDR). The implementation of the CSRD into German national law has been delayed; while the German government adopted an updated draft implementing bill in September 2025, the legislation has not yet been fully implemented.23 Under the original CSRD, in force at the EU level since 2023, SMEs with securities listed on EU-regulated markets were due to report starting in 2027 for the year 2026. However, the EU “stop-the-clock” measure adopted in April 2025 postponed the CSRD application timetable by two years for listed SMEs.
The CSRD allows listed SMEs to use a separate, proportionate set of standards. European Financial Reporting Advisory Group (EFRAG) has submitted a voluntary sustainability reporting standard (VSME) for SMEs outside the reporting scope. This standard provides a simple, widely recognised tool for SMEs to share sustainability information with banks, large companies, and other stakeholders.
The German Sustainability Code (DNK)
The German Sustainability Code (“Deutscher Nachhaltigkeitskodex,” DNK) is a framework for non-financial reporting, open to all companies, and designed to support German businesses, in particular SMEs, in their sustainability reporting efforts since 2011. Developed by the Council for Sustainable Development, the DNK is under further development and financed by the BMWE since 2024. Regular stakeholder dialogues help to expand the online platform of the DNK to adapt to companies’ evolving needs and to accommodate the 15 000 additional firms expected to report under evolving EU-wide rules.24
The platform of the DNK offers a variety of services for companies to facilitate user-friendly sustainability reporting ranging from webinars on topics like materiality analysis, industry guidelines, a dedicated helpdesk, and SME-specific guidance. Importantly, the platform itself can be used for sustainability reporting in accordance with the code, including a free-of-charge formal checks by experts. The following declaration of the code can then be used for both customer communication and to comply with national and European legislation. Finally, the new web platform follows a modular reporting structure to allow for reporting of different user groups (large undertakings, listed SMEs and non-listed SMEs) (EC/DNK, 2024[17]). While until May 2014, the reporting service was mainly used by the 1 250 companies that use the standard, acceleration is expected following the publishing of the final VSME framework.
Interviews conducted with three stakeholders25 involved in Germany’s SME greening policies and their implementation, alongside interviews with European Investment Fund’s business units, offered insights on challenges and success factors of existing instruments.
To address the overrepresentation of large firms, which presents a challenge across different investment support programmes, incentive structures provide SMEs, in particular small enterprises, preferential conditions including higher coverage of eligible costs per project – in the EEW and many other support programmes. Within the EEW, the high SME participation (74% of funding approvals), including for large-scale projects with significant GHG reductions (module 4), highlights the EEW’s success in driving SME decarbonisation, especially in the manufacturing sector.
Key success factors of the EEW include a diverse range of funding options and a cross-industry, and technology-neutral approach. The strong uptake and success of the technology-neutral module 4 in reducing GHG emissions highlights the value of funding systemic measures (combining different technologies and multiple measures) backed by energy savings plans on expected CO₂-reductions. Meanwhile, the high number of SME investments in single measures under Module 1, facilitated by a simple application process, proved valuable as a gateway to encourage more comprehensive and cost-intensive systemic projects under Module 4 (BMWE, 2024[9]). This demonstrates how the programme leverages synergies between funding options, particularly addressing the challenge of exhausted low-hanging fruits in energy efficiency improvements and encouraging SMEs to engage in more complex projects. Finally, the interviews emphasised several key success factors such as targeted awareness-raising for different groups, simple and fast application and approval processes, and long-term stability and improvement of the programme over time. In particular, the programme’s sustained presence in the market helps establish lasting awareness, which in turn facilitates the promotion of funding options through key stakeholders (such as chambers of commerce) and energy consultants who benefit from offering related services.
Under the EEW funding, the low uptake of KfW loans compared to grants highlights a strong preference for non-repayable funding, as companies seek to avoid additional debt. Nevertheless, loans proved useful for larger projects or firms with limited equity. The evaluation also revealed that many companies avoid loans primarily due to the associated administrative burden (BMWE, 2024[9]). This points to the important mandate of promotional banks and institutions like EIF to support mainstreaming and simplification of green lending practices. The oversubscriptions (by a factor of around three) of EIF’s InvestEU Sustainability Guarantee Programme across the EU underscores a strong market demand for debt products that provide SMEs with favourable financing conditions for green projects. The interviews also highlighted the importance of flexibly developing products based on market feedback, as well as the crucial role of advisory support for SMEs, particularly through tools like the online eligibility assessment for the Sustainability Guarantee Programme.
Similarly, in the area of green equity, as highlighted by KfW Capital and EIF initiatives, a successful approach combines market building with targeted investments – including co-financing by private investors – and capacity building, particularly for climate VC fund managers. One key element of success is the availability of advisory services including through easily accessible tools, such as EIF’s Green Guide for Fund Managers, which helps assess investment eligibility criteria and provides clarity on environment-related KPIs for fund managers. It will be crucial to further strengthen investment and advisory support to help shape capital markets and close existing financing gaps for decarbonisation technologies, particularly for capital-intensive, hardware-based solutions, as well as early-stage development and later-stage industrial scaling within the European VC market.
Beyond the variety of investment support instruments, the analysis showcased some selected programmes that provide important awareness raising and training support to drive SME decarbonisation. While many programmes operate at the federal state level, they are often integrated with or aligned to services available at the national level. One example highlighted in the report is the ecocockpit, developed in the federal state of North Rhine-Westphalia but used nationwide as a first step for SMEs to measure their CO₂-footprint and access training, consulting, and funding opportunities. The interviews highlighted limited time resources as a major constraint on SME participation in these support and training programmes. The interviews also underscored that offering tailored support that allows SMEs to choose from various approaches, ranging from initial climate coaching to in-depth collaboration with field experts, can effectively drive decarbonisation efforts by addressing the specific needs of different SMEs. In terms of technologies, the interviews underscored the importance of adopting innovative digital monitoring tools and emerging AI-powered technologies. Finally, the interviews emphasised the crucial role of R&D programmes in supporting cutting-edge climate protection research such as the SME-Innovative (“KMU-innovativ”) programme. Although these programmes are smaller in terms of overall budgets, they play a vital role in connecting innovative SMEs with researchers and industry stakeholders, thereby, unlocking their innovation potential and accelerating the greening of SMEs in Germany.
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← 1. For more statistics on GHG emissions and energy consumption in Germany, see the IEA website: https://www.iea.org/countries/germany .
← 2. For further information, see: https://www.bundesregierung.de/breg-de/aktuelles/faq-energiewende-2067498 .
← 3. For further information, see: https://www.bundesregierung.de/breg-de/aktuelles/klimaschutzgesetz-2197410 .
← 4. Based on information from the following government website: https://www.bundeswirtschaftsministerium.de/Redaktion/DE/FAQ/Energiepreise/faq-energiepreise.html#:~:text=Der%20Durchschnitt%20in%20der%20EU,31%20ct%2FkWh%20zahlen%20musste. .
← 5. For further information on Germany’s RRP, see: https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility/country-pages/germanys-recovery-and-resilience-plan_en .
← 6. For further information on the ecocockpit, see efa’s website: https://www.efa.nrw/fuer-unternehmen/angebote/beratung-ressourcenschonung/ecocockpit, as well as: https://energiekonsens.de/unternehmen/co2-bilanz-tool ; https://ecocockpit-bw.de/ .
← 7. For further information, see: https://www.klima-plattform.de/netzwerk/ueber-das-unk .
← 8. Eligible investment costs are supported with up to 25% for large companies, up to 35% for medium-sized companies, and up to 45% for small companies. The maximum funding amount per investment project is EUR 20 million.
← 9. For more background information on the IEEKN, see: https://www.effizienznetzwerke.org/initiative/hintergrund/.
← 10. For further information on Mittelstand-Digital, see: https://www.mittelstand-digital.de/MD/Navigation/DE/Home/home.html .
← 11. For further information on the climate coaches, see: https://digitalzentrum-saarbruecken.de/klima-coaching/ .
← 12. For further information on the toolbox, see: https://www.mittelstand-digital.de/MD/Navigation/DE/Praxis/Digitalisierung-und-Nachhaltigkeit/digitalisierung-und-nachhaltigkeit.html .
← 13. For further information, see : https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2024/02/20240215-bmwk-verbessert-zugang-zu-fordermitteln-fur-die-dekarbonisierung-in-industrie-und-gewerbe.html .
← 14. For further information on the updated programme, see: https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2024/02/20240215-bmwk-verbessert-zugang-zu-fordermitteln-fur-die-dekarbonisierung-in-industrie-und-gewerbe.html
← 15. For further information on the BIK, see: https://www.bmwk.de/Redaktion/DE/Pressemitteilungen/2024/08/20240830-bundesfoerderung-industrie-und-klimaschutz.html .
← 16. For further information, see : https://www.energiewechsel.de/KAENEF/Navigation/DE/Foerderprogramme/Unternehmen/unternehmen.html ; https://www.energiewechsel.de/KAENEF/Redaktion/DE/Foerderprogramme/energieberatung-nichtwohngebaeude-ebn.html .
← 17. For further information, see: Directive - 2023/1791 - EN - EUR-Lex
← 18. For further information on the programme, see: https://www.bmftr.bund.de/DE/Forschung/Gesellschaft/ZukunftDerArbeit/KmuInnovativ/kmu-innovativ-klima/kmu-innovativ-klima_node.html .
← 19. For further information, see: https://www.kfw.de/About-KfW/Newsroom/Latest-News/Pressemitteilungen-Details_765952.html .
← 20. For further information, see: https://greenguide.eif.org/ .
← 21. For further information, see: https://investeu.europa.eu/investeu-programme/investeu-fund/about-investeu-fund_en.
← 22. For further information, see: https://sustainabilityguarantee.eif.org/#avenue .
← 23. As of start of 2026. For further info, see: https://sustainablefutures.linklaters.com/post/102me5r/eu-csrd-and-omnibus-i-transposition-tracker.
← 24. For further information on the DNK, see: https://www.deutscher-nachhaltigkeitskodex.de/de/ueber-uns/
← 25. For this country note, representatives from a central ministry (responsible for energy-efficiency funding), a regional energy-efficiency agency, and a research institute/competence centre on digital climate solutions were interviewed.