German industry is no longer sexy. On the contrary, for many investors, industrial companies are now even a no-go. While defence companies such as Renk are suddenly socially acceptable and stock marketable again, companies from dirty industries such as the chemicals and automotive sectors struggle to raise capital. „An automotive supplier in Germany can still get a bank loan today. But only if it can show a clear path to becoming green,“ says Philipp Mettenheimer from strategy consultants Oliver Wyman.

The problem is that not every automotive supplier for the combustion engine will succeed in converting its business model to the electric motor. And as a general rule, a company on the verge of bankruptcy always has problems getting a loan. But even healthy industrial companies are finding it harder to get loans. „Most industrial companies are currently not green – no matter what definition you apply,“ Mettenheimer points out.

Banks want to do significantly more green business, and are therefore increasingly asking about companies' plans to master the transition to a sustainable economy. „A company from a carbon-intensive industry that cannot present a transition plan is unlikely to receive bank financing in the future,“ says Mettenheimer.

However, banks are also making life difficult for themselves. The metrics that they use today are not always helpful, says the consultant. He illustrates this with a fictitious example: Let's assume that Tankstellen GmbH exists today. Its business model would still be successful for a few years. But the question arises: how and by whom should the conversion to e-charging stations be financed? If the bank were to grant a loan to Tankstellen GmbH, the bank would have to add the petrol station's emissions to its own „financed emissions“ and would, therefore, possibly miss its net-zero targets. If, on the other hand, Ladesäulen GmbH was spun off and its loan was guaranteed by Tankstellen GmbH, then the bank would look much better from a net-zero perspective.

Johannes Laumann from the listed turnaround investor Mutares describes the sustainable financing problem in simplified terms as follows: The operator of a cement plant doesn't get any money, its builder perhaps, and the processor of cement does. It is the same with oil and gas: „Those who extract it directly have a harder time than those who subsequently process it,“ says Laumann.

In addition to a bank loan, however, an automotive supplier has another option for raising capital. This is particularly the case if there is a high level of dependency on the customer side. „If there is a high level of dependency, a supplier loan is also an option, even if the company is no longer bankable,“ says Laumann. It only becomes problematic if the customer, i.e. the car manufacturer, is in trouble itself.

Alternative lenders, such as private debt funds, have a lot of capital that could theoretically be used for transition finance. The problem, however, is that most private debt funds swim in the wake of private equity, and finance the takeover of portfolio companies with debt capital.

Although the automotive industry was once considered a private equity favourite, the investment sector has reoriented itself with the advent of sustainability and digitalisation. Today, private equity prefers to finance scalable software companies – or anything that can somehow be labelled as software.

The situation is different for turnaround investors such as Mutares. Laumann emphasises that he would not buy a company that he did not believe he could sell in a few years. Nonetheless ESG criteria would play a very subordinate role in his investment decisions. If Siemens wants to become greener and wants to sell the profitable gas business to help achieve this, then he would be very happy to do a deal. „I make market-based decisions and not regulatory ones,“ says Laumann.

Under the current market conditions, however, Mettenheimer sees a high risk of deindustrialisation in Germany. „We have energy prices that are too high, we think in too complex a way about sustainability, and we have become too bureaucratic and inflexible,“ says the Oliver Wyman consultant. He calls for two things in particular. As banks alone do not have enough funds to meet the net zero financing requirements, German savers should no longer just hold their assets in demand deposits and savings accounts, but should invest them more productively. Progress also needs to be made on Capital Markets Union. This is the only way to mobilise enough capital for the transformation across Europe.