1 Introduction
According to the federal government's funding database, a total of 442 funding programmes were available for companies in NRW in June 2024, few of which are specifically geared towards climate-neutral or digital transformation. According to calculations by the German Economic Institute, the federal government will provide around 67 billion euros in financial aid and tax concessions in 2024. This is supplemented by funding from the European Union (EU), the federal states and local authorities. The funding programmes with their respective objectives, conditions and content are subject to ongoing adjustments. New programmes are also regularly introduced to provide further incentives for certain investments. For companies, this results in a ‘jungle’ of funding opportunities that often remain unutilised due to the large number of funding instruments and the associated complexity and conditions.
This practical information provides an overview of what companies should know about public subsidies in order to be able to use them for their investments in climate neutrality and digitalisation.
2 Subsidies - a part of transformation financing
Companies can only remain competitive and effective through continuous investment in personnel, machinery and equipment, procedures and processes. As a rule, they finance investments through a combination of internal funds, borrowed capital and equity investments. The financing instruments actually used or available depend on the size and capitalisation of the company, as well as its legal form and access to the capital market.
Figure 1 provides an overview of financing instruments used by companies - including for transformation investments. In addition to traditional business management instruments, public subsidies and instruments (grants, loans or guarantees) play an important role. Many companies already utilise public funding for fundamental reasons, e.g. to limit financial or technical risks in the development of new technologies and processes or to compensate for location conditions in structurally weak regions. Other companies require subsidies from the outset in order to make certain investments in the first place. Without subsidies, these companies would not invest at all or only to a limited extent.
In conjunction with the external and internal financing of companies and with capital-providing institutions such as banks or investors, subsidies can help to trigger and finance investments; this also applies to digital and sustainable business models, products, processes and applications (transformation investments), examples include investments in the following areas:
- Climate neutrality (e.g. by switching to or using renewable energies or CO2 capture technologies),
- avoidance of negative environmental impacts (e.g. through the circular economy or resource efficiency)
- as well as further automation and virtualisation through digital technologies and applications (e.g. AI or metaverse).
Ideally, both aspects are mutually dependent, i.e. an ecological benefit is achieved through further digitalisation. The classification of sustainable economic activities (EU taxonomy, see Fin.Connect Basics 01) summarises such transformation investments in three activities. This refers to
- Green activities
make a direct contribution to the fulfilment of one or more environmental goals, such as emission-free energy generation or energy-efficient building refurbishment - Enabling activities
provide complementary support to other activities in achieving an environmental goal, such as data services to optimise the management of renewable energy grids or the manufacture of components for low-carbon technologies - Transition activities
Activities that support the transition to a climate-neutral economy. However, they must be compatible with the long-term goal of climate protection. Energy generation from nuclear power, for example, is considered such a transition activity.
One particular reason for investment can be the premature decommissioning and amortisation of emissions-intensive plants, which can arise as a result of political decisions or regulatory law. In addition, in many companies, the existing cash flow, which is often still based on emissions-intensive production, must finance part of the investment in the transformation of the company.
Recommended actions for companies
The utilisation of public funding for the aforementioned transformation investments by companies depends on various factors. These include above all the
- the availability of funding and a realistic prospect of successfully applying for it, i.e. checking whether there is any chance of receiving funding at all
- access to funding programmes and instruments, i.e. checking the status of companies and their eligibility to apply under the relevant guidelines and procedures
- cost-benefit ratio, i.e. clarifying how much work is involved in the application and documentation.
Systematic clarification should therefore be the first step, whereby publicly financed advisory services (see point 7) or customer service in the banks can support the analysis and decision.
3 Different perspectives and starting points
Companies look at funding differently than the public sector or funding providers. From the company's perspective, it is about markets, business models, customers and processes, but also about liquidity, profitability and corporate strategies. In addition, many companies shy away from the sometimes considerable and sometimes bureaucratic effort involved in applying for and accounting for public funding. The time period from which a funding project can start also plays an important role from the company's perspective. In some cases, this period is too long, so that they refrain from applying for funding.
From the perspective of state funding policy, funding purposes, permissible costs, funding quotas, aid intensity or application and approval procedures are relevant. German and European subsidy and state aid law forms a framework that must be observed in the same way as other laws. This obligation applies both to standard procedures and to individual decisions made by the authorising bodies, be it the EU, the federal government or the federal states.
Despite the different points of view, the policy pursues goals that are shared by many companies and society. These include, for example
- strengthening business start-ups
- research and development to maintain the innovative capacity of companies
- equivalence of living conditions in the regions
- social, economic and ecological sustainability or the ‘transformation’ described above, which is now a separate funding objective in some programmes
It is important for both sides to understand that the approval of public funding is an administrative act. This results in certain rules and procedures for the application, approval and disbursement of funding in order to ensure equal treatment of applicants and to make legally secure decisions. Obviously, this also results in a certain processing time for the granting organisations. Public funding cannot be approved overnight. In the author's experience, however, the application, approval and final settlement of public subsidies follow a comprehensible logic and system. Companies can acquire this knowledge themselves or purchase it as a service in order to transfer the objectives of the funding programmes to their own needs and also speed up the procedures.
Recommended actions for companies
Public funding, including loans from development banks, is neither intended nor suitable for creating short-term liquidity in companies. They are used for the partial financing of medium and longer-term projects or investments. Companies should familiarise themselves with funding practice and acquire a basic understanding of funding purposes, application and approval procedures or documentation and accounting requirements. This will enable them to better decide whether, and if so, how and when they can utilise funding for their respective needs.
4 Importance of subsidies in overall financing
As a rule, subsidies are pro rata financing, regardless of the type (grant, loan, equity subsidy or guarantee). Only in very few exceptions is 100% financing through public funding possible. This automatically results in a respective limitation of the funding, depending on the project or investment, the size of the company, the availability of own or third-party funds as well as a coherent presentation of the overall financing, which consists of various components (Figure 2).
With the exception of R&D tax incentives, there is no legal entitlement to funding; they are generally dependent on defined public budgets. Once the funds have been exhausted, funding is no longer possible in the respective programmes. Funding only becomes binding and thus part of the overall funding once the approval notice has been issued. In the worst-case scenario, applications for funding are rejected even though there was a high probability of funding or this was signalled during the application phase.
The review of the overall funding is part of the formal approval process by the public funding bodies. If it is not secured, even taking into account the company's own funds or own contributions, the funding application will be rejected.
Recommended actions for companies
Before companies want to apply for funding for transformation investments, they need a plausible and verifiable idea of the financing requirements and the individual types of costs. In addition, they should proactively present an overall financing plan, as subsidies are only granted on a pro rata basis. If the equity capital or own contributions and borrowed capital are not sufficient, funding is not possible or the respective investment/project volume must be reduced accordingly.
5 Funding options and project types
An important introduction to funding management is the question of what funding purposes there are and what companies need to use the grants for. By answering this question, companies can define funding options and project types in order to check whether they are even eligible to apply. There are open-topic and topic-related funding programmes and instruments. In the open-topic programmes, companies can apply with any topic and from any sector, provided they meet the specific requirements and address the funding objectives. The project types and funding options are then derived from these funding purposes. This allows companies to clarify whether these most important project types can fulfil their needs.
Companies can apply for the individual funding options and project types separately or overlapping. For example, consultancy can be used to prepare a research or development project or an investment. Personnel funding can take the form of ‘transformation, digitalisation or innovation assistants’, for example, to transform business models or develop new skills and capabilities. Funding for investments or specific purposes may be aligned with the company's planned projects and plans from the outset. In these cases, they therefore represent a direct part of transformation financing. In a few programmes, there is also a combination of investment and personnel funding.
The above-mentioned funding options are generally ‘project funding’, i.e. time-limited funding with an earmarked purpose. The associated financing instruments are primarily promotional loans, public guarantees or grants, the specific conditions of which are defined in the respective promotional programmes or laws and guidelines.
- Grants can only be combined from two funding programmes for the same project in a few exceptions. As a rule, a project comprises a grant and a billing logic.
- Promotional loans and grants, on the other hand, can certainly be combined; however, the so-called aid intensity must be observed, which results from European requirements, in particular the General Block Exemption Regulation (GBER). This means, for example, different funding quotas for industrial research or experimental development as well as a limitation according to the size of the company.
Special case of publicly financed equity promotion
A distinction must be made between the types of funding described above and publicly financed equity funding, which generally only applies to start-ups, young companies or in special forms, e.g. for ‘leap innovations’. Here, companies are capitalised; these are
- (silent) participations if there is a lead investor
- topping up investments, e.g. when business angels get involved at an early stage
- pre-commercial contracts for research and development services.
This type of public funding also includes mezzanine financing or convertible loans, which generally represent a mixture of debt and equity. Public development banks such as NRW.BANK or KfW have developed various programmes and instruments for this purpose, e.g. ERP mezzanine for innovation, NRW.BANK special funds/individual investments or SME funds. Companies can of course also utilise the increased equity, including mezzanine financing, for the above-mentioned project types.
Recommended actions for companies
There are explicit investment grants for certain funding purposes, including, for example, energy and resource efficiency, climate protection technologies or job creation in certain regions. If companies want or need to invest anyway, it makes sense to examine the relevant funding programmes and instruments. For longer-term and so-called pre-competitive (not yet marketable) products, processes, applications or business models, the numerous programmes and instruments of research and development funding are ideal. Companies from any sector are eligible to apply for open-topic programmes. In addition, the recruitment of new staff is also subsidised, whereby the focus here is primarily on SMEs or companies in structurally weak regions.
6 Access criteria and exemplary funding programmes
Admission or exclusion criteria play an important role in determining whether a company has realistic access to certain programmes.
6.1 Applicants
This refers to the examination of formal eligibility to apply for the respective programmes and instruments. There is a wide range of different companies or company phases for which more than 440 funding programmes are available for companies from NRW. From the point of view of public funding, the following are always relevant at the outset
- the legal form (GmbH, AG etc.)
- the size (number of employees or annual turnover)
- the ownership (private or public)
- and whether it is a start-up with little or no turnover.
There are explicit SME programmes in which only small and medium-sized enterprises are eligible to apply. In these cases, the official SME definition of the EU applies, irrespective of the legal form, i.e. taking into account affiliated or partner companies, less than 250 employees and less than 50 million annual turnover or 43 million annual balance sheet total. Larger companies may only participate as partners without funding. In some SME programmes, a prerequisite for funding is that these SMEs are already established on the market and have functioning business models.
Start-ups are a special case from a funding perspective: on the one hand, there are both open-topic and topic-related start-up programmes or instruments, and on the other hand, they are generally eligible to apply for SME programmes, but face particular challenges in providing the overall funding described above because they do not yet generate sufficient turnover. Some programmes, for example, explicitly exclude ‘companies in difficulty’ from submitting an application; in other programmes, only ‘research-intensive’ companies are eligible to apply. In addition, there are industry or technology-related programmes, e.g. for energy-intensive companies or the automotive industry, in which the eligible applicants are narrowly defined.
If no exclusive access conditions are formulated in the respective funding conditions and guidelines (for each funding programme or instrument), all companies, including large companies, are eligible to apply. This applies, for example, to many research and development programmes or to the promotion of structurally weak regions, e.g. for the relocation or diversification of business operations.
6.2 Regional relevance
In addition to the applicants, regional relevance is the most important admission or exclusion criterion. The ‘golden rule’ is that the companies must be represented within this particular ‘regional area’, i.e. they must have their headquarters or a permanent establishment there. The most important funding programmes with a regional focus are
- European funding programmes that are administered at European level; here, a company must be based in the EU
- Federal funding programmes and instruments; here, the company must be based in Germany
- Explicit NRW programmes and instruments; companies from other federal states cannot submit applications here
- Local/regional programmes, e.g. InnoRKN in the Rhine district of Neuss, or the above-mentioned future vouchers for the Rhine district as well as nationwide programmes with an explicit regional focus (e.g. structurally weak regions)
6.3 Examples of grants for transformation investments
As described above, some programmes already include the concept of transformation, others can be used indirectly because the defined funding purposes coincide with the needs of the companies. Some new programmes are added, others expire or no longer have available funds. It is therefore difficult to maintain an overview.
The programmes and instruments listed below are examples; the associated information or tips and tricks for submitting applications are freely available on the Internet. The aim is for companies to minimise their search costs and application effort based on the types of projects listed above.
Research, development and innovation
- Tax incentives for R&D
(with a legal entitlement to funding for R&D projects; retroactive funding is even possible from 2020, all companies are eligible to apply)
https://www.bescheinigung-forschungszulage.de/ - For SMEs due to the relatively high success rate and the manageable application effort: Open-topic programmes such as the Central Innovation Programme for SMEs (federal government) or Mittelstand Innovativ und Digital (state of NRW)
https://www.zim.de/
https://www.mittelstand-innovativ-digital.nrw/ - Framework Programme for Research and Development Horizon Europe or LIFE - The EU financial instrument for the environment
(for all companies, thematic calls for projects, at least three partners from three countries)
https://www.horizont-europa.de/
https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/home
https://www.bmuv.de/themen/europa/life - Real-world laboratories of the energy transition for demonstration projects
(Target group: energy industry, energy-intensive industry and housing industry; currently no call for projects open, but presentation of subsidised projects)
https://www.energieforschung.de/foerderung/foerderangebote/foerderkonzept-reallabore-der-energiewende - Thematic project calls for ecological or digital projects
Federal funding database (with various filter options such as funding purposes or company types)
Investment programmes
Federal funding for energy and resource efficiency in the economy
(always open for new and replacement investments, e.g. for cross-sectional technologies, optimisation of systems and processes or for process heat or the electrification of small companies; there is also another funding opportunity through a funding competition - the application phase is open until August 2024)
https://www.bafa.de/DE/Energie/Energieeffizienz/Energieeffizienz_und_Prozesswaerme/energieeffizienz_und_prozesswaerme_node.html
https://www.wettbewerb-energieeffizienz.de
Directive on the promotion of climate-neutral production processes in industry through climate protection contracts
(Klimaschutzverträge sollen klimafreundliche Produktionsprozesse in den energieintensiven Industriebranchen anstoßen, indem sie Preisrisiken reduzieren und die Mehrkosten ausgleichen; Wettbewerbs- und Gebotsverfahren mit einer Bewerbungsphase im Sommer 2024)
https://www.klimaschutzvertraege.info/
Environmental innovation programme
(Demonstration projects on a large technical scale with a high environmental benefit and a high market potential)
https://www.umweltinnovationsprogramm.de
Future voucher for the Rhenish mining district
(close, explicit regional reference, only SMEs are eligible to apply, optimisation of industrial and commercial plants and processes. Development of prototypes with the aim of a climate-neutral economy, digitalisation of company and production processes)
https://www.efre.nrw.de/wege-zur-foerderung/foerderungen-in-2021-2027/zukunftsgutscheine-rheinisches-revier-jtf/#c8219
Regional economic development program RWP
(within a defined area in NRW, all companies are eligible to apply, investments in the construction or expansion of a business premises, diversification of products or special environmental protection effects through which jobs are created or secured)
https://www.nrwbank.de/de/foerderung/foerderprodukte/15354/regionales-wirtschaftsfoerderungsprogramm-rwp---gewerblich.html#formulare
Advisory programs
- Creation of a transformation plan within the federal funding for energy and resource efficiency in the economy, Module 5
(all companies are eligible to apply, current analysis and development of measures)
https://www.wettbewerb-energieeffizienz.de/WENEFF/Navigation/DE/Home/home.html - SMEs Innovative and Digital
(for SMEs; external support for initiating and implementing innovation and digitalization measures; analysis and implementation)
https://www.mittelstand-innovativ-digital.nrw/mid-gutscheine - Go inno
(SMEs only, external advice and support only by authorized consulting companies, potential analysis and implementation concept)
https://www.innovation-beratung-foerderung.de/INNO/Navigation/DE/go-inno/Foerdermodell/foerdermodell.html - Future voucher for the Rhineland region
(narrow, explicit regional reference, SMEs only, consulting services for changing the business model to serve the markets of the green transformation.
https://www.efre.nrw.de/wege-zur-foerderung/foerderungen-in-2021-2027/zukunftsgutscheine-rheinisches-revier-jtf/#c8217
In addition, companies can also use loans from development banks such as NRW.BANK or KfW to finance transformation investments. There are already digitalization, innovation or energy efficiency loans, which also include transformation projects in the sense mentioned above. What is important with these offers from development banks is the so-called house bank procedure, i.e. companies cannot apply for these loans directly, but only in cooperation with their respective house banks.
It is possible that development banks will also offer explicit “transformation loans” in the future. In addition, the European Investment Bank also offers funding options that companies can use under defined conditions for the transfer investments described above.
Recommended actions for companies
When companies are looking for funding for specific purposes or investments, the first step is to find the right programs and assess the effort involved in submitting an application and the chances of success. Right from the start, you should check whether the respective company status (legal form, size or even industry) is even eligible to apply. It is therefore a matter of clarifying access and checking exclusion criteria.
The author's key recommendation from many years of funding advice is therefore as follows: Every company should know its top 5-10 programs at least in terms of the type of project and the framework conditions such as funding rates and time periods. This is the best way for companies to compare their own needs with the public funding offers.
7 Funding advice
Funding advice is divided into publicly funded bodies that offer their services to companies and applicants free of charge, and private services, i.e. a fee-based exchange of services between the client (company) and the contractor (specialized consulting company). In publicly funded bodies, companies receive basic orientation, advice or information. It is about answering the questions
- What funding programs and instruments are there?
- Does an idea or a company's need generally fit into these funding programs and if so, which ones are most relevant in the respective situation?
- What requirements and conditions apply in the respective funding programs?
The publicly funded advisory centers are organized either on a topic-related basis (project sponsors, national contact points) or open to topics and instruments (e.g. federal funding advice, ZENIT GmbH as the innovation agency for the state of North Rhine-Westphalia and small and medium-sized businesses or economic development agencies, chambers of commerce and trade and chambers of crafts).
- Federal funding advice (with the option to subscribe to the newsletter)
- Funding advice from ZENIT GmbH
Private funding advice, i.e. the paid service or the client/contractor relationship, involves application development, application submission, project management and project invoicing. Billing is usually based on fixed prices or commissions or a combination of both elements. These are private, often specialized consulting companies that offer application development, project management or billing on the basis of fixed prices, commissions or a combination of both.
Recommended actions for companies
The general recommendation is to first use the publicly funded information or consulting services in order to possibly be able to develop and bill funding applications in your own company (empowerment of companies). If you do not have the time or resources for this, the private offers are a normal service that is available on the market. You should then use comparison offers, check references and get an idea of the appropriateness and seriousness of the providers.
