Domestic climate finance and the state: disentangling the transformative capacity of state-owned investment banks in the green transition

State-owned investment banks (SIBs) are gaining prominence as industrial policy and financing tools for decarbonization, yet their actual capacity to deliver on climate goals remains underexplored. In this article we investigate the factors shaping the transformative capacity of SIBs, developing an analytical framework that integrates public governance and political economy scholarship. We apply this framework in a most-likely case study of Germany – a country that scores highly on governance indices, possesses a dense SIB network, and holds political clout for ‘transformation banks.’ Drawing on corporate reports and economic data from 19 SIBs, as well as expert interviews, we demonstrate that SIBs’ transformative capacity will most robustly emerge if transition goals are integrated across logics of regulatory, political, and commercial governance. Our research highlights incremental progress in building transformative capacity while cautioning about the political and political-economic constraints on realizing genuinely ‘green’ state capacities.