As KZVK, we believe in our dual responsibility concerning the application of ethical and sustainable criteria for our investments: As an institutional pension scheme, we recognize our social mandate by contributing to the improvement of the living standard of our beneficiaries. As a faith-based investor, we are committed to the values of the Catholic social teaching. This includes key criteria such as human dignity, common good, fairness, integrity of creation and responsibility for the future. These principles are reflected in the internationally customary acronym "ESG", which stands for Environment, Social and Governance.
The investment of funds in accordance with our character as a church institution is deeply ingrained in our articles of association. Since 2023, we have also been signatory to the Principles for Responsible Investment (PRI), a global investors' initiative launched by the United Nations to promote a sustainable international financial system. We are convinced that adhering to sustainability factors leads to better results for our portfolio in the long term.
In order to fulfil our fiduciary duty as administrator of the pension assets of our insured persons, ethical and sustainable investment is deeply integrated into our strategic management. Its principles, instruments, and processes are integral parts of our investment guidelines, which are approved by the Supervisory Board.
Current ethical and sustainable investment topics are discussed with the CFO on a quarterly basis. Furthermore, we have appointed an ESG officer who acts independently from the investment management. Her tasks include establishing and evolving ethical and sustainability criteria for capital investment. ESG analysis is integrated in all investment decisions and processes alongside with financial analysis. In addition, ESG data is part of the internal risk analysis to assess sustainability risks.
The implementation of our ethical and sustainable principles in our investments is laid down as integral part of the KZVK’s investment guidelines. These define investment criteria that reflect our values in economic, ecologic, social, and governance contexts.
Given the global and diversified portfolio of KZVK, we apply asset class-specific approaches. For instance, our Supervisory Board has determined obligatory exclusion criteria for corporate bonds and shares traded on the stock exchange. Consequently, investments in companies whose business activities and practices contravene with Catholic social teaching are excluded.
We have also set minimum criteria for countries to avoid investing in debt instruments of countries that do not meet our requirements regarding the observance of human rights, democracy, free trade, or social advancement.
We are a committed active shareholder. We engage with companies in order to make a positive impact in the spirit of our ESG approach. Other sustainable and ethical measures include, for instance, investments in renewable energy and impact investments, such as microfinance funds.
In cases where we do not directly manage investments ourselves, ESG criteria are an important factor in the selection of our business partners. The investment criteria of KZVK also apply to investments managed by external partners on our behalf.
Despite our best efforts, we recognize the complexity of ethical and sustainable investments, often involving subjective standards of value and navigating grey areas. Thus, we embrace pragmatism to fulfil our commitments to our beneficiaries. Therefore, we prioritize the selection of partners with strong ESG expertise over generic requirements.
Compliance with the measures specified in the investment guidelines is monitored within the scope of clearly defined processes. Both internal measures and the practices of our external asset managers ensure the consistent application of KZVK’s standards.
We regularly report our ESG key metrics to both our Management Board and the Supervisory Board. Furthermore, we evaluate the ESG reports from our external fund managers. In addition, we use the service of an established ESG data provider to assess our portfolio and substantiate case-by-case decisions. The reporting contains a multitude of performance indicators that are tailored to the specific asset classes, as well as a review of the investments with regard to the Sustainable Development Goals (SDGs) of the United Nations.
We consider ethical sustainable investment as an ongoing process and constantly challenge our sustainability approach against the background of new technical, regulatory, or social factors. Furthermore, the availability of general ESG data continues to improve steadily. Any adjustments of our approach are undertaken in close consultation with our Supervisory Board.
Our key objective is anchoring ethical and sustainable criteria throughout our broadly diversified global portfolio, giving them equal weight to economic criteria.
