Principles for Responsible Investment

The United Nations-backed Principles for Responsible Investment (PRI) are in essence a set of global best practices for responsible investment. They reflect the view that environmental, social and governance (ESG) issues increasingly affect the performance of investment portfolios. KfW signed the PRI in 2006. By doing so, we made a commitment to basing our investments on sustainability, encouraging other market participants to invest sustainably and to reporting on the sustainability aspects of our activities. As KfWs securities business consists primarily of the so-called liquidity portfolio KfW developed a sustainable investment approach for this portfolio.

As a signatory to the UN Principles for Responsible Investment (PRI) KfW is obliged to report annually about its strategies and progress in implementing the PRI through the so-called Reporting Framework. In order to promote the issue of responsible investment in the capital markets and to encourage signatory transparency on their responsible investment activities their "RI Transparency Reports" are published on the PRI website.

KfW reports on its liquidity portfolio which is managed according to a sustainable investment approach. In 2015, KfW – being a pure fixed income investor – has answered the modules „Overarching Approach“, „Fixed Income - Corporate“ und „Fixed Income – Government“. The evaluation shows that KfW has scored the top mark "A+" in the modules „Overarching Approach“ und „Fixed Income Corporate“. A+ implies that a signatory has scored above 95% in a module. The score “A+” has been newly introduced in 2015. In the module „Fixed Income Government“ KfW has scored an “A” as in 2014 which translates to scoring above 75% in the respective module.

As a signatory to the PRI, KfW – in its role as an institutional investor – is also an active member of the PRI “Fixed Income” workstream. The workstream serves as a forum of cooperation for fixed income investors that want to share their experiences and views on the different sustainable investment approaches and the respective challenges for fixed income investors. One format to exchange distinct views and methodologies is the regular publishing of case studies about responsible investment issues. In 2015 KfW already wrote a case study about green bonds titled "Green Bonds: Measuring Impact“.

In February 2016, the PRI published KfW’s new case study "Engaging with Issuers".

The case study explains KfW’s so-called engagement approach with the bond issuers represented in its liquidity portfolio. Aside from describing the motivation for this engagement effort, the case study also analyses the different types of – mostly positive - issuer feedback.

By analysing ESG-criteria (Environmental, Social and Governance issues) fixed income investors can better and more comprehensively asses issuer quality and limit their risks. The investor guide which was launched in September 2014 examines different issuers and diverse listed and private investment tools, including securitization (ABS). It gives practical advice for the integration of ESG-criteria in the investment decision, the selection of investments and the dialogue on ESG-topics with issuers.

KfW was involved in the creation of the guide as one of the two sponsors and as member of the working group. The results of the working group consisting of institutional investors as well as the experience of big capital investors have contributed to the fixed income ESG investor guide.

The guide was also introduced on the annual conference of PRI-signatories "PRI in Person" in Montréal. On this conference, KfW participated in the panel "Defining Responsible Investment in Fixed Income" and presented its sustainable investment approach for the KfW liquidity portfolio.

Fixed income ESG investor guide

As of February 2016