Responsible Investment: 2013 meeting of German PRI Network at KfW

• Number of German investors observing sustainability criteria is growing steadily
• Results of PRI "Fixed Income" working group: importance of ESG criteria in risk analyses of government and corporate bonds

At the invitation of the PRI initiative and the KfW Group, the 2013 network meeting of German signatories to the Principles for Responsible Investment (PRI) is taking place today at the headquarters of the promotional bank in Frankfurt.

The purpose of the 2013 network meeting is for participants to gain information on the current focal points of PRI activities – an investor initiative in collaboration with the United Nations that develops principles for responsible securities management. Managing director Fiona Reynolds, together with colleagues from London, will be reporting on the international developments of the PRI Initiative and expanding on the requirements that PRI signatories have to fulfil when reporting on their progress in implementing the individual principles.

The event is also useful for fostering contacts within the German network: For investors who wish to give their business a sustainable focus, the PRI network offers a valuable platform for the exchange of relevant experience, knowledge and methods. This cooperation between various asset managers, asset owners and service providers strengthens the initiative and increasingly raises awareness. "The German PRI network is one of our most active and engaged", explained Fiona Reynolds. "The signatories are contributing to the development of a more sustainable financial system by integrating ESG issues (Environment Social Governance) into their investment processes and engaging with companies in Germany and internationally to improve their sustainability disclosure and performance."

The network of German PRI signatories was initiated by KfW in 2011, then comprising 12 members, whose number has since risen to 46. The business motivations for being a PRI signatory are described by Heribert Karch, managing director of MetallRente GmbH: "We have a fiduciary responsibility towards our claimants. This is why the founding conditions of the framework already refer to a sustainable capital investment strategy approach. Consequently, signing the PRI was a logical step that also enables us to strengthen the exchange of information among investors." Taking a long-term view of investments is also connected to the ESG criteria, as emphasised by Dr Rainer Matthes, managing director of Metzler Asset Management GmbH: "Responsible investing has played a crucial role in our asset management activities for many years. Becoming a PRI signatory was the next systematic step in integrating sustainability factors into our entire investment strategy. For us, sustainability in investments represents a clear commitment to developing concepts that are sustainable in the long term."

To support signatories in implementing the individual PRI, they form international working groups together on selected topics. Collective know-how is thus elaborated and shared.

The PRI "Fixed Income" working group, whose results are being presented today, was tasked with examining whether conventional credit analyses of government and corporate bonds adequately capture their risk factors, or whether they should be extended with longer-term factors (ESG criteria). The analysis of the government bond sector was led by Florian Sommer, Union Investment, while that of the corporate sector was headed by Dr Solveig Pape-Hamich, KfW. The promotional bank joined the PRI Initiative in 2006 and has managed its liquidity portfolio since 2008 sustainably. It is one of the largest non-government bond issuers in the world and is also a pure bond investor. "Consequently, it was important for us to get involved in the PRI "Fixed Income" working group, not only to contribute our own experience, but also to bring ourselves forward", explained Dr Frank Czichowski, treasurer of the KfW Group.

The evaluation of the many academic and financial studies can be summarised as follows:

• There is a correlation between ESG factors and the creditworthiness of bond issuers as well as the (particularly long-term) performance of securities. For countries, for example, it is clear that credit risks increase as the level of corruption rises. For companies, on the other hand, the significance of ESG factors depends on size, sector and debt level.
• What applies to all, however, is that the significance of ESG factors is steadily growing on account of increasingly scarce resources, regulatory requirements or demographic developments for example.
• A weak ESG performance results in higher credit risks, weaker ratings and therefore higher refinancing costs.
• A growing number of investors advocate rating agencies incorporating ESG factors into their credit analyses of fixed-income securities, as this makes it easier to assess investment risk and therefore better yields can be achieved.

"The PRI were developed in 2006 with a far-sighted approach, and still offer an outstanding framework for responsible investment. However, individual investors investing responsibly are not enough to generate a strong impact. Capital can make great things happen if as many investors as possible act as required!", explained Czichowski. The aim now is to continue increasing the quality of implementing the principles and to support new signatories with their commitments.

Service:

The current list of all German PRI signatories(PDF, 83 KB, non-accessible) is attached to this press release as an appendix.

Further information on the PRI as well as on the 2013 network meeting (video podcasts, speeches, presentations) can be found in our Special topics at www.kfw.de/PRI_EN.