Sustainable investment approach for KfW's liquidity portfolio

Since 2008, KfW's sustainable investment approach includes not only the credit rating of issuers but also their sustainability rating based on ESG (Environmental, Social and Governance) criteria.

The sustainable investment approach for the liquidity portfolio is based on a best-in-class approach. All issuers are assigned to the respective sectors in the liquidity portfolio (financial institutions, sovereigns and automobiles in the case of ABS) and evaluated in comparison with other companies against ESG criteria. This evaluation is based on the sustainability assessments performed by an SRI rating agency. According to the best-in-class approach, bonds are purchased only from issuers whose sustainability rating is among the top 50% of their sector.

ESG criteria

In addition to the ESG criteria, exclusion criteria are also included in the investment decisions. This is intended to help ensure that no KfW funds flow to issuers whose activities are expected to have unacceptable negative effects on certain environmental and social aspects from KfW's point of view. The exclusion criteria are based on the IFC Exclusion List (an exclusion list of the International Finance Corporation [IFC], which is part of the World Bank Group) and KfW's group-wide exclusion list(PDF, 118 KB, non-accessible). Exclusion criteria are not taken into account for government bonds and bonds issued by local authorities.

Exclusion criteria

Since KfW does not own any shares as part of its securities investments and therefore does not have the opportunity to encourage companies to be more sustainable by actively exercising voting rights, it primarily relies on a voluntary dialogue with these issuers. In order to do this, KfW regularly informs them about their sustainability rating and their situation compared to their sector. The aim is to send a strong signal to these issuers that their sustainability rating is a relevant criterion for a possible investment in KfW's liquidity portfolio.

Engagement