KGAL-Group has adopted a mission statement already in 2010 that incorporates environmental protection re-quirements into our strategic goals. KGAL not only aims to offer sustainable products for investors, the company also wants to actively assume a sustainable role in society. To underline this, KGAL signed the United Nations Principles for Sustainable Investment (“UN PRI”) in September 2018. Consequently, sustainability aspects are an integral part of KGALs business and risk strategy.
Our investment strategy takes into account megatrends such as urbanisation, clean energy, mobility, and urban infrastructure, while also meeting environmental, social and governance (ESG) criteria and continually adapting to new requirements. This understanding does not only provides a future-proof basis for our investments, but also contributes to the 17 goals of the United Nations Development Goals ("UN SDGs").
KGAL Group's clear and long-term business model excludes business activities in connection with the manufacture of weapons of all kinds, nuclear power plants and gambling. In addition, KGAL Group does not participate in speculation on the price development of food commodities.
In our current publications you will find KGAL's goals and measures for sustainable action. The ESG goals and measures contained in the strategies relate to both the company and the fund level and are effective and valid for the entire product range of
KGAL Investment Management GmbH & Co KG.
As of 10 March 2021, new sustainability reporting requirements will apply to the European financial services sector. What sounds like a topic relevant to reporting specialists only will actually affect us all. The Sustainable Finance Disclosure Regulation (SFDR) is part of the EU's action plan on financing sustainable growth – a truly mammoth project that will soon change large parts of our economies. As is typical of the EU, the subject matter is complex. Our Q&A will give you a compact and comprehensible overview of a project that is here to stay.
Regulation (EU) 2019/2088 on sustainability-related disclosure requirements in the financial services sector (Sustainable Finance Disclosure Regulation "SFDR") sets out ESG-related disclosure requirements. The SFDR aims to harmonise and standardise ESG disclosures across the EU so that investors can identify the impact of their investments on sustainability factors and the associated risks and opportunities. We implement the requirements for "financial market participants" as defined by the SFDR accordingly for KGAL Investment Management GmbH. A description of how the requirements are met at company level and how sustainability risks are taken into account in decision-making processes is provided below:
Sustainability risks represent a direct and indirect challenge for the financial sector and therefore also for KGAL Investment Management GmbH & Co KG ("KGAL"). Sustainability risks defined by the "BaFin Code of Practice on Dealing with Sustainability Risks" on 24 September 2019 are events or conditions in the environmental, social or corporate governance areas, whose occurrence could have an actual or potential negative impact on the net assets, financial position and results of operations as well as on the reputation of a supervised company. Sustainability risks in the areas of climate and environment are divided into physical risks (direct effects of climate change, e.g. through extreme weather events) and transition risks (indirect effects through social developments such as the stigmatisation of established technologies or changes in economic and political conditions).
For this reason, sustainability risks are considered as an integral part of the risk management process. Sustainability risks are identified and evaluated as factors of the known risk types such as counterparty risks, market risks or operational risks for the first time with the launch of a fund product in the course of the "new product process". This risk profile is reviewed and updated with the investment, every three months or ad hoc in the event of unforeseen events. This is done individually for each fund and each investment. ESG due diligence is mandatory.
In his statement on the asset investment proposal, the risk manager shall provide an assessment of ESG risks prior to the implementation of the investment. The exclusion criteria must be complied with. Excluded are all business activities related to weapons, nuclear power, gambling, food speculation and fossil fuels. Investments in facilities or buildings that use fossil fuels for their operation (for example, in facilities for the use of renewable energy or for the supply of electricity and heating of buildings) are possible.
This statement applies to the management of funds and discretionary mandates by the Company. It does not apply in cases where the Company has outsourced the portfolio management function to an external third party.
KGAL does not currently consider any adverse impacts on sustainability factors in its own investment decisions as defined by the SFDR. The consideration of adverse effects is linked to specific indicators that enable a quantitative assessment. For KGAL's complex investments, these indicators are currently only partially available for the asset classes and properties. Acceptable coverage is therefore not yet provided at present. However, KGAL is already guided by the given sustainability factors and will take them into account for the funds classified according to SFDR once they come into force, presumably from January 1, 2022. The historical comparison of the first two reference periods can therefore be made at the earliest on December 31, 2023.
The ability to address the most significant adverse sustainability impacts depends to a large extent on the availability of related market information. The availability and quality of the required data is sufficient for all assets in which the company invests through managed funds and mandates. However, the implementation of the legal requirements specified for this purpose has yet to be finalised. Furthermore, important legal questions remain unanswered. However, this does not change our current efforts and activities to ensure the availability of comprehensive data going forward.
When considering the most significant adverse effects of its investment decisions, KGAL will initially focus on funds and management mandates with sustainable investment strategies. KGAL will regularly review the data situation and decide if it is necessary to address the most significant adverse effects in its investment decisions.
The reference period begins on 10 March 2021.
KGAL Group adopted a mission statement in 2010 making environmental protection a strategic objective. KGAL Group not only wants to offer sustainable products for investors, but also play an active and sustainable role in society. To reinforce this commitment ,KGAL GmbH & Co KG signed the United Nations Principles for Responsible Investment ("UN PRI") in September 2018. As a result of this sustainability aspects form an integral part of our business and risk strategy.
To achieve its environmental goals, KGAL Group has adopted a comprehensive climate strategy based on the Paris Agreement on Climate Protection: In addition to ambitious CO2 reduction targets and measures at both company and product level, we have also established climate neutrality targets. By offsetting all greenhouse gas emissions in connection with its own business operations, KGAL Group has been a climate-neutral asset manager since 1 January 2021. Our external project provider "ClimatePartner" confirms the climate neutrality with a certificate. The compensation is based on a certified forest protection project in Brazil (www.climatepartner.com/13633-2102-1001 9). In addition, greenhouse gas emissions per employee are to be reduced by at least five percent annually until 2030. In 2020, KGAL Group's corporate activities caused CO2 emissions of 1,151.2 tonnes. This equates to a reduction of 32% compared to the previous year. KGAL has also set itself the goal of managing a completely climate-neutral investment portfolio by 2050.
2. Description of the main adverse sustainability impacts
Investment decisions can have adverse impacts on sustainability factors. In this respect, sustainability factors are understood as environmental (e.g. climate, water, biodiversity), social and labour concerns, respect for human rights and the fight against corruption and bribery. According to the EU, the building sector is responsible for 36% of the total greenhouse gas emissions in the EU, of which Germany is responsible for 40% of this total. We are part of this market and therefore contribute to greenhouse gas emissions through our real estate investments.
For KGAL's handling of adverse sustainability impacts, see 1. Summary.
3. Description of the procedures for identifying and prioritising important sustainability impacts
The Sustainability Officer coordinates all activities aimed at sustainability on behalf of the Executive Board and ensures that sustainability management functions properly. In terms of KGAL's understanding of its role, the Management Board is the "sponsor", the Sustainability Officer is the "owner" and the sustainability coordinators at product level are the "advisors" of the processes deployed.
As the central sustainability body, the Sustainability Council steers the Group-wide sustainability activities. Its members are the "Sustainability Officers" of the divisions, who are responsible for the decentralised, operational design of the sustainability strategy.
For the infrastructure and real estate asset classes, we use the GRESB framework and participate in the annual assessments. GRESB is the leading rating system for measuring the sustainability performance of real estate and infrastructure funds. Both asset classes been a member of GRESB insince 2019. For the analysis of our aviation portfolio, KGAL together with an external partner has started to analyse the sustainability performance of airlines and manufacturers on the basis of MSCI ESG reports.
In terms of environmental concerns, we see energy consumption and associated CO2 emissions as particularly relevant. Based on all available consumption values, we have started to calculate the CO2 emissions caused by our investments in cooperation with a recognised external partner. In doing so, we take into consideration all relevant emissions (Scope 1 - Scope 3) as well as the emissions of the employees who manage the fund. At company and fund level, we use the internationally recognised standard of the Greenhouse Gas Protocol ("GHG Protocol").
4. Participation policy
As an investor in tangible assets, we can only exercise voting and other participation rights in the portfolio companies to a limited extent. However, as part of our fiduciary duty, we strive to manage our clients' investments in the best possible way and in their interests. Our investors have a say in shareholder meetings, investment committees and LPACs. We adopt a similar approach to support the desire of a growing group of investors to influence the management of their investments, especially when it comes to sustainability issues. We provide our investors with regular management reports. In addition to financial data, the reports also include detailed information on current operations and any related sustainability aspects of the investments.
5. Reference to international standards
KGAL GmbH & Co. KG is guided by the principles of the UN Global Compact and signed the United Nations Principles for Responsible Investment ("PRI") in 2018. The current transparency report can be found on the PRI website. KGAL GmbH & Co. KG also supports the UK Modern Slavery Act 2015 by publishing a statement under Section 54 of this Act outlining the measures taken to prevent slavery and human trafficking in business operations and within the supply chain.
KGAL Group's sustainability report is prepared in accordance with the reporting standards of the German Sustainability Code.
KGAL's remuneration policy is in line with the company's business and risk strategy. The company's business and risk strategy (including sustainability risks) applies to all employees - including the Executive Board. The Board of Directors is responsible for reviewing the achievement of the company's goals. If special sustainability aspects are relevant for particular areas of responsibility, they are integrated into the agreement on objectives for all employees. Specific sustainability goals are a mandatory part of our annual employee questionnaire for those working in risk management, sustainability management and for those working in the specialist areas of transaction, asset and portfolio management. The achievement of personal goals is reviewed during regular staff appraisals and confirmed by the respective manager. The achievement of individual goals has an impact on the employee's remuneration. Compliance with the KGAL Code of Conduct is also detailed in employee appraisals. Violation of the Code of Conduct has a negative impact on the achievement of targets and therefore also on the respective individual’s remuneration. Further consequences, such as the initiation of disciplinary measures and the involvement of authorities in the event of serious violations, are regulated by the Code of Conduct. In addition to the prevention of money laundering and terrorist financing, the Code of Conduct also includes the prevention of discrimination, the promotion of equal opportunities and compliance with environmental goals. Environmental targets must be complied with in accordance with the requirements of the KGAL Group's climate strategy.
Information at product level
The requirements from the SFDR for product information can be found at: www.kgal.de/en/institutional-investors/funds/