Sustainability has become a trend in the financial sector in recent years. A realignment of the financial system is already needed in order to implement the climate protection measures decided within the scope of the Paris Agreement. However, the aim is not only to bring capital flows into harmony with the climate goals, but to view sustainability as a holistic concept that includes social and corporate governance aspects in addition to environmental aspects(Good reasons for more sustainability in investment funds).

For a fund company such as Raiffeisen KAG, sustainability primarily means investing responsibly. Responsibility is shown with regard to the people, the environment, and the invested capital. (What does investing sustainably mean? [Link auf Clusterthema]) The foundation for this approach is given by the integrative sustainability concept that consists of three main components at Raiffeisen KAG:

1. Practising avoidance and showing responsibility: negative criteria

One approach for sustainable investment policies is the ethical principle of avoiding participation in problematic and controversial business areas and practices. By excluding these, one can generally take up a morally responsible position. However, negative criteria also help avoid the (reputational) risks, which are associated with large financial consequences. The exclusion can apply to certain business areas as well as to companies and countries (regional entities) that do not meet the required criteria. If a company or a regional entity violates one of the negative criteria (e.g. child labour, generation of nuclear energy, extraction of coal, food speculation, activities with controversial weapons such as landmines, chemical or biological weapons, particularly high state defence budgets), they will not be included in the investment universe for sustainable funds.

2. Providing support and promoting sustainability: best in class

The next essential stage of development is collaborating to achieve positive change. Here, particular attention is paid to the integration of ESG (environmental, social, and governance) research (What you should know about ESG) in company assessments and thus in the selection of securities. In line with this, not only is the management of climate risks taken into consideration, but also all risk aspects in relation to the environment, social issues, and corporate governance. The best-in-class approach specifically means investing in companies which achieve a higher ESG score than the average for companies in the same sector. The focus is on maximising the ESG score, in other words, the assessment of companies with regard to their overall sustainability performance. This is based on the principle that good long-term corporate performance is only possible when sustainability is put into practice.

3. Exercising influence and having an impact: engagement

The third step of the sustainability concept is engagement as an integral component of a responsible, sustainable investment policy. Here, the focus is on actively exerting a positive influence on the behaviour of companies and organisations, even more so than when determining negative criteria or applying the best-in-class approach.

The meticulous, time-consuming process of engagement within the context of sustainable fund management refers in particular to proactive corporate dialogue and making use of voting rights at annual general meetings. Exercising voting rights connected to equities is especially relevant because, in this way, the fund company accepts a proxy function when voting on behalf of its clients who transferred this responsibility by investing in a fund.

If companies are successfully guided to greater transparency or to strategy changes in favour of greater sustainability, then the engagement process has achieved its objective. For the indirect contribution made towards improving the financial standing and performance of companies results in a so-called double dividend, which ultimately benefits the client who invests in the world’s sustainability while enjoying attractive returns at the same time.