How to do engagement: alone, together and everywhere | Bank für Kirche und Caritas

691
© BKC

Q&A with Tommy Piemonte, Head of Sustainable Investment Research at Bank für Kirche und Caritas (BKC), a Catholic church Bank based in Paderborn, Germany


| Why is Bank für Kirche und Caritas doing engagement?

As a Catholic church bank, Bank für Kirche und Cartas (BKC) has been applying an ethically-sustainable investment strategy in its investments and investment products for almost 20 years. Using exclusion, positive and negative criteria, it designs its investments on the basis of its Christian value orientation. In addition to taking ethically-sustainable investment criteria into account, BKC also pursues engagement. The aim of BKC’s ethically-sustainable investment strategy is both to reduce sustainability risks within its investment universe and to contribute to sustainable development from a Christian perspective. In this context, engagement plays an important role. For investment objects in which investments are not made for sustainability reasons or where there are sustainability concerns do not learn of these only “tacitly” addressed requirements without engagement. It is only through engagement activities that companies or governments, for example, are confronted with concrete sustainability requirements from investors. This increases the pressure on them to increase their sustainability efforts.

 

| What does BKC’s engagement approach look like and what is special about it?

Engagement can be exercised on the one hand through voting rights, for example on shares, and on the other hand through various dialogue strategies. BKC considers dialogue, which takes place via written or personal communication with company representatives, via speeches at annual general meetings or via participation in public investor campaigns, to be particularly influential. However, the form in which engagement is ultimately carried out depends on the likelihood of success in each individual case. It is already clear here that engagement requires a clear structure and a fixed schedule. Only in this way can it be comprehensible, verifiable and successful. For this reason, BKC developed a detailed engagement guideline in 2018, which is published on its website.

 

The form in which engagement is ultimately carried out depends on the likelihood of success in each individual case.

 

A particular element of our engagement activities is that we do not limit engagement to certain dialogue and voting strategies or specific asset classes. This means that we promote sustainability issues in companies, countries and all other investment objects through all available vote and voice strategies. Furthermore, we do not only pursue the engagement concept commonly found in the financial market, called “shareholder activism”, which focuses engagement activities only within the investment portfolio. This means that we also enter into an active dialogue with companies, for example, if they violate our exclusion criteria or do not belong to our investment portfolio for other reasons. The only reason for this is that we want to see a change due to the importance for sustainable development and our Christian value orientation. We call this engagement concept “shareholder criticism”.

 

| Do you carry out engagement activities alone or also together with other investors?

In order to give our engagement the greatest possible impact and efficiency, we conduct engagement activities through a total of three channels:

Firstly, we have outsourced engagement activities for some of our own investments to an external service provider with extensive expertise in sustainability issues.

Secondly, we carry out engagement together with other institutional investors through the international engagement network Shareholders for Change (SfC), which we co-founded. In addition, we also cooperate with other investors on individual engagement activities and join forces to form a larger investor group.

As a third building block, we carry out some targeted engagement activities on our own.

 

| Please give us a brief overview of Shareholders for Change?

Shareholders for Change is an engagement network founded by and for European institutional investors in 2017. The seven founding member companies, including BKC, come from five European countries. As of May 2023, SfC now consists of 17 member companies from seven European countries, managing a total of approximately €35 billion. The SfC members are united by a common vision and shared values across a wide range of sustainability issues. These shared values are at the heart of their engagement activities and are an integral part of the members’ own business practices.

The founding idea of Shareholders for Change as an association of European institutional investors follows a simple principle:

Together we are stronger than any individual Alone,

a greater number of engagement activities are achieved,

the contacts, networking, cultural and linguistic access in the respective countries of the members are used,

the members learn together and from each other

and in addition the work is shared.

The focus of SfC activities is on collaborative engagement with a concentration on European companies. The SfC uses all available means of investors influence to motivate companies and other investment objects to behave more sustainably and thereby contribute to sustainable development. Engagement themes can lie in a wide range of sustainability challenges, which are defined in more detail in the SfC Charter of Values. However, in order to focus engagement activities somewhat thematically, the priority is on three sustainability blocks:

Workers’ rights and human rights

Tax practices and tax justice

CO2 emissions and climate change

In addition, Shareholders for Change work with institutions, associations and other public or private organisations to support the development of sustainable financial markets and a sustainable economy aligned with the Sustainable Development Goals (SDGs).

More information about SfC can be found on the website www.shareholdersforchange.eu.

 

| Give us a practical example of an SfC or BKC engagement

Then let’s take a look at our engagement with catastrophe bond funds, so-called CAT bonds funds.

Catastrophe bonds transfer some of the risk of natural disasters from governments and people directly to the capital markets. Although catastrophe bonds can be a vehicle to address the impact of weather disasters, which are increasingly linked to climate change, there is very little transparency on climate-related or other sustainability aspects in CAT bond contracts. The danger of this lack of transparency lies, among other things, in the fact that in the event of an incident, the insurance policies on which the CAT bonds are based, for example, cover a coal-fired power plant and finance the reconstruction of this climate unfriendly coal-fired power plant after a hurricane. This is precisely where BKC’s engagement, which was also conducted on behalf of the SfC, comes in.

In a dialogue lasting several years with the four CAT bond fund managers Plenum Investment, Twelve Capital, SCORE Investment Partners and Fermat Capital Management, increased transparency and a commitment to a clear sustainability orientation of the insurance transactions included in the CAT bonds were worked towards. Plenum Investment had already implemented all our engagement requirements in 2020, and Twelve Capital followed suit last month. Both CAT bond fund managers have now integrated a broad exclusion criteria filter into their processes, which is applied at the sponsor (e.g. reinsurance) and CAT bond level. This is intended to prevent, for example, insurance benefits from flowing to unconventional oil and gas production projects in the event of a natural disaster. In addition to the introduction of a formalised sustainability assessment process, a dedicated engagement process has also been established to encourage increased sustainability focus and transparency along the CAT bond value chain among insurance brokers and reinsurers. In addition, Plenum Investment and Twelve Capital, together with four other Swiss CAT bond fund managers, have developed a unified sustainability data requirement to push for change with greater market power in the CAT bond value chain. This development is remarkable because the BKC engagement has thus triggered a multiple engagement – a “domino engagement”, so to speak.

More information on the BKC’s engagement activities can be found on the website Engagement – Bank für Kirche und Caritas eG, Paderborn (bkc-paderborn.de)

 

| about

Tommy Piemonte is Head of Sustainable Investment Research at Bank für Kirche und Caritas (BKC), a Catholic church Bank based in Paderborn, Germany. He is mainly responsible for the further development, operational implementation and monitoring of the bank’s ethically-sustainable investment strategy. He is also responsible for the associated engagement activities. In this context, he is the Bank’s representative and a founding member of the European engagement network of institutional investors Shareholders for Change.

Above all, his expertise helps the Bank’s institutional clients, such as charitable foundations and church and charitable institutions, to develop and implement an individual, ethically-sustainable investment strategy. Prior to joining BKC, Tommy Piemonte was Head of the German sustainability rating agency at imug in Hanover (research and sales network partner of Moody’s ESG Solutions). The graduate economist complements his experience with many years of work in the financial market, including as a securities specialist at Deutsche Bank. He has written numerous publications on sustainable investment. Mr. Piemonte studied economics at Universities in Nürtingen (Germany) and Rome (Italy).

 

All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.