VBV - Vorsorgekasse AG: VBV´s ESG incorporation process

Since it was founded in 2002, VBV - Vorsorgekasse AG has committed itself to sustainability, both in the business operations of VBV itself and in the management of assets entrusted to it. Part of the VBV Group, VBV - Vorsorgekasse AG is the largest Austrian providence fund, with more than 3.5 million beneficiaries and assets under management of approximately €4.8bn as of end 2020.

In 2020, it significantly improved its approach to ESG incorporation, developing it into a three-stage process:

1. Setting sustainable strategic investment goals based on the Sustainable Development Goals (SDGs) and which are intended to ensure that VBV - Vorsorgekasse AG contributes to the achievement of the SDGs.
2. Further developing its responsible investment criteria with regard to the Paris Agreement and the Sustainable Finance Disclosure Regulation (SFDR).
3. Offering innovative ESG investment products and solutions.

VBV’s proprietary ESG incorporation process

VBV - Vorsorgekasse AG has pledged to invest the assets entrusted to it in a sustainable and forward-looking way. This means that socially responsible investing forms a key part of its investment philosophy.

1. Sustainable strategic investment goals:

   The fund stresses the holistic nature of its approach, placing particular emphasis on the UN SDGs, and its aim to achieve sustainable development by balancing social, economic and environmental sustainability issues. For this purpose, the investment experts at VBV checked the 17 SDGs and the 169 sub-goals to determine whether they were specifically “investable” and set six sustainable strategic investment goals derived from them. They form the uppermost framework for strategic sustainable investment goals across the entire VBV Group and are defined as follows:

   • Securing people´s living standards over generations (SDG 1): The strategic goal is to contribute to securing people´s quality of life over generations through profitable investments.
   • Climate protection, limiting global warming to 1.5°C (SDG 13):
     Investing in sustainable industry, innovation and infrastructure (SDG 9): The strategic goal is to invest in sustainable infrastructure and innovative technologies.
   • Investing in health and well-being (SDG 3): The strategic goal is to contribute to healthy life and well-being for all generations through investments in the health sector and in social infrastructure.
   • Investing in affordable and clean energy (SDG 7): The strategic goal is to contribute to the sustainable energy transition by investing in renewable energy and energy efficiency.
   • Investment in a competitive and sustainable Austria: The strategic goal is to promote local value creation and the local economy by investing in Austria. This goal is not linked to a specific SDG.

   The sustainable strategic investment goals have to be considered for all investment strategies and, if possible, should be implemented across all asset classes and investment products.

   The sustainable strategic investment goals were decided by the managing board of the VBV Group and apply to the entire VBV Group.

2. Responsible investment criteria

   In addition, VBV - Vorsorgekasse AG has set out responsible investment criteria. This set of rules was first drawn up in 2002 by the Ethics Committee and has been periodically refined since.

   In 2020, VBV – Vorsorgekasse AG carried out a comprehensive evaluation of these criteria in cooperation with its Ethics Committee with regard to the “Green Finance” legislative package adopted by the European Commission. It undertook a detailed analysis of the Taxonomy regulation and the SFDR and reviewed VBV – Vorsorgekasse AG’s responsible investment criteria for compatibility with those regulations.

   In particular, the following items were added to the rules:

   A commitment to the Paris Agreement goal to hold warming to below 1.5°C and a decision to withdraw completely from investments that generate more than 5% of their turnover from the extraction of fossil fuels.

   Other items which have been added include measures to protect and restore biodiversity and ecosystems, a transition to a circular economy, and the avoidance of controversial economic and tax practices.

   The updated version of the responsible investment criteria of VBV – Vorsorgekasse AG is available on its homepage. (It should be emphasised that the responsible investment criteria are only changed with the approval of the Ethics Committee and that all investments of VBV - Vorsorgekasse AG must adhere to this set of rules.)

Outcomes, benefits, challenges and next steps

The third step in VBV - Vorsorgekasse AG’s three-stage ESG incorporation process consists of the development of innovative ESG products and investment solutions that are in line with its sustainable strategic investment goals and responsible investment criteria.

The following sets out an example which shows the advantages of its ESG incorporation process as well as the challenges associated with this approach.

VBV - Vorsorgekasse has so far only used actively managed mandates for its equity investments, as only these were able to ensure full compliance with its responsible investment criteria. In contrast, passively managed equity funds or passively managed equity exchange-traded funds (ETFs) have so far been managed against ‘conventional’ equity benchmarks. The launch of the first Paris-aligned benchmark (PAB) indices in connection with the entry into force of the EU Benchmark regulation was an opportunity for the fund to consider for the first time passively managed equity mandates. The market turmoil in March 2020 due to the COVID-19 crisis also contributed to this consideration, as regulatory constraints mean that VBV - Vorsorgekasse AG can only use derivatives to a very limited extent. However, quick action in times of market turmoil is essential and the fund considers ETFs as an alternative to derivatives.

VBV - Vorsorgekasse AG began its search for a suitable ETF provider in September 2020, using an established platform to issue an invitation to tender a global equity ETF (developed markets) that meets the requirements of the PAB benchmark, VBV´s responsible investment criteria and – in addition – those of the Austrian Ecolabel (Österreichisches Umweltzeichen).

Thirteen ETF providers responded. However, a large number of the applicants had to be eliminated because they could not submit an assessment proposal that addressed compliance with the Austrian Ecolabel. As a result, the initial pool of ETF providers was narrowed down to two providers. Based on the final assessment by VBV´s asset management team, Amundi Asset Management Paris won the mandate.

The ETF for VBV - Vorsorgekasse AG, provided by Amundi, has been launched under the name “Amundi MSCI World Climate Paris Aligned PAB Umweltzeichen”. The ETF is believed to be the first to have the word “Umweltzeichen” – referring to the Austrian Ecolabel – in its name.