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Integrating ESG into our investment strategy is of central importance for KfW Capital. We strongly believe that managing ESG risk factors today is more than just a matter of regulatory compliance, as systematically leveraging the resulting opportunities opens up possibilities for creating the sustainable value that is essential for generating long-term returns.
VC funds play a crucial role in the foundation and growth phase of new companies, accompanying and supporting them throughout their development. We want our funds to help bring about positive change and to enable their portfolio companies to be part of the solution.
That is why an essential element of our strategy is to fully incorporate sustainability principles into our own investment processes at an early stage and, beyond that, to promote them within the VC ecosystem. In recent years, we have implemented a large number of measures, designed processes and created formats aimed at achieving this.
In 2021, KfW Capital conducted an in-depth study of the topic of ESG in the VC market together with the Boston Consulting Group, and it developed and implemented an own framework based on the findings. It was published in the report "Growing the Seeds of ESG" (Nov. 2021).
During the investment process, KfW Capital verifies the fund's compliance with the exclusion list, its regulatory compliance under the Sustainable Finance Disclosure Regulation and its ESG management capabilities. Details of KfW Capital's ESG due diligence requirements are presented in the Sustainability Policy and in the VC Information Package ESG & Impact Requirements.
Since the 2022 reporting year, KfW Capital has been collecting data from its funds and their portfolio companies.
KfW Capital uses this data not only for its own internal portfolio monitoring but also as input for the KfW's impact management, greenhouse gas accounting and KfW's regulatory reporting.
In order to make the collection of data for funds and portfolio companies as efficient as possible, while at the same time obtaining an adequate overview of the portfolio, KfW Capital has decided to use Invest Europe's ESG reporting template (see also Invest Europe's ESG reporting guidelines), thereby actively supporting the standardisation of data requests among investors and the regular further development of the template.
Furthermore, analyses and findings will be made available to participants and the wider ecosystem. KfW Capital's first public ESG report can be found here.
In addition to ESG reporting, KfW Capital aims to measure the impact of from investments and report on them both internally and externally. The aim is to increase transparency in the market and to contribute to sustainable development.
To this end, KfW has, among other things, used its own group-wide SDG mapping tool to make the positive SDG contributions to be expected from all new commitments transparent.
The most significant SDG contributions made by KfW Capital in the 2023 financial year were:
In addition, the impact of KfW Capital will be reported as part of the group-wide impact management. As a transformative and digital promotional bank, KfW is committed to systematically identifying, presenting transparently and managing the economic, ecological, and social impacts of its financing and promotional activities, to achieve greater effectiveness. At the core of this impact management system are measurable and comparable impact indicators. The impact data collected using these indicators provides transparent information for the public and stakeholders and gives the KfW Group important insights for continuously developing its financing operations.
The impact management system’s indicators cover all three sustainability dimensions – economic, ecological, and social – and are guided by the United Nation’s 2030 Agenda and its 17 Sustainable Development Goals (SDGs).
The Methodology Paper , which contains detailed information on the underlying strategy, offers more information about this.
KfW Capital was founded with the mandate to invest in German and European venture capital and venture debt funds, thereby improving the supply of capital for innovative, technology-oriented start-ups and fast-growth enterprises. The key impact categories derived from its strategy are:
These primarily contribute to SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation and Infrastructure).
In addition, KfW Capital financing also contributes to other impact categories. This is reinforced, among other things, by targeted investment priorities (e.g., impact and diversity), which complement KfW Capital's sector-agnostic investment approach.
Some of the data for the group-wide impact management is captured by KfW Capital itself; the remaining data is acquired from the ESG reporting of the portfolio funds. The KfW Group’s aggregated impact has been presented in the annual impact report since the 2024 financial year.
Further information on KfW's impact management can be found here.