Take responsibility for
tomorrow

In order to comply with Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosure requirements in the financial services sector (the ‘Disclosure Regulation’, ‘Sustainable Finance Disclosure Regulation’, or ‘SFDR’ for short), the KanAm Grund Group has realigned the LEADING CITIES INVEST mutual real estate fund (ISIN DE0006791825) in compliance with Article 8 SFDR. This was preceded by the ‘LEADING CITIES INVEST goes green’ initiative launched in 2018, which created the necessary organisational conditions for this at both fund-manager and fund level in recent years.

The SFDR is intended to provide (potential) investors with better information about the sustainability of financial products. It is therefore also aimed at real estate capital management companies and their fund products.
 
In order to further specify the transparency requirements of the SFDR, the European Supervisory Authorities (ESAs) have developed proposals for so-called ‘Regulatory Technical Standards’ (RTS). The EU Commission developed a Delegated Regulation on 6 April 2022 based on these proposals. Delegated Regulation (EU) 2022/1288 supplementing the SFDR with regard to regulatory technical standards was published in the Official Journal of the EU on 25 July 2022 and has been in force since 1 January 2023.  From this date, the requirements of the Delegated Regulation – in addition to the requirements of the SFDR to be observed since 10 March 2021 – are required to be implemented in practice. 
The most important obligations arising from the SFDR can be divided into three categories: Disclosure obligations on the website, in pre-contractual information and within the regular reporting. A further distinction must be made here between the disclosure obligations at company and product level and between the various products. 
  
In addition to the requirements of the SFDR, further regulatory and private sector initiatives are to be expected, particularly with regard to the classification of financial products as ‘sustainable’. 
 
On the one hand, this concerns the legal requirements that regulate the sale of financial products (notably MiFID II). In future, more far-reaching changes will apply here, according to which, among other things, customers will be asked about their ‘sustainability preferences’ when receiving investment advice. Which financial products then meet the requirements for any ‘sustainability preferences’ expressed by the customer is also newly regulated and is based on the SFDR system (without, however, adopting it in full). These sustainability-related sales requirements are required to be observed in fund sales (investment advice) from 2 August 2022. All ‘Art. 8 products’ in accordance with the requirements of the SFDR that meet these marketing requirements are also referred to as ‘Art. 8 plus products’.
 
In addition, well-known German associations, including the BVI, have formed various categories of product groups for the purpose of selling fund products, which are intended to make it easier for investors to classify funds in connection with the issue of sustainability (the so-called association concept). The association concept is coordinated with the German Federal Financial Supervisory Authority (known as BaFin). In accordance with this concept, which is not legally binding, there will in future be different product categories in the fund sector in the context of sustainability: the ESG strategy product, the basic fund and the non-sustainable fund. There are also products that can be aimed at clients with sustainability-related objectives as defined by the new MiFID II requirements. According to the draft of this ESG target market concept, the individual categories must fulfil different requirements. 

The KanAm Grund Group will continually orient itself in line with the current legal and private-sector requirements and publish which product category of the SFDR is fulfilled for the various real estate funds.

The KanAm Grund Group has seen itself as a responsible market participant since it was founded more than 20 years ago: It is deeply rooted in our corporate culture, our guidelines and our business model. From the very beginning, we have fostered team-oriented, open collaboration between all managers and employees with a flat hierarchical structure and high levels of motivation, tolerance and professionalism at our headquarters and in our international offices. It goes without saying that the KanAm Grund Group observes the BVI Code of Conduct in all processes for managing investment funds in the exclusive interests of investors and market integrity. KanAm Grund has also signed the UN Principles for Responsible Investments (PRI) and is thus committed to integrating ESG factors into its investment analysis and decision-making processes. In managing the assets entrusted to us, we act exclusively in the interests of the investors. We exercise their rights independently. We welcome state monitoring of this legal obligation. Our success is the success of our investors. Not only excellent returns but also risk diversification, liquidity and sustainability are very important here. We provide both small and large investors with equal access to all investment markets. We also offer targeted solutions for funded pension provision. Sustainability, from an economic, environmental and social perspective, determines our actions when selecting real estate investments. You can view the details of the sustainability-related aspects of the investment strategy for the individual funds on the website for each product, for example, for LEADING CITIES INVEST here.

Sustainability as part of our fiduciary duty
It is important for all KanAm Grund Group companies that we, as an international real estate group, make a positive contribution to society in general and to our investors, employees, and business partners in particular. More than that, our fiduciary duty requires us to take all necessary measures to ensure that the properties we manage retain their value in the future. Acting sustainably and taking responsibility for the investment success of our investors are therefore inextricably linked for us. 

Sustainability team implements sustainability goals under the motto ‘KanAm Grund Group goes green’:
At KanAm Grund Group, the in-house sustainability team has been actively working on the strategy and implementation of sustainability goals for years. The team consists of members of the management as well as directors and employees from all specialist areas and therefore enjoys a high status within the company. This has created an important anchor point within the company for defining, managing and advancing sustainability goals, which also includes active participation by company representatives in the working groups of the BVI industry association.

We are committed to the use of renewable energy sources in our properties. Since 2019, we have been gradually converting the energy supply for the common areas of our properties to be CO2-neutral by sourcing renewable energy based on new energy supply contracts in Germany and seven other European countries. And finally, when purchasing new properties, we also assess the existing energy supply in favour of renewable energies. As a result, we have been able to reduce energy costs at some properties and have already saved a total of 9,079 tons of CO2 per year in the properties we manage. 
 
Additional optimisation of resource consumption and user behaviour: Since the beginning of 2020, we have also been encouraging our tenants to sign up for the framework agreement for the purchase of renewable energy along with their rental space. In the future, we will also make greater use of ‘green contract clauses’ to ensure that tenants commit to using renewable energy in new tenancy agreements or when re-letting.

We are committed to greater transparency in the procurement and processing of ESG data, particularly consumption data in our properties. In 2020, KanAm Grund Group concluded a cooperation agreement with the ESG software provider Measurabl. The aim is to optimise energy consumption and reduce CO2 emissions. In addition, a central consumption database will be created in collaboration with Measurabl. Consistent and comprehensive ESG data collection at property level is currently one of the biggest challenges facing the real estate industry when it comes to the sustainable orientation of properties. This forms the necessary basis both for the ESG assessment of the properties and for their sustainable orientation through practical, environmentally friendly measures. In selecting Measurabl, KanAm Grund Group has decided to use the world's most widely used ESG data management software for commercial real estate, according to the product manufacturer. With over 40,000 commercial buildings worldwide (approx. 18,000 in Europe) covering 9 billion square metres in 75 countries, the software helps companies measure, manage and disclose their sustainability performance. One interesting feature of the software is that it offers direct integration of consumption data via the energy supplier. Using this, we have laid the foundation for professional and comprehensive ESG data management. At the same time, in selected fund properties, we are currently assessing the installation of smart metering systems that support the computerised measurement, calculation and control of energy consumption and supply as a basis for the ESG performance measurement of buildings.

Back in 2020, for example, we also carried out partial portfolio screening for LEADING CITIES INVEST, which is managed by KanAm Grund Kapitalverwaltungsgesellschaft mbH, in which we subjected a sub-portfolio to a comprehensive analysis to determine how high the consumption and CO2 emissions of the properties are – compared to the selected portfolio and to targets developed by the EU in connection with the decarbonisation of economic activity (the EU decarbonisation pathway). From this, we can evaluate the ESG performance of the individual properties within the selected portfolio and determine timeframes for strategic decisions, such as ESG measures or decisions to sell properties. In addition, portfolio screenings enable us to define further measures to reduce CO2 emissions.

Building certificates offer the opportunity to measure and compare sustainability criteria based on independent, established and recognised standards. The focus here is on the comprehensive assessment of a property from a social, environmental and economic perspective over its entire life cycle. Country-specific certification systems apply, depending on the investment location. There are now more than 600 certification systems around the world. The first certificate, which was the BREEAM certificate, was developed in the UK in 1990. This was followed during the 1990s by the US LEED certificate, the French HQE certificate, the Minergie certificate in Switzerland and the Green Star certificate in Australia, for example. In Germany, the certificate issued by the German Sustainable Building Council (DGNB) has become particularly well established since 2007.
 
KanAm Grund Group properties are certified by the following systems, among others: BREEAM, HQE, DGNB, Minergie and LEED. A total of 22 properties worth around EUR 934 million are currently certified or in the process of being certified in LEADING CITIES INVEST. This corresponds to a certification rate of over 78 per cent in relation to the total real estate assets of LEADING CITIES INVEST.

KanAm Grund Group has been working in the sustainability space for more than a decade. For example, the KanAm Grund Group has been a member of the US Green Building Council since 2009. Since March 2020, KanAm Grund has been a signatory to the United Nations Principles for Responsible Investment (UN PRI), which are supported by the United Nations. As an international real estate company, we are proud to underline our strong focus on incorporating environmental and social issues as well as corporate governance into our corporate and investment process. Most recently, in January 2021, the KanAm Grund Group joined the ECORE (ESG Circle of Real Estate) industry initiative. The initiative was founded at the beginning of 2020 to develop a practical management tool at the property portfolio and property level and to share best-practice approaches. The participants now include around 40 European portfolio managers and the ZIA and BVI associations. In addition, the company joined the BVI guidelines for sustainable real estate portfolio management, which take into account economic, environmental and social issues at portfolio level and provide recommendations for sustainability considerations at portfolio level.

The KanAm Grund Group also participated in a green rating by GRESB (Global Real Estate Sustainability Benchmark) for the first time in 2020 with the LEADING CITIES INVEST open-ended real estate fund, achieving Green Star Status on the first attempt. GRESB is a globally recognised evaluation system for the sustainability performance of real estate portfolios. The notable advantage of the GRESB rating compared to the certification of individual properties – such as DGNB, LEED or BREEAM, for example, or group solutions provided by suppliers – is that GRESB can be used to neutrally measure the sustainability of entire portfolios.

Sustainability risks are events and conditions or changes in influencing factors relating to the environment, society or governance, the occurrence of which have a potential negative impact on the net assets, financial position and results as well as the reputation of a company or asset. Key influencing factors here are climate change and the social and legal requirements that must be met. Environmental risks are also divided into physical risks and transitory risks. Physical risks include, for example, extreme weather events and their consequences as well as long-term changes in climatic and ecological conditions. Transitory risks include the transition to a low-carbon economy. Sustainability risks are increasingly arising in connection with climate change and transitory risks must also be expected to increase due to the increased regulation required to achieve sustainability goals. Sustainability risks can have a significant impact on the performance of investments and funds. In addition to direct economic effects, legal and reputational risks that arise as a result of sustainability risks can also have a negative impact on the value of investments. Sustainability risks can significantly impact the economic result of an investment. They can lead to the reduction or even destruction of assets. Sustainability risks can also have an impact on all other known risks and significantly increase them.
 
At the KanAm Grund Group, investment decisions are made by the decision-makers from the relevant departments. Investment decisions are based on individual investment strategies, real estate market research and the necessary economic, legal and technical due diligence carried out as part of the investment process. Sustainability factors and sustainability risks are taken into account and identified during the due diligence, research and risk management process and thus incorporated into the investment process. The sustainability factors and risks identified as part of the investment process are documented in the decision paper as part of the ESG analysis. The decision-makers in the investment process review the sustainability factors and risks identified. The investment decision is made taking into account the results of the ESG analysis and the impact on the portfolio.
 
Sustainability risks for individual investments and the overall portfolio can be monitored and managed by actively taking them into account in the investment process.
In addition, the companies in the KanAm Grund Group apply several sets of rules that serve to avoid sustainability risks (United Nations Principles for Responsible Investments (UN PRI), BVI guidelines for sustainable real estate portfolio management).

The three companies in the KanAm Grund Group recognize the need for sustainable investment strategies and attach great importance to social responsibility as capital management companies for real estate funds and in the management of separate account mandates. The ESG Policy expresses our commitment to minimize negative impacts on sustainability factors and to act proactively to achieve positive outcomes for our clients, stakeholders and society. 
Click here for the KanAm Grund Group ESG Policy.