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Sustainability in the Investment Process

KfW Capital regards sustainability in the VC sector as the interplay of multiple factors that contribute to making companies successful on a sustained and long-term basis. KfW Capital is convinced that the identification of major ESG risks and opportunities as well as their management constitute key elements for the enduring success of companies. Possible negative effects that result from companies and their activities, in particular, must be taken into consideration in the interest of appropriate risk management. Not only do they harm humans and the environment, they also have a significant impact on a company's value.

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).

Due Diligence

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.

ESG Reporting

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KfW Capital began to request sustainbility details from its funds and their portfolio companies for the first time as of 31 December 2022. KfW Capital uses them not just for its internal portfolio monitoring but also as input for the KfW's impact management, greenhouse gas accounting and taxonomy reporting.

For the purpose of standardisation, KfW Capital has decided to use the ESG reporting template of Invest Europe (see also the ESG Reporting Guidelines).

For our professional ESG reporting, we are working closely together with Atlas Metrics. Further information on Atlas Metrics can be found here.

Impact Management

In addition to ESG reporting, KfW Capital has the ambition to capture the impacts from investments and to report them both internally and externally in order to create more transparency in the market and, in this way, to contribute to sustainable development.

KfW has previously been using a group-wide SDG mapping with which it made the positive SDG contributions to be expected from all new commitments transparent.

The most important SDG contributions made by KfW Capital in the 2023 financial year were:

From now on, the impacts of KfW Capital will be reported as part of the group-wide impact management. As KfW is the transformative and digital promotional bank, it is committed to systematically identifying the economic, ecological, and social impacts of its financing and promotional activities, presenting them transparently for the whole group, and developing appropriate management input 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 gives transparent information to the public and stakeholders and provides KfW Group with important findings for the continuous development of its financing operations.

With its indicators, the impact management system covers all three sustainability dimensions - economic, ecological, and social - and is guided by the 2030 Agenda of the United Nations with its 17 Sustainable Development Goals (SDGs). The Methodology Paper containing detailed inofrmation on the underlying strategy offers more information about this.

As KfW Capital was founded with the mandate to invest in German and European venture capital and ventures debt funds and thereby improve the supply of capital for innovative, technology-oriented start-ups and fast-growth enterprises, the key impact categories derived from its strategy are:

  • Competitiveness and access to financial services
  • Innovation
  • Digital transformation

These contribute primarily to SDG 8 "Decent work and economic growth" and SDG 9 "Industry, innovation and infrastructre".

In addition, financing from KfW Capital also makes a contribution to further impact categories, which we will be able to quantify in the futures using collected data.

Some of the data for the group-wide impact management is captured by KfW Capital itself, other data is required from the ESG reporting of the portfolio funds. The aggregate impact of KfW Group is combined into an annual impact report.

Further information on KfW's group-wide impact management can be found here.