German church bank urges investor coalition for public ESG engagement

€3.4bn BKC taps Union Investment for first engagement mandate

The head of Germany’s Bank für Kirche und Caritas (BKC), a bank for Catholic churches and their employees with €3.4bn in assets, has made an unprecedented call on fellow Catholic institutions to join it in engaging companies, publicly, on sustainability.

To achieve their sustainable investment aims, Catholic investors in Germany, including the BKC, have mainly relied on exclusion or a best-in-class approach. Armaments, nuclear power, child labour and animal testing are, for example, among the BKC’s criteria for exclusion.

When these investors have engaged on environmental, social or governance (ESG) issues important to them, they have done so independently and through confidential talks with company management. What they have not done is to openly criticise executives at annual general meetings.

But in a new position paper seen by RI, BKC Chief Executive Richard Böger argues that while discreet talks with management are fine, Catholic investors will only effect change if they engage as a bloc – and do so publicly. “Controversy, criticism and provocation are the instruments for getting attention. Whoever fails to recognise this will not be heard by the public and will be ignored by companies. And whoever is not prepared to use these instruments will not achieve much when engaging,” Böger says.

Böger stresses that the kind of engagement he advocates is grounded in Christian social values that are no longer being respected. As an example, he points to the rampant greed that led to the global financial crisis of 2008-2009 or that which explains excessive executive pay.Beyond Catholic banks like the BKC, Böger’s vision for coordinated engagement includes bishoprics and pension funds that serve Catholic church employees. “We don’t need all the Catholic institutions, just enough to form a considerable bloc,” he writes in the paper, adding that Catholic leaders like Reinhard Marx, the Archbishop of Munich, would be ideal spokespeople.

Speaking to RI, Böger said that since authoring the paper, he had received virtually no response from other Catholic institutions. As a result, the BKC has decided to embrace engagement alone and has recently awarded a €35m equity mandate to Frankfurt asset manager Union Investment which includes engagement and voting of the underlying shares. Prior to the mandate, the bank had just €5m in equities. Böger told RI that he would like to wait a year to see how the Union mandate goes before making another attempt to build a coalition of Catholic investors for sustainable engagement.

The €35m mandate to Union is the limit of BKC’s exposure to equities (1% of assets). The bank is a massive bond investor, allocating two-thirds of assets to EU sovereign bonds and covered bonds. Corporate bonds, including those from other banks, account for another 18.6% of the bank’s assets, while small holdings in real estate and cash (about 3% each), emerging market debt (1.7%) and microfinance (1%) make up the remainder of the portfolio.

The BKC is not a signatory to the UN-backed Principles for Responsible Investment, telling RI previously that as it has already implemented those principles internally, it did not see a reason to join.