Governance – Sustainable Corporate Governance

This section is dedicated to the topics of long-term growth, compliance and anti-corruption as well as open dialogue with society. Our position regarding adjustments to reflect climate change can be found in the chapter Opportunities and Risks as well as in the Environmental chapter (see materiality matrix).

Long-term Growth

Vonovia SE secures its stable growth through long-term measures to further develop its portfolio and the range of services it offers. With this in mind, we are strengthening our core business of renting out homes by expanding our portfolio in Germany as well as through acquisitions and new construction in selected major European cities that offer growth potential. We are also expanding the range of housing-related services we offer on an ongoing basis. Our customers’ trust in the durability of our business model forms the basis for these endeavors. This approach is legitimized by social acceptance, action that is geared toward meeting the needs of the market and a reliable place within a stable political framework. This calls for responsible and transparent corporate governance.

As a result, the Management Board and the Supervisory Board have made a comprehensive commitment to the principles of corporate governance as well as all the main aims and principles of the Institute for Corporate Governance in the German Real Estate Industry.

With a Code of Conduct, we provide the ethical and legal framework within which we act. It describes the conduct guidelines that apply with binding effect to Vonovia’s employees and managers and forms the basis for an open, appreciative and legally compliant corporate culture. The Code of Conduct features provisions on issues including environmental and health protection, respect for employee rights, dealing with conflicts of interest, and interacting with governments and public-sector agencies. Policies and works agreements that apply across the Group – for example, on the handling of sensitive information (e. g. data protection, information security, compliance, inspections), on the topic of working and work-related conditions (e. g. occupational health and safety, operator obligations, travel and company car policies, communications) and to ensure compliance with duties and obligations under capital market law and other issues – complete the formalized framework within which Vonovia operates.

In order to be successful in the long run as a residential real estate company that operates in society’s interests, Vonovia needs management and control bodies that can address and reflect the diverse nature of social interests. Diversity plays a key role in this respect. The corresponding diversity concept for the composition of the management and control bodies and all other relevant aspects of cooperation between the Supervisory Board and the Management Board are set out in greater detail in the Corporate Governance Declaration (see also chapter on Corporate Governance and https://investors.vonovia.de).

The remuneration system is explained in the Remuneration Report and at https://investors.vonovia.de.

Compliance and Anti-corruption

Systematic adherence to all of the provisions and laws that apply to the company is essential in order for Vonovia to act as and be accepted as a reliable and trusted partner. A good compliance organization makes a key contribution to a company’s sustainable development and value creation. As a result, the Management Board is responsible for the implementation of the Compliance Management System (CMS).

By ensuring the extensive monitoring of our compliance rules, we protect the integrity of employees, customers and business partners and shield our company from negative influences. Our own Compliance Guidelines, which are consistent with the Principles for the Proper Performance of Reasonable Assurance Engagements Relating to Compliance Management Systems (IDW PS 980) and also take the implementation principles for the UK Bribery Act 2010 into account, define the regulatory framework. They form the basis for our extensive CMS and refer to other key documents setting out provisions governing the handling of compliance matters and moves to combat corruption: the Code of Conduct, the Business Partner Code, the inspection guidelines and the Group guideline management guidelines. Regulations designed to protect whistleblowers also form part of the CMS. The guidelines and codes apply in both Germany and Austria. Comparable regulations are also in place at our subsidiary Victoria Park in Sweden (see also https://investors.vonovia.de).

Vonovia’s CMS is designed to ensure that future misconduct is prevented (“prevention”), that any misconduct that has already occurred is identified (“identification”) and that Vonovia takes appropriate and effective action in response to any misconduct identified (“reaction”). The three pillars of the compliance program make up an extensive system of compliance measures and processes. The focus of our appropriate and effective CMS is on preventing misconduct.

Regular training sessions on compliance matters or data protection issues are another key component of our preventative work. Procurement, for which the issue is particularly relevant, receives special training on corruption and criminal law pertaining to corruption. Almost all employees underwent training on data protection, either online or at face-to-face training sessions, in 2019.

The Supervisory Board is also regularly and comprehensively briefed on the issues of compliance, corruption and existing guidelines and procedures. The Audit Committee receives a corresponding compliance report, which reports on current suspected cases, corresponding measures and training offered on the issue of corruption.

In the 2019 fiscal year, there were isolated suspected cases of corruption, which we investigated diligently. None of the cases were confirmed. There were also several other nonmaterial compliance violations or suspected cases. This clearly shows, however, that the system we have put in place is proving effective. Cases are reported and addressed and corresponding consequences ensue.

Adherence to Labor, Social and Environmental Standards in the Supply Chain

Vonovia is aware of the potential sustainability risks in the supply chain. The challenges primarily relate to compliance with labor and social standards in construction companies and their subcontractors. Since Vonovia conducts considerable trade-related construction work on its own through the technical service, most of the risks that could arise with external suppliers can be reduced from the outset. As it is less dependent on the offerings of external construction firms, Vonovia is able to exclude service providers that violate certain sustainability criteria. In the Development segment, we conclude contractual agreements with our partner companies to ensure compliance with labor and social standards. The fact that we bundle our activities with a small number of partner companies and maintain ongoing dialogue with them throughout the entire project term allows us to establish a close relationship of trust and also gives us the opportunity to exert influence directly.

Our Business Partner Code for subcontractors and suppliers, which is updated on an ongoing basis, sets out clear expectations regarding integrity, legal compliance and ethical conduct. It stipulates, among other things, that illicit employment must be ruled out, that the legal minimum wage must be paid and that valid German regulations on occupational safety and human rights must be observed. These obligations also apply to third parties – i. e. subcontractors of our contractual partners.

Construction managers in Germany maintain direct contact with subcontractors and have a clear picture of the people working on construction sites. Compliance with the Business Partner Code can thus be largely verified within the scope of this working relationship. In addition, our procurement department holds annual reviews with key subcontractors.

In case of repeated violations of the Code or other legal provisions, we take appropriate steps, either significantly reducing the sales volume with the affected supplier or terminating the business relationship entirely. Vonovia did not learn of any significant cases of noncompliance in the reporting year.

The new partner portal for service providers and suppliers also went into operation at the end of 2019. As another key component of system-based risk management at Vonovia.

Vonovia’s partner portal gives service providers and suppliers the opportunity to register with Vonovia online and submit applications to qualify as potential business partners. It allows suppliers to upload all of the key information and documents during the registration process. Once their details have been verified, approved suppliers receive login details for the system and can maintain and update their data themselves. The Vonovia partner portal will help us to check the validity of key documents/permits. This ensures that the latest supporting documents for the affected trades and product groups are available at all times. This ultimately provides a state-of-the-art solution that does away with the time-consuming manual dispatch of documents by email or as hard copies.

In this way, Vonovia’s partner portal supports integrated supplier management by the procurement department. Furthermore, a regular supplier assessment process involving the procurement department and the specialist departments concerned will go live in the first quarter of 2020. This will lay the digital foundation for further-reaching supplier development.

As Vonovia operates within a strictly regulated and controlled legal framework within the European Union, possible challenges relating to human rights are not considered to be material for Vonovia’s business model. Consequently, there is no explicit performance indicator for this topic. The procurement department, however, acts as a watchdog in this regard by selecting suppliers accordingly (see above) in order to ensure the protection of fundamental rights and adherence to the law.

Open Dialogue With Society

Vonovia’s aim is to provide transparent reporting on the company and its activities and to maintain intensive dialogue with its stakeholder groups. We seek to use ongoing, open and mutual dialogue with society to help find common solutions to foster a good sense of community spirit within the properties that make up our portfolio.

The most important aspect in this respect is dialogue with our customers (see the section entitled Social – Society and Customers). We aim to establish dialogue on location – be it via our caretakers, our rental offices as local ports of call, tenant meetings or parties – so that we can respond to our customers’ questions, concerns and requests as directly as possible. Digital tools like tenant apps provide us with support in this process of dialogue.

In those cities in which we have a large portfolio and in which large-scale projects such as extensive modernization measures are on the horizon or underway, early communication and involvement is particularly relevant. We play a proactive role and talk to the local mayors – also at Management Board level. We involve residents by entering into dialogue with tenants’ associations and by getting involved in citizens’ forums and meetings with tenants.

Vonovia is involved in housing and real estate industry associations such as the European Public Real Estate Association (EPRA), the German Association of German Housing and Real Estate Companies (Bundesverband deutscher Wohnungs- und Immobilienunternehmen [GdW]), the German Property Federation (Zentralen Immobilienausschuss e. V. [ZIA]) and the German Association for Housing, Urban and Spatial Development (Deutscher Verband für Wohnungswesen, Städtebau und Raumordnung [DV]), allowing it to make a contribution to a strong real estate industry in Germany. We are also involved in a whole number of initiatives and working groups such as the “klimaaktiv pakt2020” in Austria, the 2° foundation, KlimaDiskurs.NRW (the “climate discourse” project of the state of North Rhine-Westphalia), and the dialogue forum “Wirtschaft macht Klimaschutz” (Business Mitigates Climate Protection). In addition to these lobbies, we also engage in direct dialogue with policymakers at municipal, state and federal level.

We maintain ongoing and transparent dialogue with our investors and shareholders as well. In addition to participating in conferences, conducting road shows and property tours and organizing daily conference calls and other meetings, we organized a Corporate Governance Road Show – as in the previous year. We also participate in a whole range of sustainability benchmarks and ratings, for example, the EPRA Best Practices Recommendations on Sustainability Reporting, in respect of which we once again received a Gold Award in 2019 for our sustainability reporting in 2018. Participation in the Carbon Disclosure Project (CDP) and the sector-specific GRESB rating also highlight our efforts to make our sustainability performance transparent.

Due to the diverse nature of the topics presented, it does not make sense to focus on a single performance indicator. On the contrary, this would restrict the management of the topic to an unnecessary degree. As a result, we have opted not to report a corresponding key performance indicator.