Future Viability and Capital Market

Appeal on the Capital Market

Disclosure

Vonovia has been listed on the Deutsche Aktienindex (DAX) since 2015. It became the first residential real estate company to be listed on the EURO STOXX 50 index in 2020, and is currently the only real estate company on the index. Our company is focused on the capital market. The access that we have to external capital and funding opportunities through the capital market is a core aspect of our business operations and our commercial success. We are also committed to balancing the interests of our shareholders with those of our other stakeholders, particularly our customers. If we can achieve this and ensure sustainable, steady growth, it will put us in a good position on the capital market and provide a good starting point for our company’s further development.

Investors in the capital market are paying more and more attention to ESG criteria. The European Union’s action plan on financing sustainable growth is picking up on these trends and driving them forward. Financial market participants require an ever-increasing level of transparency in terms of the ESG aspects of their investment instruments and strategies. Failure to meet ESG expectations can sometimes even result in a company being excluded from an investor’s investment portfolio or other access to capital. Investors can turn to a number of rating systems and benchmarks to assess the performance of a company from an ESG perspective. We aim to provide the capital market with transparent information about our commitment to sustainability by achieving a consistently high level of performance in the ESG rating systems that are relevant to our investors. Performing well in these ratings gives us access to a wider range of investors. We are well aware that this will not change the fundamental focus of capital markets. However, a company the size of Vonovia can play a part in shaping these markets and, most importantly, act as an example of sustainable corporate governance for other companies.

More information can be found in the section Vonovia SE on the Capital Market and in the section Appeal on the Capital Market in the 2020 Annual Report.

Our Approach

As a real estate company with a long-term focus, we aim to strike a balance between commercial activity on the one hand, and social responsibility and ecological objectives on the other. We are committed to the principles of the social market economy and profitability. We can only drive sustainability if we are commercially successful. We want to increase the value of our company while also contributing to sustainable development in our sphere of influence. This will also make us more attractive to investors, who are paying more attention than ever to corporate sustainability. Access to the capital market is crucial for us, including when considering future sustainable financing instruments such as green bonds.

Due to the increasing importance of ESG factors for the capital market, Vonovia used 2020 to enhance the company’s strategic and operational governance in line with ESG criteria. We continued to integrate sustainability into our corporate strategy and established the corresponding structures and processes (see Our Approach to Sustainable Development in Detail). One core element of our approach is the Sustainability Performance Index (SPI), which we will use as a material non-financial performance indicator for the Vonovia Group from 2021 onwards. Integrating further sustainability risks into our corporate risk management is another important building block of our sustainable governance. We are also issuing new financing instruments like green bonds to appeal to sustainability-conscious investors.

You can find more information in the chapter Strategy. – Annual Report 2020.

We use a wide variety of channels to communicate with stakeholders about what we are doing. The Investor Relations (IR) department plays a key role in this area and is our link to the capital markets. This department communicates (pro)actively with capital market participants, providing them with basic information about our company and financial performance, as well as our commitment to sustainability. IR also makes sure that the concerns of capital market participants are heard by the right people in the company.

We have also established structures which enable us to process sustainability ratings systematically and incorporate the latest trends and developments like the EU Taxonomy, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (see Implementation of the TCFD Recommendations) and the United Nations Sustainable Development Goals (SDG) into our reporting, while also making sure that we are guided by their requirements. In this context, the application of the GRI standards and, in the future, the regulations of the EU taxonomy and possible further European standards have priority for us as a European company. Due to the importance of English-speaking investors for us, this year for the first time we are creating a mapping of the indicators for the content published in this report for the Real Estate reporting framework of the Sustainability Accounting Standards Board (SASB). We have made this available on our website, along with our report on the EPRA Best Practice Recommendations on Sustainability Reporting.

Organizational Focus

The CEO and CFO are responsible for our activities in the capital market. The Sustainability/Strategy department coordinates the company’s participation in ESG ratings with the involvement of the operational departments. Communication with the capital market and our investors is handled by the IR department, which reports to the CEO, as does the Sustainability/Strategy department. Decisions regarding ESG ratings are made by the Sustainability Committee, which is provided with regular updates about developments in this area. Finance & Treasury is responsible for implementing our financing instruments and reports to the Chief Financial Officer (CFO).

Objectives and Measures

We want to make sure that the information we provide to our stakeholders is transparent and reliable. Our aim is to provide investors with all of the information they need to get an accurate impression of our company. We want to provide attractive, risk-adjusted returns for our investors while also improving our performance and value in a sustainable manner. Our overarching objective is to build trust in Vonovia.

We believe it is important to have access to a broad mix of financing instruments so that we can choose the right product at the right time, like bonds, promissory notes, secured real estate loans, commercial paper, working capital facilities and loans from development banks like the KfW and EIB. We also have access to innovative sources of finance like blockchain-based promissory notes. This puts us in a position to attract different capital market participants like investors, banks and insurance companies. This diversification helps us to spread out our risk and handle periods where individual sources of financing are not available due to rapid developments in the capital market, as occurred with the coronavirus pandemic.

Our participation and good performance in a variety of ESG rating systems is clear evidence of our commitment to sustainability. Our aim is to be represented in all relevant international ESG indices and obtain good to very good ratings. We established a solid foundation for this in 2020. We intend to maintain our performance at a high level in 2021 and subsequent years, while also striving for continuous improvements.

Our IR department carries out surveys every two years to identify the ESG rating systems that are relevant for our investors. We review the situation on a regular basis to make sure that we are represented in the ratings that are important to us and take steps to be included in any new ratings that we consider appropriate. In 2020, we strategically worked on the CDP Climate Change, SAM CSA (S&P Global), Sustainalytics ESG Risk Rating and ISS-oekom ratings in a structured process involving all relevant divisions, e.g., by carrying out a gap analysis based on the previous year’s results and selecting specific focus topics to work on. This enabled Vonovia to achieve substantial improvements in some rating systems. In addition to joining the top percentile of the more than 12,000 companies rated across the globe by Sustainalytics, we were awarded “Prime” status by ISS-oekom for the first time and were included in the renowned Dow Jones Sustainability Europe Index.

Our scores for 2020 can be found in the Ratings section. These excellent results show us that we are heading in the right direction. We also use our ratings and peer group comparisons to refine our sustainability measures. We stopped taking part in GRESB because the methodology for the rating was changed in 2020. The new methodology makes it impossible for a residential property company of our size to provide the required data with the desired level of granularity or in a reasonably aggregated form. We communicated proactively with investors before taking the decision and wrote an open letter to GRESB. There will be no substantial changes to the GRESB methodology in 2021; as a result, we will not be able to participate in 2021.

The Investor Relations department is responsible for capital market communication and regular dialogue with capital market participants about different subjects, including ESG topics. The annual Capital Markets Day organized by the Investor Relations department (which did not take place in 2020 due to the coronavirus pandemic) is an important event for that puts individual topics under the spotlight and explains them in greater detail. Sustainability will be the main focus of the Capital Markets Day in 2021. Investor Relations also uses roadshows and one-on-one meetings with investors to discuss sustainability. A roadshow on corporate governance issues is usually held once a year with the Chairman of the Supervisory Board.

After honing our strategy, we started to look more closely at the topic of green bonds in 2020. This included developing a Green Bond Framework that enables us to issue green bonds to (partly) finance green building projects, energy efficiency, renewable energies and low-emission transport (see project New Financing Instruments). On this basis, we were able to issue our first green bond with a volume of € 600 million in March 2021, which was met with very high demand and was also certified by the Climate Bond Initiative.

In addition, we have prepared the launch of a fully digital bond, which we issued in January 2021.

In addition to attracting ESG-oriented investors, we also want to make sure that sustainability criteria are an integral part of our financing strategy. The Green Bond Framework is the basis for future green bonds, with which we hope to tap into new groups of investors. Vonovia established a Green Finance Committee to coordinate and refine this and other sustainable financing activities. It includes representatives from several different departments and is chaired by the Head of Finance & Treasury.

Planned for 2021

• Maintain and continuously improve level in ESG ratings, especially MSCI ESG and CDP Climate Change
• Hold the next Capital Markets Day with a focus on ESG and sustainability
• Issue a green bond (March 2021)
• Issue a fully digital registered bond (January 2021)