1. REFERENCES
On 8 March 2018, the European Commission published an Action Plan on Sustainable Finance, in which it set out the measures that it intends to adopt to steer the capital markets towards a sustainable, inclusive development model, in line with the commitments undertaken as part of the Paris Agreement on Climate Change and the content of the United Nations 2030 Agenda for Sustainable Development.
The European Commission’s Action Plan led to the creation of various laws on sustainable finance, including EU Regulation 2019/2088 of the European Parliament and of the Council, dated 27 November 2019, regarding the disclosure of sustainability information in the financial services sector (the “Sustainable Finance Disclosure Regulation” or “SFDR”). The SFDR binds both market participants (such as investment companies that provide portfolio management services) and financial advisors (such as investment companies that provide investment advisory services) to a standardised transparency system, increasing and harmonising the reporting requirements for investment processes and promoting comparability between products and operators. Under this regulation, producers or distributors of financial products must indicate how sustainability risks are integrated into investment processes or the provision of advisory services. European Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 integrated the SFDR with the regulatory technical standards (RTS), which specify the content, methodologies and presentation of information relating to sustainability indicators and the negative effects on sustainability, as well as the content and presentation of information about the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites, and in periodic reports.
2. BANOR SIM’S POLICY
Banor SIM considers it a priority to integrate environmental, social and governance (ESG) criteria into its investment decision-making processes, in implementing the requirements of the relevant legislation, and with the aim of (a) consolidating the trust of markets and investors; (b) enhancing the Company’s reputation and (c) countering the development of practices and activities that are not in line with the Company’s philosophy and principles and, first and foremost, that of greenwashing. ESG criteria constitute key factors in creating economic and financial value that is both environmental and social.
The Company has developed and adopted an approach aimed at identifying, assessing, preventing and reducing potential reputational, compliance and operating risks arising from investment in companies that operate in sectors not considered sustainable and socially responsible. Specifically, the Company integrates into its internal processes for the provision of portfolio management and investment advisory services, an assessment of the “sustainability risk”, namely the risk that the value of an investment might be negatively affected (even if only potentially) by the occurrence of environmental, social or governance events or conditions. To ensure that the process operates correctly, the Company has formalised specific operating procedures that clearly define and document the division of functions and responsibilities between all the parties involved: the Investments and ESG Committee, which supports the Board of Directors in adopting this policy, the Risk Management function, and the ESG and Sustainability Policies function.
The approach to ESG risk adopted by the Company consists of the following:
- identifying exclusion criteria, in the event of which the SIM undertakes not to knowingly make or recommend an investment (“negative screening”);
- analysing and monitoring the managed portfolios, using ESG ratings awarded to the individual instruments by one or more external specialist providers;
- monitoring ongoing disputes against an issuer in relation to environmental, social and governance issues.
The “ESG rating” is a summary of the exposure to the ESG risks of an issuer and/or the sector to which it belongs, adjusted to take account of the issuer’s ability and effectiveness in mitigating such risks; it is a measure of the sustainability of a financial investment, assessed in relation to three “pillars”:
- environmental: relating to issues connected with climate change, natural resources, pollution and waste;
- social: relating to issues connected with the ability to ensure conditions of well-being based on shared principles (health, education, democracy and justice) for the community concerned, in a fair and non-discriminatory manner;
- governance: relating to issues connected with corporate governance and behaviour, promoting a style of management and corporate organisation based on certain ethical principles (the well-being and safety of workers, gender equality, prudent management of business risks).
The higher the issuer’s ESG rating, the lower the ESG risk to which it is exposed.
In the selection of securities issued by corporate issuers, exclusion criteria have been identified for financial instruments belonging to sectors that are particularly exposed to environmental, social and governance risks or that may generate negative effects on environmental, social and governance sustainability; in the case of funds/ETFs or government issuers, investment limits have been set for financial instruments that have a particularly low rating or none at all. In addition, specific authorisation procedures have been established for cases where there are doubts about the evaluation or where more in-depth analysis is necessary.
Within the advisory service, the sustainability risks integration policy focuses on the adoption of minimum sustainability criteria for the products/financial instruments for which advice is being given; these criteria exclude products with a low level of sustainability.
For products managed pursuant to art. 8 of the SFDR, the Company further restricts the scope of investment and does not consider issuers that are involved and active in sectors that may entail significant sustainability risks (enhanced negative screening). In a second selection phase, environmental and social characteristics are promoted based on the best-in-class strategy, namely the favouring of issuers and funds with higher ESG ratings.
For products classified pursuant to art. 8 of the SFDR, the Company describes the ways in which sustainability risks are integrated into investment decisions, along with all the information required by existing legislation, in the pre-contractual information document, and includes in periodic reports the extent to which the environmental and social characteristics are achieved.
Within the portfolio management service, the Company has also implemented ex post evaluation and monitoring processes to analyse the negative external factors to which the securities that make up the managed portfolios are exposed; these will activate the appropriate warning signals if any particularly low corporate governance, overall ratings or single key issue indicators (relevant for sector materiality) are identified.
3. TRANSPARENCY OF REMUNERATION POLICIES IN RELATION TO SUSTAINABILITY RISKS INTEGRATION
The remuneration and incentive mechanisms adopted by the Company and formalised in the Remuneration and Incentive Policies are aimed at the The remuneration and incentive schemes adopted by the Company and formalised in its “Remuneration and Incentive Policies” are aimed at ensuring the good governance of the Company and its sustainability. The Company’s incentive scheme for staff involved in portfolio management services and investment advice is based on the achievement of objectives that take sustainability risk into account, in line with the ESG and Sustainability Policy adopted by the Company.