1. Background
In March 2018, the European Commission published the Action Plan on sustainable finance, implementing the Paris Agreement on climate change and the UN’s 2030 Agenda for Sustainable Development, in which it outlines the strategy and measures to be adopted to build a financial system capable of promoting growth that is economically, socially, and environmentally sustainable. Specifically, the Action Plan identifies the following three objectives:
- reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth;
- manage financial risks stemming from climate change, resource depletion, environmental degradation, and social issues; and
- foster transparency and long-termism in financial and economic activity.
As part of this Plan, European lawmakers issued Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector (so-called «SFDR – Sustainable Finance Disclosure Regulation»).
One of the objectives of this Regulation is to inform end investors about the integration of sustainability risks and adverse impacts on sustainability factors in the decision-making processes of financial market participants (entities that provide financial products such as the asset management service) and financial advisers (entities that provide investment or insurance advice).
The requirements introduced under the SFDR apply to:
- affiliate Banks and Cassa Centrale, in their capacity as financial advisers, as credit institutions which provide investment or insurance advice on the following financial products:
- an insurance‐based investment product (IBIPs);
- units of UCITSs (Mutual Funds and SICAVs);
- a pension product.
- Cassa Centrale, with respect to the rules applicable to financial market participants, as a credit institution that provides the asset management service.
In accordance with the SFDR Regulation, Cassa Centrale and the affiliate Banks provide information about the following topics in this section of their respective websites:
- the integration of sustainability risks into investment decisions and investment or insurance advice (art. 3 SFDR);
- a statement on due diligence policies with respect to the adverse impacts of investment decisions or advice on sustainability factors (art. 4 SFDR);
- the consistency of remuneration policies with the integration of sustainability risks (art. 5 SFDR).
To ensure a better understanding of the information presented in the following paragraphs, we provide the following definitions under the SFDR:
- sustainability risks mean environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of an investment;
- sustainability factors mean environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters;
- principal adverse impacts mean the impacts of investment decisions and advice that result in negative effects on sustainability factors.
2. Integration of sustainability risks in investment decision-making processes (art. 3 SFDR)
As part of its investment decision-making processes, Cassa Centrale Banca has defined a specific strategy to integrate and monitor sustainability risks, where material, and their likely impact on the returns of financial products.
Specifically, the integration of environmental, social, and governance (ESG) sustainability risks in investment decisions related to the asset management lines that Cassa Centrale and the affiliate Banks offer to clients allows developing an organic approach to the different risk categories (i.e., market risk, credit risk, liquidity risk, etc.), analysing also any material adverse impacts on investment returns.
The strategy developed by Cassa Centrale Banca involves conducting specific sustainability risk analysis, as defined below:
- negative screening: quantitative analysis based on rules to exclude financial instruments and issuers that do not meet minimum sustainability requirements (e.g., cluster bomb manufacturers);
- positive screening: quantitative analysis based on rules to select financial instruments and issuers with environmental and/or social characteristics or objectives, adopting a “best-in-class” approach.
These analyses consider also assessments made by leading specialised info-providers, which have developed proprietary methodologies to assess the market’s main issuers.
When providing advice on investments and insurance-based investment products, Cassa Centrale and the affiliate Banks consider the documentation provided by producers with respect to sustainability risks and their impact on the returns of financial products. Such information, if available, is considered when distributing products to clients, so as to inform them of the environmental and social characteristics promoted as well as any sustainability risks identified by the producer.
3. Statement on adverse impacts on sustainability (art. 4 SFDR)
Taking account of its size, nature, and the scale of its activities and the types of financial products it makes available, Cassa Centrale Banca considers the principal adverse impacts on sustainability factors of investment decisions as part of the asset management service.
Potentially, with respect to sustainability, all investment decisions may have adverse impacts on stakeholders, the environment, and society attributable to the specific economic activity performed by the investee. Such adverse impacts may materially concern specific aspects associated with sustainability factors, namely environmental and/or social ones.
The indicators made available by info-providers, and the investment strategy adopted as a result, are intended to exclude or limit investments in certain controversial sectors that certainly cause adverse impacts on sustainability factors (e.g., cluster bomb manufacturers), and to promote investments positively oriented towards environmental and social issues. In addition to sustainability risks, the current assessments made available by info-providers consider also potential adverse impacts on sustainability factors and controversies arising from the economic activity carried out by issuers and producers of financial instruments included in the assets under management. Monitoring the indicators made available by info-providers allows keeping the assessments of the main adverse impacts on sustainability factors in investment decisions up to date.
The Engagement Policy adopted by Cassa Centrale Banca describes how the Bank monitors investee companies, the intervention strategy, the approach to engagement, as well as the strategy concerning the exercise of voting rights, including by proxy or through any proxy advisory services.
To limit the adverse impacts on sustainability factors in investment decisions as part of the asset management service, Cassa Centrale Bank monitors Significant Issuers by various means (e.g., financial information platforms, financial statements and reports, mandatory disclosures), specifically with respect to matters that could potentially pose a material risk to the issuer’s long-term financial performance, such as issues related to transparency and Environmental, Social, and Governance (ESG) principles. More details on this policy and its scope are available at the following link.
The Cassa Centrale Banking Group has adopted a Code of Ethics establishing the core principles (lawfulness, morality, etc.) as well as corporate policies (e.g., safeguarding the environment, protecting occupational health and safety) that guide its operations. In addition, as part of its corporate social responsibility journey, the Banking Group has adopted several sustainability-related policies: anti-corruption and anti-bribery, environment, human rights, diversity, and arms brokering. More information on these policies is available at the following link.
As for advisory services, Cassa Centrale and the affiliate Banks currently do not consider adverse impacts, but have launched initiatives to consider such impacts on sustainability factors with respect to the investment decisions of clients based on the recommendations provided by the banks. Pending further consolidation of the relevant regulations, and in the absence of sources of information provided by producers, it is currently not possible to duly consider such impacts.
4. Remuneration policy (art. 5 SFDR)
The Remuneration and Incentive Policies adopted by Cassa Centrale and the affiliate Banks are consistent with the integration of sustainability risks, considering the incorporation of the Group’s principles and values as well mutual purposes (e.g., centrality of the person relative to their investment decision, promoting the economic/social/cultural development of local communities) into its business processes. Specifically, the principles used to define variable remuneration for all staff include:
- the commitment to aligning performance with the Group’s objectives and values as well as long-term strategies;
- appropriately balancing economic and non-economic objectives (both qualitative and quantitative) according to the role, considering also compliance with the Code of Ethics, which has led to the definition of policies that promote sustainability, including some that are considered also when selecting investments (e.g., arms policy, anti-corruption and anti-bribery policy, ...).
Concerning specifically key personnel that is part of Cassa Centrale’s Senior Management, the incentive system includes ESG indicators among performance appraisal objectives.
In addition, the Group has embarked on a journey to further finalise remuneration policies in order to promote product offerings that meet sustainability requirements and steer its practices towards an increasingly transparent representation of sustainability risks and adverse impacts on sustainability factors.
For more information on the integration of sustainability measures in the investment processes related to asset management lines (art. 10 SFDR), click here.