On 8 March 2018, the European Commission published an Action Plan for Financing Sustainable Growth which illustrated the measures that the Commission intends to adopt in order to guide the capital market towards a model of sustainable development, including and in line with the commitments assumed as part of the Paris Agreement and in harmony with the ideas expressed in the United Nations 2030 Agenda for Sustainable Development.
The European Commission’s Action Plan led to the creation of various laws on sustainable finance, in particular including Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (“Sustainable Finance Disclosure Regulation” or “SFDR”). The SFDR binds, in part already as of March 2021, market participants (such as investment firms which provide portfolio management) and financial advisers (such as investment firms which provide investment advice) to a standard transparency system, increasing and aligning the reporting requirements for investment processes and promoting the comparability between products and operators. By virtue of this legislation, manufacturers or distributors of financial products must indicate how sustainability risks are integrated into their investment processes or advice.
2. THE BANOR SIM POLICY
Banor SIM (the “Company” or the “SIM”) considers it a priority to integrate environmental, social and governance (hereinafter “ESG”) factors into its decision-making processes related to investments and for the purpose of (a) consolidating the trust of investors and markets, (b) strengthening the Company’s reputation, and (c) countering the development of practices and activities not in line with the principles and philosophy of the SIM. As a matter of fact, ESG criteria are fundamental factors for creating economic and financial value in an environmentally and socially responsible way.
The Company has developed and adopted an approach aimed at identifying, assessing, predicting and reducing potential reputational, compliance and operating risks deriving from investments in companies active in sectors not deemed sustainable or socially responsible. In particular, the SIM integrates sustainability risk assessment into its internal processes related to the provision of portfolio management and investment advisory services. To this end, the SIM:
- has identified exclusion criteria, upon the occurrence of which it is obligated not to knowingly carry out or recommend an investment (known as “negative screening”);
- analyses and monitors the ESG risks of the portfolios managed, using the ESG ratings assigned to the individual instruments by one or more specialised external providers;
- monitors ongoing disputes with regard to an issuer in relation to ESG factors.
An ESG rating is the summary of an issuer’s and/or the relevant sector’s exposure to ESG risks, adjusted for the issuer’s ability and effectiveness in managing said risks. It measures the sustainability of a financial investment based on three “pillars”:
- environment: referring to topics associated with climate change, natural resources, pollution and waste;
- social: referring to issues associated with the ability to guarantee conditions of well-being founded on shared principles (health, education, democracy, justice) for the community in question, fairly and without discrimination;
- governance: referring to topics associated with corporate governance and company behaviour, promoting management and company organisation based on certain ethical principles (workers’ well-being and safety, gender equality, prudent management of corporate risks).
The higher an issuer’s ESG rating, the lower the ESG risk to which it is exposed.
When selecting the securities issued by corporate issuers, exclusion criteria have been identified for the financial instruments belonging to particularly controversial sectors or sectors that may have negative effects for environmental, social and governance sustainability. For funds/ETFs or government issuers, investment limits have been established for the financial instruments with a particularly low rating or none at all. Specific authorisation procedures have also been established in the event of valuation questions or if more extensive analyses are needed.
As part of the advisory service, the policy to integrate sustainability risks focuses on the assumption of minimum sustainability criteria for the financial products/instruments being recommended, which excludes products with a low sustainability rating.
For portfolio management, the SIM also employs ex-post valuation and monitoring processes intended to analyse the negative externalities to which the securities within the portfolios managed are exposed and to trigger the appropriate warnings if particularly low indicators are found for corporate governance, overall rating or individual key issues (relevant for sectoral materiality).
3. TRANSPARENCY OF THE REMUNERATION POLICIES IN RELATION TO THE INTEGRATION OF SUSTAINABILITY RISKS
The remuneration and incentive mechanisms adopted by the Company and formalised in the Remuneration and Incentive Policies are aimed at the good governance of the Company as well as sustainability. The SIM’s reward system for personnel working in the portfolio management and investment advisory services is based on achieving objectives that take sustainability risk into consideration, in line with the ESG and sustainability policy adopted by the SIM.
4. STATEMENT ON THE ADVERSE IMPACTS ON SUSTAINABILITY PURSUANT TO ART. 4 OF THE SFDR
As a “financial market participant” and “financial adviser”, Banor SIM already considers certain adverse impacts of investment decisions by performing the aforementioned negative ESG screening on investments.
Nevertheless, considering that:
- the reference regulatory framework needs to be integrated by the detailed provisions contained in a specific Commission Delegated Regulation, currently published in draft version, the entry into force of which is 1 January 2022;
- the detailed provisions under point (i) do not act as further specification of the provisions contained in Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector, as amended by Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 related to the establishment of a framework that favours sustainable investments, and amending Regulation (EU) 2019/2088, but are a necessary completion of the first-level regulation;
- the Company directly employs fewer than 500 people;
despite having already undertaken an internal process aimed at integrating risk and sustainability factors within its own decision-making processes, the Company declares that, in this first phase, it does not take into consideration the adverse effects of investment decisions on sustainability factors pursuant to Article 4 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019, for the reasons discussed.
The Company will assess whether or not to take into consideration the adverse impacts of investment decisions pursuant to Article 4 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019.