- SFDR Sustainability Information
- SFDR Sustainability Information
SFDR Sustainability Information
In response to the commitment made by the European Union in its “Sustainability Action Plan”, Regulation (EU) 2019/2088 of 27 November 2019 (hereinafter the SFDR) sets new disclosure transparency targets for financial market participants, particularly with regard to the integration of sustainability risks – defined as “an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment” – into investment decision-making processes, including the organisational, risk management and governance aspects of these processes.
This section provides information on the company concerning:
- the integration of sustainability risks into investment decision-making processes (Article 3 of the SFDR)
- Integration of sustainability risks into remuneration policy (Article 5 of the SFDR)
For a better understanding of the section, it should be noted that “sustainability factors” relate to environmental, social and personnel issues, respect for human rights, and corruption and bribery issues, while “main negative impacts” refer to the material negative effects that investment decisions may cause within any of the sustainability factors.
Integration of sustainability risks into investment decision-making processes (Article 3 of the SFDR)
In line with the Group’s founding values, the company has developed the “Responsible Investment Guidelines” to define a sustainable and responsible investment approach to the various asset classes in the portfolio: equity instruments, corporate bonds, government bonds, passive funds and active funds. The approach is implemented separately in the various asset classes, based also on information available from data providers in order to ensure better efficiency in portfolio management.
Analysis of the sustainability criteria for investments is conducted according to a unified process at Group level that provides for the apportionment of analysis activities to the various companies based on the level of marginal contribution of each to the Group’s overall exposure.
The incorporation of environmental, social and governance sustainability factors (summarised by the acronym ESG) into the investment decision-making mechanisms is based on awareness that these factors are an excellent risk management tool supporting medium/long-term sustainability. In accordance with this approach, in June 2019 Cattolica adhered to the six Principles for Responsible Investment (PRI) developed in 2006 by the United Nations with a view to incorporating ESG criteria into investment decisions.
In order to integrate ESG factors into its investment decisions and exert a positive influence on the behaviour of issuers, the company, with the support of a sustainability advisor and external providers, has identified some areas for action:
- Screening Report: this helps to monitor the investment universe, identifying and evaluating direct investments in corporate issuers with greater exposure to ESG issues.
- exclusion lists, or ‘black lists’. The norms-based exclusion criteria consider involvement in the production of unconventional weapons or involvement in serious violations of the 10 Principles defined by the United Nations in the UN Global Compact1. The company particularly disapproves of investments in companies that:
- are involved in the production of weapons that violate basic humanitarian principles in their normal use2;
- are implicated in gross or systematic human rights violations;
- are implicated in gross or systematic labour rights violations;
- are involved in serious environmental damage;
- are involved in grave cases of corruption in any its forms.
- watch lists and limited lists
watch list: the company also undertakes to monitor the ESG Controversies Score3 linked to the UN Global Compact Principles, reporting all cases where the scores are 2 or lower. This threshold indicates that the company has been involved in recent moderate to severe controversies (a score of 2), or that the company has been involved in one or more recent severe structural disputes that are still ongoing (score of 1).
In order to improve the average ESG Rating of the portfolio, the company pays particular attention to issuers with a rating below single B, monitoring them on the watch list by a specific report.
limited list: the company also undertakes to monitor and limit direct investments in certain sectors which are considered not fully consistent with the Group’s values and ethical principles4. Specifically:
- companies involved in practices related to human cloning;
- companies that produce abortifacient contraceptives;
- companies that produce or distribute pornographic materials;
- companies involved in the production of generic weapons;
- companies that manufacture or distribute tobacco, or licence tobacco products;
- companies involved in the mining and sale of thermal coal;
- companies involved in animal testing for non-pharmaceutical products.
With respect to inclusion in the limited list, issuers are assessed according to product-based criteria (companies operating in controversial sub-sectors) or conduct-based criteria (issuers that in the course of their business violate standards and principles in a manner that is not consistent with those of the Group).
The screening process leads to the inclusion of issuers in the black list, the watch list, or the limited list. The inclusion of a company on the black list results in specific measures, such as a prohibition on making new investments, or maintaining them until their expiry with a prohibition on the renewal or sale of existing positions.
For watch lists, two different approaches are followed. Individual exposures on the watch list may be subject to specific analysis in the most significant cases, in terms of controversies or according to their weight within the overall portfolio, while for the limited list, the overall exposure of issuers to the Group’s portfolio is monitored (maximum 5%).
- ESG Rating/Score Monitoring: this approach is applied to government issues, corporate issuers (broken down by their sector) and funds. All such investments in the insurance portfolio are examined on the basis of a score broken down into three pillars – environment, corporate practices and good corporate governance – and analysed at the sector level in the case of corporate issuers. The ‘ESG Score’ is converted into an overall ‘ESG Rating’ based on specific conversion ranges established by MSCI, from AAA (best) to CCC (worst).
- Active approach to selection: as part of its investment strategy, the company generally promotes investments aimed at improving sustainability, selecting products that identify the macro-trends that will drive future socio-economic developments. This approach is applied across the various asset classes in the portfolio, in particular bond investments (Green, Social, Sustainability and SDG Bonds), thematic illiquid alternative investments (divided into private equity, infrastructure and real estate funds) and open-ended funds that promote characteristics or pursue sustainability objectives are selected.
- Environmental protection: in line with the Group’s principles, the company attaches importance to the issue of environmental protection and has adopted an ex post monitoring system to understand and measure carbon risk at the portfolio, sector and business level. Among the various metrics available, carbon footprint is monitored, specifically through weighted average carbon intensity5, calculated on direct investments in corporate issuers (shares and corporate bonds) for which this information is available.
The Guidelines issued by the Group are implemented by each company and must be reviewed at least annually to reflect developments in legislation. Each update is issued promptly when changes are necessary.
The Group has designated a department that is responsible for regular monitoring of compliance with the criteria set out in the Responsible Investment Guidelines. The outcome of this activity, in terms of ESG risks and performance, is reported to the other departments involved in investment management and control, which are also notified of significant events that may give rise to severe controversies on ESG issues.
In addition, the department responsible for monitoring conducts negative screening on a global equity benchmark index; this tool is designed to assist investment managers (internal and external) in identifying issuers associated with high non-financial risk and separating them into exclusion lists and watch lists.
Integration of sustainability risks into remuneration policy (Article 5 of the SFDR)
In addition to aspects related to business strategies and the results expected from the Business Plan, the company’s variable incentive systems are increasingly oriented towards taking account of sustainability issues, which have become a fundamental element in the pursuit of the strategic objectives of the new Business Plan.
Accordingly, among the objectives taken into account for the achievement of these variable remuneration items, the approach adopted in recent years has progressively and gradually continued to place environmental, social and human resources issues alongside issues of an industrial nature, with a view to integrating sustainability risks.
In particular, in the areas responsible for Group’s investments, objectives that are designed to increase the presence of sustainable investments and mitigate sustainability risk are treated as performance indicators and contribute to the setting of targets linked to variable remuneration.
2 Specifically, an issuer is excluded:
- if involved in the production of cluster munitions systems and components, anti-personnel mines, or the production of depleted uranium weapons and munitions;
- if the previous year’s (or estimated) revenues from the production of biological and chemical weapons are greater to zero;
- if the previous year’s (or estimated) revenues from the production of nuclear weapons exceed 5%.
3 The MSCI score for ESG Controversies is as follows: A score of 0 indicates that the company has been involved in one or more recent very grave controversies; a score of 1 indicates that the company has been involved in one or more recent ongoing grave and structural controversies; a score of 2 to 4 indicates that the company has been involved in recent moderate/severe controversies; and a score of 5 to 10 indicates that the company has not recently been involved in major controversies.
4 With the exception of companies involved in practices related to human cloning, animal testing of non-pharmaceutical products and the mining and sale of thermal coal. For the other sectors, up to a limit of 10% of the previous years’ revenues (or estimated revenues) is considered acceptable, and companies are not placed directly on the limited list).
5 The metric used is MSCI Carbon Emission - Scope 1 + Scope 2 Intensity, as measured in tCO2e/$M. This measurement represents Scope 1 and Scope 2 greenhouse gas emissions normalised to total revenue in millions of Dollars to enable a comparison between companies of different sizes.