Fondaco considers fundamental the integration of Environmental, Social and Governance (ESG) factors into its investment process. Besides promoting sustainable economic and social development, we believe that these elements can contribute positively to the financial results of the funds while reducing their risks. It is considered that financial market participants committed to integrating ESG criteria into their strategy can generate sustainable profits over time and, therefore, create a solid prospect of value creation for all investors and the whole community.

The approach adopted by Fondaco in pursuing and monitoring he pre-set goals and identifying and mitigating risks includes creating an appropriate governance structure to oversee all aspects related to the ESG approach and adopting an ESG risk management policy. For a better description of the approach, please refer to the “Responsible Investment Policy” at the following link.

The governance structure is based on the following institutions:

• Board of Directors, which executes strategic policy-making activities.
• Investment Committee, responsible for selecting investment operations and applying the ESG guidelines defined in the “Responsible Investment Policy” to the process of selecting each investment.
• Risk Management, responsible for monitoring and evaluating the impact of ESG factors on fund risk and related financial returns.

Regarding the sustainability risk management process, Fondaco has approved a policy, which can be found in the Risk Management Manual at the following link, structured in the following sections:

• Definition of the general principles applied on the basis of the provisions of the regulations in force
• Description of the different types of portfolios managed according to the ESG risk
• Monitoring activities carried out by the Management Company
• Reporting activities carried out.

Considering alternative investments, ESG risk management occurs in due diligence’s context, selection and monitoring the investment and ESG risks associated with the investments, verify that the risk-revenue profile is consistent with the risk profile of each fund, and in terms of ESG objectives analysing areas for improvement.

For traditional investments, the risk management team supports the management team analysing and monitoring funds’ ESG risks, using ESG rating assigned to individual instruments by one or more specialist providers, reinforced by internal ratings, if necessary. The ESG rating summarises an issuer’s exposure to ESG risk, adjusted for the issuer’s expertise to manage those risks. The procedure followed is adapted according to the ESG classification applied to each portfolio, as required by current legislation.