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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.

Fondaco orients its approach towards the Sustainable Development Goals of the UN 2030 Agenda, contributing to 6 of the 17 SDGs through innovation paths, focusing on people and natural resource management.

The approach adopted by Fondaco in pursuing and monitoring the 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: https://fondacogroup.it/wp-content/uploads/2021/05/Policy-per-gli-Investimenti-Responsabili_Fondaco-2021.pdf

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.

The CSR Committee provides operational direction e supervision referring to ESG’s corporate management (Environmental, Social and Governance).

–     Risk Management, responsible for monitoring and evaluating the impact of ESG factors on fund risk and related financial returns.

In addition to the structures described above, an additional committee has been set up expressly for certain funds that promote sustainability characteristics or pursue sustainability goals to support the governance: the Strategic Advisory Committee, an indispensable part of the investment process of these funds, has the task of (i) advising on the ESG profile of the fund in question during the assessment and review phases of investment opportunities, and (ii) organising meeting about ESG issues and the translation of these topics into investments.

Regarding the sustainability risk management process, Fondaco has approved a policy, which can be found in the Risk Management Manual at the following link: https://fondacogroup.it/wp-content/uploads/2021/04/Processo-RM-ESG-2021.pdf, structured in the following sections:

–         Definition of a high-level ESG process, with stakeholders’ identification and their responsibilities.

–         Specific process for alternative investments.

–         Specific process for traditional investments, with the definition of internal operational limits on ESG risks.

–         Process for monitoring ESG risks through Risk Management.

–         Corporate ESG risk reaction role.

Considering alternative investments, ESG risk management occurs in due diligence’s context, selection and monitoring of third-party managers, to understand 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 ratings 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 risks, adjusted for the issuer’s expertise to manage those risks. Specific rating limits and targets have been identified for each fund, and consultation and authorisation procedures are in place in the event of any doubts about the rating or the need for deeper analysis.

By Article 4, paragraph 1, point b) of EU Regulation 2019/2088, Fondaco declares that it does not currently take into account the adverse effects of its investment decisions on sustainability factors (Principal adverse impact – “PAI”) since it does not yet have sufficient and quality data, such as to allow an adequate assessment of the potential adverse effects of its investments on sustainability factors.

Fondaco is aware of the importance that the identification and prioritisation of sustainability factors have for its stakeholders in determining the environmental and social impact of its investments and is performing assessments to define the most correct and appropriate methods to incorporate these aspects as part of its activities by the end of 2022.

Fondaco is aligned with EU Regulation 2019/2088 and best practices regarding objectives’ integration linked to ESG issues in its staff remuneration and incentive policy. The remuneration policy has a direct link between specific sustainable evolution’s indicators of the assets under management and the determination of the overall variable remuneration and the assignment of individual goals linked at least to each member of the portfolio management team.