Sustainable investments

The Mediobanca Group’s firm commitment

Growth and sustainability are distinctive features of the Mediobanca Group. Promoting people, serving the society in which we operate, and reducing the direct and indirect impact on our environment are all an integral part of our growth objectives.

In order to achieve responsible growth at Group level, a Group Sustainability Policy and a Responsible Lending and Investment Policy have been adopted. The former describes the approach used to identify, assess, prevent and reduce potential direct impact in reputational and operational terms, while the latter defines the general principles and guidelines for evaluating Environmental, Social and Governance (ESG) factors as part of the Mediobanca Group's financing, investment and advisory activities.

The Group has set itself sustainability targets as part of the 2019-23 Strategic Plan, with the intention of contributing to the achievement of 6 of the 17 macro objectives described by the Sustainable Development Goals. The Group has also agreed to and signed the 10 Global Compact principles.

 INTEGRATION OF SUSTAINABILITY CRITERIA ESG

INVESTMENT SERVICES

SUSTAINABILITY CRITERIA AN INTEGRAL PART OF MEDIOBANCA PRIVATE BANKING'S POLICIES FOR PROVIDING INVESTMENT SERVICES

As part of its client portfolio management and investment advisory services policies and processes, Mediobanca Private Banking uses a system for monitoring investment funds’ and issuers’ sustainability factors, in order to identify the instruments that have unsatisfactory ESG levels or that operate in sectors considered too controversial under the Group's Sustainability Policies.
These assessments are carried out based on ESG ratings provided by specialist external info-providers, where available, or through proprietary methods for issuers and funds for which no ESG rating is available.

Portfolio management

SUSTAINABILITY CRITERIA AN INTEGRAL PART OF PORTFOLIO MANAGEMENT POLICIES

The policies adopted by Mediobanca's Private Banking Division to govern the investment process applicable to individual portfolio management, allow sustainability risks to be integrated by implementing an approach that combines:

  • Negative screening: implemented through the use of exclusion criteria designed to ensure that shares and bonds issued by the following are not included in the investable universe: companies involved in specific activities or particular sectors; companies directly or significantly linked to production and/or marketing of weapons that violate fundamental humanitarian principles (e.g. cluster and fragmentation bombs, bombs containing depleted uranium, anti-personnel landmines, nuclear weapons, chemical and bacteriological weapons, etc.); or types of business that conflict with the Group’s values and which could expose Mediobanca SGR to serious reputational risks (e.g. cannabis used for recreational purposes);
  • Positive screening: this involves assessment of ESG criteria in addition to the traditional aspects taken into consideration in the investment selection process. These criteria are aimed at promoting investment in instruments issued by companies and investment funds with high ESG ratings that have not been involved in serious issues (the "best-in-class" approach). These criteria are implemented through the introduction of specific limits on investment in funds and financial instruments with low ESG ratings, for which no ESG rating is available, or in companies involved in very serious issues (companies for which corporate problems have materialized or are materializing, with possible negative impact for the company in earnings and reputational terms).

This approach aims to improve the overall risk/return assessment of the clients’ portfolios in the long term by taking ESG criteria among others into account.

Mediobanca has integrated factors that could impact on the sustainability risks of the portfolios it manages into the portfolio management investment process. In particular, through its delegated manager, the Bank has adopted a system for assessing and monitoring environmental, social and governance aspects as well as the sustainability risk of issuers and CIUs. The aim is to assess possible adverse impact on the financial return of an investment.

The Bank adopts a methodology that combines qualitative and quantitative criteria. It is based on the same positive screening criteria described above and allows the sustainability risk for each managed portfolio to be assessed, along with any adverse impact on the return caused by related events.

A "sustainability score" is assigned to each managed portfolio, which varies from 0 (minimum risk) to 5 (maximum risk). Each score represents one of the following qualitative assessments: Low, Limited, Medium, Relevant or High. When the assessment is “Low”, there is a minimal chance of an event that could affect the sustainability risk or have any adverse impact on it occurring. When the assessment is “High”, the chances of it occurring are very high.

Investment advisory

SUSTAINABILITY CRITERIA AN INTEGRAL PART OF INVESTMENT ADVISORY POLICIES

Mediobanca Private Banking offers an extensive catalogue of funds and financial products that promote environmental, social and governance characteristics and pursue sustainable objectives.
In general, the more management policies of financial products take environmental, social and governance factors into consideration in their investment choices and processes, the lower the sustainability risk associated with those financial products.
Therefore, the impact of sustainability risk on a product’s returns depends on the investment policies adopted by manufacturers regarding the integration of ESG factors into investment choices. Manufacturers should disclose this information in the pre‐contractual information for each financial product, as required by the sector regulations.
At present the Bank does not tie either the provision of investment advisory services or the proposal of new financial recommendations to clients to specific requirements, criteria or ESG minimum levels. However, it does give those customers who are interested the possibility of investing in products focused on ESG matters.
Accordingly, the Private Banking Division provides clients with a selection of investment funds that are focused on these issues.
When providing investment advice services, Mediobanca Private Banking adopts policies to govern the investment selection process which include the application of specific criteria (so-called negative screening) aimed at excluding the following financial instruments from the scope for exclusion:

  • Equity and bond instruments and CIUs issued or managed by companies operating in sectors that are not socially responsible or otherwise conflict with the Mediobanca Group’s values that could expose the Bank to reputational risks
  • Equity and bond instruments issued by companies directly or significantly linked to the production and/or marketing of weapons that violate humanitarian principles (such as cluster and fragmentation bombs, bombs containing depleted uranium, anti-personnel land mines, nuclear weapons, chemical and bacteriological weapons)

Further developments of the model and non-consideration of adverse impact on sustainability

Pending the final definition of the European regulatory framework and the availability of the data on the market required to allow the potential adverse impact of investment decisions on sustainability factors to be assessed fairly (in compliance with the requirements set put in Article 4 of Regulation (EU) 2019/2088), the Private Banking Division does not currently have the information it needs to take such adverse impact into account in either the investment decision or the advisory service processes.

However, the Bank is committed to limiting the indirect impact of its investment solutions on sustainability. To this end it has launched a specific project to develop the processes and measures required in order to take such adverse impact into account, consistent with the timeline set by the regulation.

Sustainable investments

Mediobanca, through its Private Banking division, has developed a product known as Global Compact, to complement the Global Portfolio Selection products. The product is distinctive for its principle exposure is to equity financial instruments and its focus on innovative sectors and investment themes, such as innovative technologies, sustainable mobility and clean energy.

According to the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088), the new product falls within the definition provided in Article 8 (i.e. “light green”), because it promotes good environmental, social and governance factors.[1]

With reference to investment decisions taken in connection with the Global Compact product, the delegated manager (Mediobanca SGR) applies ESG criteria that include both negative screening (i.e. criteria which rule out certain issuers from the investment universe) and positive screening (i.e. assessing issuers based on their ESG rating and the seriousness of any controversies in which they have been involved). For further details please see the section entitled “INTEGRATION OF SUSTAINABILITY CRITERA ESG”.

Investments are also assessed on the basis of precise ESG inclusion criteria. In particular, in order to limit the exposure to issuers or UCIs that do not meet the above characteristics, upper limits have been instituted for the maximum exposure to the following categories:

  • Unrated (i.e. companies or UCIs which have not been assigned an ESG rating);
  • Laggard rating, i.e. too low (companies or UCIs rated “B” or “CCC”);
  • Involvement in serious controversies (issuers only).

 The benchmark for this product is consistent with the one commonly used by investee UCIs which promote ESG characteristics or have making sustainable investments as their objective.

 The sustainability risk for the product is measured in accordance with the qualitative and quantitative methodology adopted by the Bank (cf. “Sustainability Criteria An Integral Part of Portfolio Management Policies”).



[1] Article 2(24) of Regulation (EU) 2019/2088 (the “SFDR”) defines “sustainability factors”, as meaning “environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters”.