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 Group ESG Policy[1] 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.

Sustainability-related disclosure

SUSTAINABILITY CRITERIA AS 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 AS AN INTEGRAL PART OF PORTFOLIO MANAGEMENT POLICIES

The investment process adopted by the Mediobanca's Private Banking Division applicable to individual portfolio management, allows 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.); 
  • Positive screening: implemented through the 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. 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 AS 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.

In this connection, the investment selection process for which Mediobanca Private Banking provides investment advice services is executed through the application of specific criteria (so-called negative screening) aimed at excluding 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), from the scope of investment.

Sustainable investments: Global Compact

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.[2]

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

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.

  • Absence of a rating: company or UCI which is not assigned an ESG rating;
  • Low level ESG rating: company or UCI which is assigned an ESG rating below an established threshold;
  • 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 AS AN INTEGRAL PART OF PORTFOLIO MANAGEMENT POLICIES”).

Adverse sustainability impacts statement

As part of the provision of portfolio management services on an individual basis and investment advisory services, Mediobanca, inter alia through the delegated manager, takes negative effects for sustainability[3] (“Principal Adverse Impact”, or ”PAI”) into consideration in making  investment decisions.

In line with the approach established at Group level, Mediobanca has defined the principles on the basis of which the PAIs and related indicators are taken into consideration, ensuring compliance with the principles of management responsibility towards its stakeholders.

Mediobanca has also adopted specific internal regulations aimed at governing the methods and methodologies used in consideration of the PAIs as part of the investment process.

Portfolio management

As part of the provision of the portfolio management service on an individual basis, Mediobanca, through the managing director, takes the negative effects for sustainability at the Company level into account in making investment decisions.

In line with the approach established at Group level, Mediobanca has defined the principles on the basis of which the PAIs and related indicators are taken into consideration, ensuring compliance with the principles of management responsibility towards its stakeholders.

These effects and calculation of the related indicators are taken into consideration the Bank in order to:

  • Adopt a responsible investment approach, in accordance with international principles and standards on climate and the environment, as well as labour rights, human rights and anti-corruption;
  • Define the objectives to be pursued in order to reduce the negative impacts on sustainability deriving from the Bank's investment decisions, and any actions to be taken if the objectives are not achieved;
  • Ensure growing and continuous active engagement on the part of its stakeholders in issues related to sustainability.

CONSIDERATION OF PRINCIPLE ADVERSE SUSTAINABILITY IMPACTS

 In order to take account of the PAIs, the procedures adopted by the Bank identify and prioritize the indicators to be considered based on the following variables:

  • Consistency between the selected PAIs and the environmental, social and good governance objectives defined at Group level;
  • Availability of data relating to each indicator from external sources and not estimates;
  • Coverage of the data available for each indicator with respect to the weight of the issuers/financial instruments in the portfolios managed.

The Bank is constantly committed to obtaining updated and reliable data on ESG issues through the sources indicated above.

However, it should be noted that the availability of data relating to individual PAIs and the level of coverage of the issuers cannot currently be guaranteed, as they depend on factors external to the Bank and to the information provider used for the provision of ESG data.

In cases where the data necessary to calculate the PAI indicators are not available for certain issuers, the Bank will exclude the related financial instruments from the scope of calculation.

Based on the prioritization criteria described above and pending increased coverage of the data relating to individual indicators and issuers at market level, Mediobanca has identified a subset of PAIs for which it is able to carry out regular monitoring, which are as follows:

  • GHG emissions from sources owned or directly controlled by the company (GHG Scope 1);
  • GHG emissions deriving from the production of energy purchased by the company (GHG Scope 2);
  • Share of investments in investee companies involved in the manufacture or selling of controversial weapons;
  • Average ratio of female to male Board members;
  • Share of investments in investee companies that have been involved in violations of the UNGC principles or OECD Guidelines for Multinational Enterprises;
  • Energy consumption in GWh per million EUR of revenue of investee companies, per high impact climate sector;
  • Share of non-renewable energy consumption and non-renewable energy production of investee companies from non-renewable energy sources compared to renewable energy sources, expressed as a percentage.

Mediobanca is committed to obtaining the data and information necessary in order to be able to comply with the requirements of the legislation in force from time to time on an increasing percentage of managed portfolios.

Precise definition of the (1) reduction targets of the PAI indicators and (2) the actions to be taken to avoid or reduce the negative effects on sustainability will take place progressively, based on the monitoring activities and availability of the related information, in order to publish the information referred to in points (1) and (2) by the deadline set by the RTS.

At present, the Bank has implemented monitoring activity for the subset of PAIs considered, in order to carry out preliminary analysis and assessment of the indicators and the sensitivity of the portfolio to them. Such monitoring is intended to define the target objectives to be pursued more closely, in order to reduce the negative impacts for sustainability deriving from investment decisions.

COMPLETION PLAN FOR THE CONSIDERATION OF PRINCIPLE ADVERSE SUSTAINABILITY IMPACTS

In order to take PAIs into consideration and calculate the related indicators and targets, plus any actions required in order to manage exposure to them  (including in view of possible changes in the regulations), the Bank, inter alia through the delegated manager, has set the following plan for completing the consideration:

Completion of the model for considering the PAIs, including further indicators and related definition of calculation methods;

  • Analysis of the performance of the PAIs on managed portfolios, and definition of targets for reducing priority PAIs;
  • Adaptation of investment and engagement policies in order to ensure the targets are met;
  • Implementation of the calculation and monitoring process.

ENGAGEMENT POLICIES

The Mediobanca Group believes that compliance with ESG criteria can generate improved long-term performance for investors.  This is why, at every meeting and/or useful contact opportunity, it is committed to encouraging the companies in which it has invested (and in which it intends to invest) to engage in open dialogue regarding their responsible approach and how ESG factors affect their businesses.

Engagement activity is also carried out with a view to achieving the objectives in terms of reducing the negative effects on sustainability.

REFERENCES TO INTERNATIONAL STANDARDS AND CODES OF CONDUCT

The Bank, in line with the Group, recognizes the value of involving its shareholders and stakeholders, in general, by adhering to international principles and standards that are in line with its own approach as a sustainable and responsible investor.

The Group is a signatory to the UN Global Compact, requiring it to share, support and apply a set of universally agreed principles in its sphere of influence as derived from the Universal Declaration of Human Rights, the ILO Declaration, Rio Declaration and the United Nations Convention against Corruption.

The Mediobanca Group also intends to become a signatory to the Principles for Responsible Banking, while Mediobanca SGR is already a signatory to the Principles for Responsible Investment (PRI).

In order to guarantee the relationship of trust with the shareholder, the Group has adopted, in compliance with national legislation, an organization, management and control model pursuant to Legislative Decree 231/2001, and the Bank, like all Group companies, has adopted:

  • Its own Code of Ethics, which applies to directors, auditors, employees, consultants, interns, external collaborators and suppliers;
  • Its own Code of Conduct, which defines the fundamental principles underlying the bank's reputation and contains the values based on which its daily operations are performed.investment advisory
investment advisory

Pending completion of the European regulatory framework for integration of ESG factors into assessment of the adequacy of transactions, the Bank does not tie the model used for the provision of the investment advisory service and for the formulation of recommendations to customers to an obligation to meet specific requirements that take into consideration the ESG criteria, but offers customers who may be interested in these issues the possibility to make investments in instruments focused on each of the sustainability areas or a combination of them.

CONSIDERATION OF PRINCIPLE ADVERSE SUSTAINABILITY IMPACTS

To ensure that the principal adverse impacts for sustainability are also taken into consideration in provision of the investment advisory service, the Private Banking Division makes available to customers a selection of certain types of instruments (UCIs and ETFs) focused on these issues which jointly meet the following requirements:

  • They promote environmental or social characteristics (products classified pursuant to Article 8 of the SFDR Regulation) or that have a sustainable investment as their objective (products classified pursuant to Article 9 of the SFDR Regulation), even where an ESG rating level is not available;
  • They have been assigned an ESG rating level higher than the internally defined thresholds.

These activities and related supporting analysis are carried out, including with the support of the delegated manager, through the use of one or more of the following sources (where available):

  • Specialized external info-providers;
  • Information obtained directly from the companies/counterparties concerned;
  • Product governance information disclosed by individual third-party asset managers regarding the products created and managed by them by means of the European MiFID Template “EMT”).

Mediobanca is committed to obtaining the data and information necessary to be able to comply with the requirements of the legislation in force from time to time.


[1] This Policy also provides for the adoption of additional criteria and safeguards on ESG issues that will be implemented by the Group companies as part of the implementation of this document.

[2] 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”.

[3] These principles are adopted in accordance with the procedures and timelines set out in Regulation (EU) 2088/2019 and related technical regulatory standards (the "RTS"), and having regard to the information disclosed on the market.