This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment. The Sub-Fund partially intends to make sustainable investments aiming at financing or re-financing green and/or social projects.
The bonds that this Sub-Fund invests in are issued with the specific objective of financing initiatives of this kind and are set to follow the Green and/or Social Bond Principles adopted by the International Capital Market Association (“ICMA Principles”) aiming to guarantee transparency.
Green Bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects, i.e. renewable energy, energy efficiency, environmentally sustainable management of living natural resources and land use, green buildings, climate change adaptation, clear transportation, sustainable water and wastewater management, circular economy adapted products, production technologies and processes and/or certified eco-efficient products, green buildings.
Social Bonds coherently finance or re-finance social projects, i.e. affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy), access to essential services (e.g. health, education and vocational training, healthcare, financing and financial services), affordable housing, employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, including through the potential effect of SME financing and microfinance; food security and sustainable food systems (e.g. physical, social, and economic access to safe, nutritious, and sufficient food that meets dietary needs and requirements; resilient agricultural practices; reduction of food loss and waste; and improved productivity of small-scale producers); socioeconomic advancement and empowerment (e.g. equitable access to and control over assets, services, resources, and opportunities; equitable participation and integration into the market and society, including reduction of income inequality).
Sustainability Bonds finance or re-finance a combination of Green and Social projects.
The contribution of such bonds to the sustainable investment objectives is therefore guaranteed by the nature of the projects they finance.
The green, social and sustainability bonds the Sub-Funds invests in follow the ICMA principles ie: 1) the use of proceeds for an eligible project, i.e. a project respecting the ICMA Principles, 2) a documented process for project evaluation and selection, including disclosure of the objective and of potential social and/or environmental risks; 3) a clearly tracked management of proceeds; 4) an annual reporting regarding the allocation of proceeds and the expected environmental impacts.
The Management Company verifies if the issue respects such Principles and the sustainable investments that the Sub-Fund intends to make are considered not to cause significant harm to any environmental or social sustainable investment objective as the Management Company takes into account all PAIs relevant to the project or type of project funded by the instrument, as disclosed according to the second principle. Where such principle is not respected, the Management Company takes into account the PAI specific to the sector of activity of the issuer.
An additional control, which contributes to verifying that the sustainable investments do not cause significant harm to any environmental or social sustainable investment objective, is the exclusion of companies with a severe controversy level or countries with a severe risk rating.
The “controversy level” identifies companies involved in incidents that may negatively impact stakeholders, the environment or the company’s operations; such level is rated on a scale from 1 to 5 according to the Management Company’s ESG data provider. A controversy level of 5 is considered severe. The “country risk rating” combines an assessment of the government’s current stock of capital, including natural resources, production, human resources and institutional capital with an assessment of a specific country’s ability to manage it in a sustainable manner. Such rating is assessed by the Management Company’s ESG data provider on a scale from 0 to 100; a rating higher than 40 is considered severe.
The Management Company considers the indicators for adverse impacts set out in Table I of Annex I of the Commission Delegated Regulation 2022/1288 relevant to the project or type of project funded by the instrument, ie. disclosed in the project prospectus.
If the PAI are related to environmental risks, compliance with DNSH under the Taxonomy Regulation is verified at the issuer level; in case social risks are involved, the issuer is required to respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
The Management Company leverages the qualitative and quantitative data and research received from the ESG data provider; such information is based on official data integrated with assessments and estimates elaborated on the basis of information gathered from other sources, i.e. documents on companies’ web pages, internal research, direct engagement.
Additionally, the Management Company, may engage with the issuer to promote the adherence to such principles.
Compliance with the DNSH principle is verified at the time of the investment and subsequently monitored. In case of worsening of the indicators or the occurrence of a negative event, again, the Management Company may, considering the interest of the investors, engage directly or collectively the issuer and/or reduce the size of the investment.
The Management Company verifies the respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights by verifying an indicator, provided by Sustainalytics, that assesses the companies’ impact on stakeholders and the extent to which a company causes, contributes or is linked to violations of international norms and standards. Such indicator shows if the issuer respects such Minimum Safeguards, Additionally, the Management Company considers the PAIs “UNGC Principles/OECD Guidelines Violations” and “UNGC/OECD Guidelines Lack of Compliance Mechanism” provide additional details to the Management Company as to what extent the company implements actions to improve such procedures.
Such assessment is also summarized in a synthetic ESG risk indicator which is considered during the securities selection process, by excluding the investment whenever such score is severe (the overall score is severe if at least one of the component factors is severe). The ESG risk rating assesses the issuer’s unmanaged risk by evaluating its ESG exposure and the management of material ESG issues.
Once the investment is performed, the score is monitored to ensure appropriate actions are taken in case of bad news, including engagement of the company’s management and/or reduction of the investment.