ESG in Investments choices
The investment policies of the Group cover a long-term investment horizon with a view to prudence and conservation of asset quality, through a stock selection process based on the criteria of diversification and soundness, as well as commitment to ESG objectives alongside economic and profitability targets (ESG approach), with the assessment of each individual investment.
In line with its commitment to the UN PRI (Principles for Responsible Investment), Unipol defined “Guidelines for investment activities with reference to responsible investments (SRI INVESTMENT POLICY)”, approved by the Board of Directors in December 2019 as attached to the Investment Policy.
The Guidelines establish the Group’s objectives and approach regarding the identification and management of risks related to ESG factors and financial support for sustainable development, as outlined by the European Commission in the “Financing Sustainable Growth” Action Plan published in March 2018. The Guidelines cover investment activities in all asset classes (shares, corporate and government bonds, supranational issuers), promoting:
- the inclusion of ESG factors in the selection criteria for issuers and investment management;
- thematic investing, through which the Group can play an active role to help mitigate environmental or social issues such as the challenges of climate change, the depletion of resources and economic and social inequalities;
- the adoption of ESG principles by the financial industry.
ROLE OF ESG FACTORS IN THE DEFINITION OF INVESTMENT DECISIONS
ESG criteria are incorporated into the investment process, according to the approach adopted by Unipol, by selecting the companies and countries to invest in on the basis of sustainability factors, with the support of an agency specialised in the assignment of ESG ratings and the elaboration of sustainability indices. For companies, in particular, the following aspects are taken into consideration:
- Environment: the presence of an environmental management policy that considers the environmental impact of its production processes;
- Society: the quality of relationships between the company and all of its stakeholders;
- Governance: organisational structure, market positioning, regulatory and political situation of the countries in which the company operates.
As regards Issuers, the SRI Investment Policy excludes investments in Companies that, through the performance of their core business, are involved in:
- the violation of human and workers’ rights;
- the manufacturing of non-conventional weapons;
- the exploitation of natural resources without due consideration for the related environmental impact;
- the systematic use of corruption in business management.
In the context of investments in government securities, the following elements are taken into consideration with reference to the issuing countries:
- Environment: ratification of the main environmental protection conventions;
- Society: ratification of the main conventions regarding respect for Human Rights and Workers' Rights;
- Governance: assessment of the institutional scenario of the country, in terms of the presence of democratic institutions, economic freedom, level of corruption.
Countries that show an insufficient degree of respect for the principles defined by the UN Global Compact through the study a series of indicators are classified as high ESG risk.
Since 2012, the Group has developed a systematic approach to guide the investment of its financial assets according to the criteria of sustianbility and responsibility, with quarterly ex post monitoring of sustiability risks; below are the monitoring results for 2019.
With reference to the impacts of climate change, the Group has defined developments in its responsible investment strategy, which consist of the following actions:
- to support, through responsible investment, the transition to a low carbon economy. To this end, investments in different asset classes are evaluated with the aim of contributing to the reduction of CO2 emissions;
- to make selective exclusions: recognising the especially harmful impact of thermal coal on the climate, the Group rules out new investments in companies related to the extraction/generation of electricity from this source.
THEMATIC AND IMPACT INVESTING
Alternative investments (thematic and impact) concentrate on areas or businesses related to the development of sustainability, and focus on one or more ESG issues.
Part of the Group’s portfolio is dedicated to the development of thematic investing to support the achievement of the 2030 Agenda. The Unipol Group views thematic investing as an opportunity making it possible to channel financial resources towards social or environmental targets, with the advantage of being able to measure the results achieved.
Due diligence has been developed for the selection and reporting of these alternative investments, which, in addition to the usual financial analysis, envisages constantly renewed and updated environmental, social and governance (ESG) criteria and the mapping of non-financial risks that can have a reputational impact.
Thematic and impact investing are the subject of a specific target of the Unipol Group’s 2019-2021 Strategic Plan; more specifically, Unipol has undertaken to increase these investments by 83% over the three-year period, going from 326 million in 2018 up to 600 million in 2021.
Investments with these characteristics grew by a total of 18.1% in 2019.
In the table below, investments are classified based on their positive impact on the various SDGs.
ROLES AND RESPONSIBILITIES IN THE APPLICATION OF THE SRI INVESTMENT POLICY
The Board of Directors approves the results of SRI screening in the Group’s Integrated Report; it approves the objectives of the SRI strategy every three years and monitors them annually.
The Chief Investment Officer and the Investment Committee discuss and approve the investment process and the related activities.
The Manager of the Alternative Investment office, with the support of staff dedicated to SRI investments, researches sustainable investment opportunities (positive impact on SDGs) within the asset classes and make investments in compliance with the SRI policy; in particular, the managers of ESG portfolios make investments according to the SRI Policy of the Fund.
The sustainability department oversees the process for integrated sustainability reporting.