Protect the Planet with Your Savings. Choose ESG.
People. Expertise. Responsibility. For lasting value.
People. Expertise. Responsibility. For lasting value.
Our Future Is Sustainable
The world is constantly changing. Globalisation, population growth and economic development itself are putting pressure on our ability to sustain our current way of life. The overexploitation of natural resources, rising greenhouse gas emissions, global warming, widening social inequality and the absence of modern, effective corporate governance are just some of the challenges we must confront.
Economic development in the years ahead must therefore rest on investment criteria that weigh environmental, social and governance factors alongside purely financial ones.
At Arca Fondi SGR, we believe that acting with a long-term perspective in our clients’ interests means optimising the risk-return profile of investments while paying the closest attention to environmental and social sustainability.
The New Regulatory Framework
Amid growing focus on sustainable development, the European Union has launched a series of initiatives to promote the efficient use of resources and to cut pollution and greenhouse gas emissions.
These initiatives trace their origins to the Paris Agreement, the global accord signed by a large number of countries to limit global warming, and include:
- the Sustainable Finance Action Plan, which gave rise to the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy for environmentally sustainable investments;
- the European Green Deal;
- the NextGenerationEU plan.
The aim of the EU institutions is to set the strategic direction, and provide the funding, for an economic development programme centred on a fair and inclusive energy and environmental transition.
The EU’s legislative programme assigns a central role to finance. Two regulations are dedicated specifically to the sector, the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, and together they form the regulatory framework for sustainable investment.
“Finance is a key driver of the transition to a more sustainable economy.”
The ESG Approach to Investment Management
The asset management industry plays a key role in supporting business development by channelling capital and financing towards companies with stronger growth prospects and lower risk profiles. In today’s environment, assessing a company’s risk profile and potential is inseparable from analysing its Environmental, Social and Governance (ESG) factors. We have therefore developed an ESG risk assessment model that is embedded in every investment decision. Through this integration, we aim to identify and take into account the adverse effects that products may have on sustainability.
Environmental
- Climate change mitigation
- Responsible use of natural resources
- Waste and pollution reduction
- Combating deforestation
Social
- Gender policies
- Respect for human rights
- Health and safety
- Labour standards
Governance
- Corporate governance practices
- Control procedures
- Conduct of senior management in accordance with applicable law and professional ethics
Arca Fondi SGR's ESG Model
Our proprietary model, built on data supplied by the information provider MSCI, allows us to assign an ESG rating to almost every financial instrument in which we may invest. Alongside an overall ESG rating, separate ratings are available for each of the three pillars: E (Environmental), S (Social) and G (Governance).
The model uses a rating scale from CCC to AAA, with the same granularity as credit ratings. An A rating, for example, is split into A-, A and A+.
Equity and debt instruments, whether corporate or sovereign, are rated on MSCI data supplemented by proprietary data drawn from questionnaires developed by Arca Fondi, primarily for small and medium-sized enterprises in the Italian market.
Composite financial instruments, including derivatives and units or shares of collective investment undertakings, receive a score based on the ratings of their underlying instruments.
Each instrument also carries an MSCI flag indicating whether the issuer is involved in a controversy relating to its operations and/or products. Depending on the severity of the controversy, the instrument’s score is reduced, potentially to a level equivalent to a BB rating.
Issuers operating in certain subsectors, including Aerospace & Defence, Casino & Gaming and Tobacco, are also penalised through an algorithm that assigns them a minimum score.
The model also includes a “Black List” of sovereign issuers and corporate subsectors that may not be held in our portfolios because they are deemed inconsistent with environmental, social and governance sustainability.
Sectors and companies with a demonstrable negative impact on society and the environment are excluded from all our investments. These include producers of controversial weapons, such as anti-personnel mines, cluster munitions and chemical or biological weapons, as well as a list of countries deemed controversial.
Our methodology calculates ESG scores and ratings by giving greater weight to environmental factors than to social and governance factors.
Managed portfolios and their benchmarks are assigned a rating calculated as the weighted average of the ratings of the financial instruments they hold.
ESG Rating Scale
Classification of Our Sustainable Funds
Because we integrate ESG factors into every investment decision, all our products, including those that do not place particular emphasis on sustainability, qualify as Article 6 funds under SFDR.
Article 8 Funds
Funds that promote environmental and/or social characteristics are classified as Article 8 under SFDR where they:
Article 8 Plus Funds
Funds that promote environmental and/or social characteristics and make a significant contribution to a sustainable objective may be designated “Article 8 plus”, a category not expressly defined under SFDR, where they:
Article 9 Funds
Funds with at least one sustainable objective are classified as Article 9 under SFDR where they:
Use of PAIs as Sustainability Indicators
Principal Adverse Impacts (PAIs), as defined and listed in Annex I to Commission Delegated Regulation (EU) 2022/1288, are indicators used to identify, map and monitor the potential adverse effects of investment decisions on environmental, social and governance matters.
For Article 8 plus and Article 9 funds, the compliance of sustainable investments with the “do no significant harm” (DNSH) principle is assessed through a proprietary methodology that also takes PAI values into account. In addition to the other criteria applied, this methodology compares the issuer’s main PAI values with those of the wider universe of issuers in the market.
For Article 9 funds, pursuing specific sustainable objectives requires demonstrating a high level of sustainability. We therefore use specific PAIs, selected from those most consistent with each fund’s characteristics, to assess whether that intention is actually being achieved. In particular, the selected PAI values must be better than those of a broad market index, at least in line with those of any applicable benchmark, and improving over time.
We have developed an ESG risk assessment model that is embedded in every investment decision.
Corporate Guidelines and Investment Monitoring
Board of Directors
The Board of Directors plays an active steering and governance role in integrating climate-related and environmental risks into corporate culture and strategy, and into the investment process for managed portfolios.
Dedicated ESG training keeps Board members up to date, with a focus on regulatory developments and the main market trends in this area.
The Board of Directors defines the framework for managing ESG matters with reference to the organisational structure, the product range and the implementation of operating limits.
ESG Committee
The ESG Committee coordinates ESG activities across the company; assesses potential updates to internal policies and procedures, including those arising from methodological changes by the information provider or from changes in the applicable regulatory framework; and acts as a catalyst for product, communication and business initiatives, ensuring that operations remain continuously aligned with the strategic direction set by the Board of Directors on ESG matters.
Monitoring
When selecting securities for inclusion in portfolios, portfolio managers use analytical tools that enable continuous monitoring of instrument ratings and ESG factors, as well as the portfolio’s consistency with eligibility criteria and all other product-specific ESG requirements.
Issuers and financial instruments assessed as inconsistent with environmental, social and governance sustainability are also subject to investment exclusions or purchase restrictions, including placement on the Black List or specific penalties for certain subsectors.
Portfolio compliance is overseen by the Compliance Department through dedicated limits.
We have also adopted a strategy for exercising the rights attached to the financial instruments held in managed portfolios. These guidelines are based on a commitment to exercise voting rights at shareholder meetings reasonably and responsibly, and solely in the interests of investors.
SFDR Classification at a Glance
- We integrate ESG risks into all our investment processes.
- We assign our funds a rating based on their ESG profile.
- We apply investment exclusion criteria.
- We select benchmarks or investable universes with strong ESG characteristics.
- We set a substantial minimum allocation, 40%, to investments promoting environmental and/or social characteristics.
- We apply more restrictive investment exclusion criteria.
- We require each fund’s rating to be at least equal to that of its benchmark under the eligibility criteria, and we verify compliance with good governance investment practices.
- We set a very high minimum allocation, 80%, to investments promoting environmental and/or social characteristics, together with a substantial minimum allocation, 50%, to sustainable investments and investments aligned with the EU Taxonomy.
- We set a very high minimum threshold for sustainable investments, 90%, and identify sustainable investment objectives measured against one or more Principal Adverse Impact indicators.
Arca Fondi's Commitment to Sustainability
Sustainability has been a priority for us for many years. Our proactive stance on sustainability and our commitment to the future led us to become a signatory to the United Nations Principles for Responsible Investment.
Under the United Nations Principles for Responsible Investment, signatories commit to:
- incorporate ESG issues into investment analysis and decision-making processes;
- be active owners and incorporate ESG issues into ownership policies and practices;
- seek appropriate ESG disclosure from the entities in which they invest;
- promote acceptance and implementation of the Principles within the investment industry;
- work together to enhance effectiveness in implementing the Principles;
- report on activities and progress towards implementing the Principles.
Our Social and Environmental Commitment
3Bee
Supported through a multi-year impact investing project.
VIDAS
A non-profit organisation that cares for terminally ill patients.
Marevivo
Supported through a multi-year impact investing project.
Università Cattolica del Sacro Cuore
Sapienza University of Rome
Following refurbishment works, heat loss in our offices has been reduced, and the premises are now equipped with energy-efficient lighting and air-conditioning systems.
Our employees also play an active part by adopting more sustainable habits, for example by choosing public transport for their commute and benefiting from dedicated incentive schemes.
