Sustainability disclosures in the financial services sector

Banca Generali, in line with its Vision and its commitment to responsible and long-term growth, has developed a sustainability strategy that integrates environmental, social, and governance (ESG) factors into all its main business activities.

The Bank’s approach to sustainability is based on an internal governance system that assigns specific roles and responsibilities to the main corporate bodies as well as to the various business and control functions. As part of this ESG strategy, Banca Generali adopts an integrated sustainability model, structured around the following areas:

• exclusion policies, aimed at preventing investments in sectors or issuers involved in controversial activities or those not aligned with the ethical and sustainability principles of the Banking Group;
• Sustainability risk analysis, aimed at identifying events or conditions that could have an actual or potential negative impact on the value of investments;
• consideration of Principal Adverse Impacts (PAI), i.e., the negative effects of investment decisions on environmental, social, and governance factors, in accordance with Regulation (EU) 2019/2088.

The Bank’s commitment to sustainability is formalized in an internal regulatory framework that includes the Sustainability Policy and specific Guidelines, which define how the Banking Group integrates ESG factors into Investment Services, Collective Asset Management, and Active Ownership. To support this strategy, the Bank has also implemented a risk framework and an incentive system aligned with sustainability objectives.

As a participant in the financial markets and a financial advisor, Banca Generali complies with the transparency obligations regarding sustainability disclosure in the financial services sector set out in Regulation (EU) 2088/2019 Sustainable Finance Disclosure Regulation (SFDR) , providing the following information on the integration of sustainability risks and on the negative effects of investment decisions on ESG factors.

"Sustainability risks", as defined in Article 2 of Regulation (EU) 2019/2088, refer to events or conditions related to environmental, social, or governance (ESG) factors, the occurrence of which could have a significant actual or potential negative impact on the value of an investment (e.g., reputational risk).

The main sustainability risks include climate risks, which can be divided into two categories: physical risk (e.g. extreme weather events) and transition risk (e.g. technological or market changes), and sustainability risks linked to social factors (e.g. respect for human rights).

Furthermore, in providing investment services, the Bank uses specific risk metrics, including in particular a sustainability score (so-called ESG score) assigned to financial products and provided by a leading information provider.

The ESG score includes an assessment of environmental, social, and governance aspects, based on a qualitative and quantitative analysis of information for each of the three areas E, S, and G. It should be noted that the scoring model is differentiated based on the different types of product/asset class:

• as regards UCITS, the ESG assessment is based on three pillars, aimed at analysing i) the management company ii) the strategy and iii) the sustainability objectives and the individual positions in the portfolio;
• with reference to the instruments issued by Companies, the assessment is conducted for each of the dimensions E, S and G. The rating provider assigns different weights to each dimension based on the materiality in the individual sectors to which they belong;
• as regards instruments issued by government entities, the assessment takes into account not only the E, S and G areas, but also an assessment linked to the macroeconomic dimension.

In this context, Banca Generali considers sustainability risks in the provision of portfolio management and investment advisory services when making investment decisions, managing existing investments, and providing investment recommendations. This is done in order to promote sustainable economic and social development, as well as contribute positively to the financial performance of clients' portfolios while simultaneously reducing risks.

As a participant in financial markets, Banca Generali has integrated sustainability risks into its Portfolio Management process, both in terms of financial instrument selection and portfolio construction, adopting an investment decision-making approach tailored to the specific characteristics of each financial product or service.

This approach, aimed at mitigating ESG risks, is based on specific negative screening criteria that lead to the total or partial exclusion (so-called Restricted List) of exposures to companies operating in controversial sectors (e.g., tobacco, oil sands, adult entertainment, coal) or involved in controversial practices (e.g., companies implicated in serious and/or systematic violations of the United Nations Global Compact or OECD Guidelines). The controversial sectors and practices are comprehensively described in Banca Generali’s Sustainability Policy, which is regularly updated and available at the following link.

For portfolio management lines that promote environmental or social characteristics (ex. Article 8 of Regulation 2019/2088), in addition to negative screening, the ESG score plays a key role. It enables the Bank to: i) enhance a wide range of financial and non-financial indicators, both quantitative and qualitative, useful for assessing the likely impacts of sustainability risks; ii) identify controversial activities and behaviors that may also have environmental or social impacts; and iii) make the risks of different investments comparable.

In the context of providing Financial Advisory service, without prejudice to the provisions set out above regarding the use of an ESG score which also takes into account the alignment of the product with the regulatory categories set out in art. 2 (7) of the MiFID II Delegated Regulation, the Bank conducts a due diligence when selecting new counterparties (so-called Financial Partners) with respect to Sustainability Risks and compliance with the reference regulations, as defined in the internal regulations in force from time to time.

For this purpose, the disclosures required by the SFDR Regulation that companies are required to publish on their websites or the ESG assessment of Financial Partners, provided with the possible support of an external advisor, are relevant. This analysis aims to investigate the safeguards adopted by counterparties, which may be included in the offering catalogue, and is subject to periodic monitoring and evaluation.

Sustainability is an integral part of the Banking Group's remuneration and incentive strategy, consistent with its vision, values, and governance. It includes a policy aligned with best market practices and regulatory requirements, which is implemented across its subsidiaries, taking into account the type of business and local regulations.

Among the objectives of the policy is to ensure sustainable pay for sustainable performance, maintaining coherence between pay and performance and between compensation and value creation for stakeholders, as well as valorizing both the results achieved and how these were obtained.

To this end, the Bank has long adopted a risk-adjusted, performance-based compensation structure that simultaneously avoids excessive risk-taking, including in relation to sustainability risks. In this context, incentive plans are integrated with specific ESG indicators directly linked to the sustainability themes deemed relevant by the Banking Group.

In addition, the variable remuneration paid may be reduced, eliminated, or refunded, even partially, in the event of violations of sustainable finance regulations, according to ex-post correction mechanisms such as malus and claw-back.

For further information on the integration of sustainability risks into the Banca Generali Group's incentive system, see the Report on Remuneration Policy and Compensation Paid.

Pursuant to Regulation (EU) 2019/2088, Banca Generali publishes and maintains on its website at the following link, in the "Sustainability Information" section, information on the transparency of the promotion of environmental or social characteristics of the BG Solution, BG Solution Top Client, BG Solution Special and BG Solution Special 5% Portfolio Management Services and the related investment lines classified pursuant to Article 8 of Regulation (EU) 2019/2088 drawn up in accordance with the provisions of Regulation (EU) 2022/1288.

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Banca Generali also provides in its periodic reports, pursuant to Article 11 of Regulation 2019/2088, a description of how the environmental and/or social characteristics have been achieved in the provision of the portfolio management service.