TRANSPARENCY ON SUSTAINABILITY RISK POLICIES – SUMMARY OF REPLICA’S ESG POLICY
This website page was updated on 22 August, 2024, to reflect recent changes to the ESG Policy and the Remuneration Policy, approved by Replica’s Board of Directors during 1H2024.
Replica SIM considers it important to integrate Environmental, Social, and Governance (ESG) criteria into its investment process to protect the interests of its clients, strengthen the company's reputation, and contrast the development of practices and activities deemed inconsistent with its principles.
Additionally, Replica SIM believes that integrating ESG themes into its investment management services is a key factor in creating economic and financial value and can influence the performance and risks of managed portfolios.
Therefore, Replica SIM adopts an approach aimed at identifying, assessing, preventing, and mitigating potential reputational and operational risks that may arise from investments in entities characterized by low ESG ratings and/or involved in serious events that have had or could have negative impacts on the environment, human rights, and labour rights, or that could involve corruption or terrorism.
To this end, in its investment selection processes, Replica SIM prioritizes financial instruments that are commendable from an ESG perspective and aligned with the guiding principles it adheres to. The company bases its assessments of investment sustainability on the 17 Sustainable Development Goals (SDGs) developed by the United Nations as part of the "2030 Agenda."
Exclusion Criteria
Replica SIM has identified exclusion criteria (or negative screening) that apply to the investable asset class universe and allow for the exclusion of investments in issuers that do not respect ESG themes or are involved in activities or sectors considered unsustainable. Specifically, issuers directly involved in the following are excluded from the investable universe:
- the production and/or distribution of firearms;
- the production and/or distribution of ammunition for firearms;
- the production and/or distribution of weapons banned by United Nations conventions and whose use violates fundamental humanitarian principles (such as anti-personnel mines, cluster bombs, weapons with depleted uranium, biological weapons, chemical weapons, invisible fragmentation weapons, laser weapons, incendiary weapons);
- the production and/or distribution of pornographic material.
Additionally, the company's model is structured to exclude from the investment universe the government bonds of countries for which there is a consensus condemnation or the application of sanctions by the international community.
This model is applied to all products managed by the SIM, including those under delegation, which, in the pre-contractual information:
- explain the ways in which sustainability risks are integrated into investment decisions, in accordance with the transparency requirements under Article 6 of Regulation (EU) 2019/2088;
- describe the environmental or social characteristics, or a combination of both, promoted by the managed products, pursuant to Article 8 of Regulation (EU) 2019/2088;
- detail the sustainable investment objective pursued by the product, as per Article 9 of Regulation (EU) 2019/2088.
Currently, the SIM does not manage products compliant with Articles 8 or 9 of the SFDR.
Inclusion criteria – rating ESG
After verifying exclusion requirements, the SIM employs inclusion criteria or positive screening, whereby it proceeds to evaluate ESG analysis parameters.
Positive valuations are assigned to companies engaged in socio-environmental responsibility, ensuring the protection of human rights, the reduction of pollutant emissions, the conservation of biodiversity, the use of clean technologies, the protection of minorities, gender equality, and the adoption and respect of sound corporate governance policies.
Each issuer is assigned a rating based on the number, importance, and quality of disclosures related to environmental, social, and governance (ESG) factors. This rating, known as the ESG rating, ranges from 0 for companies that do not provide ESG data to 100, representing the highest score for the most virtuous issuers.
The purpose of positive screening is to maintain the aggregate ESG rating of portfolios above the minimum threshold values set by the SIM's Board of Directors for each managed product.
This approach is applied to delegated fund managements, except for funds with a "high frequency trading" characterization, where decision-making processes throughout the day are based solely on technical and market criteria. The near-total absence of overnight positions in these funds means they are not exposed to ESG risks.
Sustainability Risk Monitoring
In the context of portfolio management services, the SIM monitors sustainability risks by calculating and monitoring the ESG ratings of the instruments used, based on ESG scores provided by specialized info providers. The percentage of the portfolio for which an ESG rating is available and the concentration of the portfolios by rating classes are also monitored.
For some investment instruments, Replica SIM also evaluates the sustainability strategy adopted by the issuers, as recorded by EuroSIF (European Sustainable Investment Forum), a European association dedicated to promoting sustainability through financial markets and one of the main sources of information on sustainable finance in Europe.
NO CONSIDERATION OF PRINCIPAL ADVERSE IMPACT ON SUSTAINABILITY FACTORS
Under Article 4, paragraph 1 of the SFDR, Replica SIM has decided not to consider Principal Adverse Impacts (PAI) at entity level. This decision is based on the size of the assets under management, which suggests that the negative externalities generated by the managed portfolios may be considered minimally relevant, especially when the management strategy is related to “high frequency trading” with systematic overnight position closures.
Replica will continue to review its approach and, when it deems appropriate, will consider the adverse impacts of its investment decisions on sustainability factors within the SFDR framework.
Similarly, the SIM does not consider PAIs at product level. Should the SIM receive mandates to manage products compliant with Articles 8 or 9 of the SFDR, it will consider taking PAIs into account and will provide the required pre-contractual and periodic reporting information on the indicators measuring PAIs, as defined in the annexes to Regulation 2022/1288 (known as the SFDR Regulatory Technical Standards or RTS).
INTEGRATION OF SUSTAINABILITY RISKS IN REMUNERATION POLICIES
The Remuneration and Incentive Policy of the SIM, in accordance with Article 5 of the SFDR Regulation, includes information on how the policy aligns with the integration of sustainability risks. Specifically, the principles defined in the Policy stipulate that, depending on the category of most relevant personnel/risk takers, the consideration of sustainability risk for managed products—measured by the ESG rating of the portfolios—may occur through mechanisms such as malus and clawback, or directly during the individual performance evaluation, by including the ESG rating among the qualitative assessment parameters. Replica’s remuneration policy is reviewed annually or as required by regulation.