Banca d'Italia's investments aim to combine financial objectives with sustainability objectives relating to environmental, social and governance profiles (ESG). The sustainable investment strategy covers portfolios in which the Bank has full decision-making autonomy, i.e. the financial portfolio, foreign currency reserves and the Supplementary Pension Fund for its staff.
Investment choices are driven by a double materiality approach: they consider both the impact of ESG risks on portfolio returns and the effects of the Bank's investments on the environment and on society.
The governance of investments
Banca d'Italia's Governing Board is responsible for managing the Bank's investments, except those held for monetary policy purposes, for which decisions are shared within the Eurosystem. In managing its investments, the Governing Board relies on the Strategies and Financial Risks Committee, the Investment Committee, the Climate Change and Sustainability Committee and, limited to the investments of the Supplementary Pension Fund, the Advisory Committee on the financial management of the Fund.
The risk management function prepares strategic asset allocation proposals and sets out portfolio composition criteria and limits. It also produces regular reports that include financial and sustainability information for the Bank's top management and for the members and representatives of the Supplementary Pension Fund. The investment function pursues financial and sustainability objectives in managing the portfolios.
Before being approved by the Governing Board, strategic investment allocation proposals are submitted to the Strategies and Financial Risks Committee. Investment proposals relating to the Supplementary Pension Fund are submitted to the Advisory Committee for a non-binding opinion. Lastly, the Financial Investment Committee decides on the tactical allocation of the foreign currency reserves and analyses the results of its management.
The Climate Change and Sustainability Committee, chaired by a member of the Governing Board, provides strategic guidance and coordination on ESG issues for the entire Bank. While the Committee is not directly involved in the investment process, it promotes analyses that help to fine-tune sustainable investment methodologies. It is assisted by the Climate Change and Sustainability Hub, which supports and coordinates ESG research and analysis, working with sustainability specialists from across the Bank through a permanent liaison group.
Objectives
Through its investment strategies and in accordance with its mandate, Banca d'Italia contributes to the achievement of the Paris Agreement's goals and the European Union's target of carbon neutrality by 2050.
Furthermore, with the publication of the Responsible Investment Charter, the Bank has committed to:
- encouraging firms, financial intermediaries and other financial system operators to disclose information on their ESG profiles;
- integrating ESG metrics into the management of its investments and into the financial risk measurement and management systems; and
- publishing analyses and guides on sustainable finance and regularly communicating the ESG results of its investments to contribute to fostering a culture of sustainability within the financial system and among the general public.
Banca d'Italia regularly reviews its investment strategy in relation to the new data available and the progress made in sustainable finance methodologies.
For more information:
Banca d'Italia's Responsible Investment Charter
Activities
Banca d'Italia integrates sustainability assessments into its investment management framework both in the strategic asset allocation phase (sovereign and supranational bonds, equities, and corporate bonds) and at the subsequent stage of constructing its portfolio through its selection of issuers and securities.
Investments in equities and corporate bonds exclude firms that do not comply with the eight fundamental conventions of the International Labour Organization (ILO) and international treaties relating to controversial weapons, as well as tobacco producers. Firms in the banking, insurance and financial services sectors are also excluded in order to avoid conflicts of interest in view of the Bank's supervisory tasks. Limited to investments in the Italian market, firms in the media sector are also excluded because of potential reputational risks. Selection favours firms with the best ESG profiles as well as those most committed to the climate transition. It does not exclude entire economic sectors and firms based solely on their high greenhouse gas emissions, and takes into account cases in which the firms have embarked on credible transition paths towards green technologies.
With regard to bonds issued by governments, supranational bodies and public agencies, the sustainability strategy consists in purchasing green bonds, in order to favour the financing of projects with positive effects on the environment.
Results
The measures taken so far have improved the ESG profile of Banca d'Italia's investment portfolios, reduced their carbon footprint and increased investment in green bonds.
The overall ESG scores of the equity and corporate bond portfolios are higher than those of their benchmarks.
In terms of the climate profile, compared with 2019, the year prior to the full application of the sustainability criteria to investment management, the carbon footprint and weighted average carbon intensity (WACI) of the portfolios decreased significantly owing to Banca d'Italia's investment choices.
The Annual report on sustainable investments and climate-related risks and the Activity and Sustainability Report illustrate the investment strategies and the results achieved in terms of sustainability.
For more information:
Annual report on sustainable investments and climate-related risks
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