The following description refers to the methodology Etica Funds used to prepare the 2023 Impact Report, the document that measures the results of environmental, social and governance impact.
Each year, Etica measures the impact of securities selection (in comparison to a reference market or benchmark[1] ) as well as the engagement and stewardship activities, carried out through dialogue with the corporate bodies of the companies in which the mutual funds managed by Etica invest, shareholder activism and advocacy activity.
At Etica Funds, we promote a sustainable development model based on the premise that the financial community can play a vital role in directing capital towards sustainable actions. Consequently, we engage with the issuers in which our funds are invested.
More information is available in the Impact Report.
Calculation for “The impact of selection”
The results presented in this document derive from an Etica Funds process of analysis, research and evaluation based on data provided by ISS and Moody’s ESG.
The reporting boundary for the analysis concerns the entire equity portfolio and the corporate bond portfolio of Etica Funds’ Italian[2] funds and the funds belonging to the Luxembourg Multilabel Sicav[3] launched by Etica Funds for the international market and for institutional investors.
The issuers under analysis are compared to the benchmark for the equity part of Etica Funds’ Italian funds, i.e. the MSCI World ESG Universal Net Total Return index, as a market reference.
The companies taken into account in the analysis for Etica Funds’ investments and the benchmark refer to their composition as of 30 December 2022. The analysis data is reported both in aggregate form and separately for the Valori Responsabili Line, the Etica Impatto Clima Fund — belonging to the Futuri Responsabili Line — and the three Multilabel Sicav funds. Overall, the analysis considered 200 ESG indicators, which Etica Funds then associated with the Sustainable Development Goals. Among these, only the indicators with a coverage threshold higher than 70% were identified and taken into consideration for the companies in the Etica Funds portfolio and those in the benchmark.
In this report, a selection of the indicators analysed has been published, taking into consideration the areas with a high level of indirect materiality, as defined by the Etica Funds Social Responsibility Policy, and those defined as strategic for dialogue with the companies, defined in the Etica Funds Engagement Policy. Furthermore, the indicators reported for each area of the report have been associated with specific Sustainable Development Goals of the United Nations. Many of the indicators selected refer to the areas identified for reporting the principal adverse impacts of investment decisions on sustainability factors, defined in Delegated Regulation (EU) 2022/1288.
The impact indicators are calculated as a delta between the percentage satisfaction of a specific criterion (expressed either as number of companies or amount invested) in Etica Funds portfolios (a) and the same percentage for the Benchmark (b), i.e.: delta = (a-b)/b multiplied by 100.
Example: Share of investment in companies developing emission reduction initiatives: Etica Funds = 68.3%, Benchmark = 56.1%. The impact is +21.7%, i.e. (68.3-56.1)/56.1 multiplied by 100.
Calculation for “The impact of dialogue”
The data on dialogue were processed on the basis of the data collected by Etica Funds and the assessments Etica Funds’ analysts assigned to the answers provided by the companies who were engaged in dialogue during the year. The evaluation of the answers is based on an increasingly scale ranging from 0 to 5. Scores are assigned based on the completeness of the response, the degree of detail provided, and how proactive the company was. The data relating to the response rates in the various dialogue areas are calculated as the ratio between the questions asked by Etica Funds for each area and the responses received, to which it was possible to attribute an assessment.
Example: “Has the company defined targets for lowering greenhouse gas emissions approved by the Science-Based Targets Initiative?” If the company’s response is partially satisfactory according to Etica Funds’ assessments, this response is given a score of 3 (on a scale from 0 to 5).
The calculation in this document also includes questions posed within collaborative dialogue initiatives with other institutional investors.
Note
[1] MSCI World ESG Universal Net Total Return (in euro).
[2] Funds belonging to the lines Valori Responsabili and Futuri Responsabili.
[3] The three Luxembourg funds are part of Multilabel Sicav, a Luxembourg investment company established by Gam (Luxembourg), one of the leading companies in Europe specialised in providing private labelling services (branded products). GAM (Luxembourg) S.A. is the management company and domestic agent of MULTILABEL SICAV, while Etica Sgr is the investment manager and global distributor of the three funds. The funds, launched at the end of 2019, tend to replicate some of the consolidated strategies of the Etica Sgr Italian product range. They are registered in Luxembourg, Switzerland, Spain and Italy (for Italy, limited to institutional customers).