Impact banking and sustainable financing

ADOPTION

Progression on the consultation of Directives of AIFMD and UCITS

Introduction of new emandmends, guidelines unchanged.

Esma decided to not mantain the a threshold of 50% in sustainable investments for the use of

sustainability-related words in funds’ names

Esma define appropriate the following Guidelines:

1) apply the 80% minimum proportion of investments with sustainability characteristics or

objectives, 80% investments in sustainable investments and assets

1

(2) apply the Paris-aligned Benchmark (PAB) exclusions , and

(3) invest meaningfully in sustainable investments defined in Article 2(17) SFDR

Article 2: definizione di investimento sostenibile, in esg, richiamando specificatamente a quelli

che sono i requisiti dell’Accordo di Parigi(climate transition benchmark e climate Transition

Benchmark.

In order to not penalise transition related fund’s name Esma decided to apply in addition to

the threshold , Climate Transition Benchmark (CTB) exclusions2.

The CTB exclusions should apply in funds where where environmental terms are used in

combination with “transition” with the expection for funds that use the term “sustainable”

Funds with "transition" or "impact" terms in their names must ensure investments

generate measurable positive social or environmental impact alongside financial returns.

ESMA will adopt revised guidelines post-AIFMD and UCITS Directive review, effective three

months after publication. New funds must comply immediately, existing funds within six

months.

FUNDS NAMES

There are not also the term sustainable but other terminology such as Transition, other

terminologies should be included

Article 2 sets the foundation of the regulation by providing basic definitions to navigate

SFDR, for example, who are the financial market participants and what is a financial

product. What is sustainable investment is answered under article 2 (17).

So, what actually is a sustainable investment?

Clarity AI’s approach to classifying sustainable investments captures investor and market

concepts and translates them into tangible results within the criteria defined in Article 2 (17) of

the SFDR. With a transparent, data-driven approach, financial market participants can

assess the sustainability of their portfolios and funds, according to the regulation.

We have developed a clear, systematic, and scientific approach to defining a sustainable

investment that combines multiple regulatory frameworks with market-leading coverage, with

data for more than 50,000 companies and 300,000+ funds. We run each company through a

series of Contribution to the Solution, Do No Significant Harm and Good Governance tests to

provide a comprehensive universe of sustainable investment companies.

L'articolo 2 stabilisce le fondamenta della normativa fornendo definizioni di base per navigare

nell'SFDR, ad esempio chi sono i partecipanti al mercato finanziario e cosa sia un prodotto

finanziario. La definizione di investimento sostenibile è data nell'articolo 2 (17).

Quindi, cos'è effettivamente un investimento sostenibile?

L'approccio di Clarity AI alla classificazione degli investimenti sostenibili cattura concetti degli

investitori e del mercato e li traduce in risultati tangibili all'interno dei criteri definiti

nell'articolo 2 (17) dell'SFDR. Con un approccio trasparente e basato sui dati, i partecipanti al

mercato finanziario possono valutare la sostenibilità dei loro portafogli e fondi, secondo la

normativa.

Abbiamo sviluppato un approccio chiaro, sistematico e scientifico per definire un investimento

sostenibile che combina più quadri normativi con una copertura leader nel mercato, con dati su

più di 50.000 aziende e oltre 300.000 fondi. Facciamo passare ogni azienda attraverso una serie

di test di Contributo alla Soluzione, Non Causare Danni Significativi e Buona Governance per

fornire un universo completo di aziende di investimento sostenibile.

08/05/2024 CLIMATE RISK

Definition

Climate-related and environmental risks are commonly understood to comprise two main

risk drivers:

Divided in 2 risks:

1) Physical risk refers to the financial impact of a changing climate, including more

frequent extreme weather events and gradual changes in climate, as well as of

environmental degradation, such as air, water and land pollution, water stress,

biodiversity loss and deforestation. Physical risk is therefore categorised as “acute”

when it arises from extreme events, such as droughts, floods and storms, and

“chronic” when it arises from progressive shifts, such as increasing temperatures,

sea-level rises, water stress, biodiversity loss, land use change, habitat destruction and

resource scarcity. This can directly result in, for example, damage to property or

reduced productivity, or indirectly lead to subsequent events, such as the disruption of

supply chains.

2) Transition Risk: refers to an institution’s financial loss that can result, directly or

indirectly, from the process of adjustment towards a lower-carbon and more

environmentally sustainable economy. This could be triggered, for example, by a

relatively abrupt adoption of climate and environmental policies, technological progress

or changes in market sentiment and preferences.

es regolamentazione che impatta la nostra produzione di azienda e dobbiamo adattarci,

quindi sosteniamo i costi della transizione, se non riusciamo ad assorbire quei costi

diventiamo fragili dal punto di vista finanziario. Firm fraigilities come from our way to

adapt for example our system production to a more sustainable one.

Risks that could be affected by physical risk( arising from extreme weather events, chronic

wether patterns if climate-related or water stress, resource scaricity, biodiverisity loss, pollution

and other if envirnomental-related) are:

1) Credit risk: The probabilities of default (PD) and loss given default Energy efficiency

standards may trigger substantial (LGD) of exposures within sectors or geographies

adaptation costs and lower corporate profitability. vulnerable to physical risk may be

impacted, for which may lead to a higher PO as well as lower example, through lower

collateral valuations in realcollateral values estate portiolios as a result of increased



flood risk. La probabilità di default (PD) e la perdita in caso di default (LGD) delle

normative sull'efficienza energetica potrebbero innescare considerevoli esposizioni

all'interno di settori o geografie, con costi di adattamento e minor redditività aziendale.

Le aziende vulnerabili al rischio fisico potrebbero essere colpite, il che potrebbe portare

a un maggiore PD e a un minore LGD, ad esempio attraverso una valutazione inferiore

dei beni di garanzia nei portafogli immobiliari a causa del crescente rischio di

inondazioni.

2) Market Risk: Severe physical events may lead to shifts in market expectations and

could result in sudden reprising. higher volatility and losses in asset values on some

markets Eventi fisici gravi potrebbero portare a cambiamenti nelle aspettative di

mercato e potrebbero causare una ripresa improvvisa, con maggiore volatilità e perdite

nei valori degli asset su alcuni mercati.

3) Operational Risk: The bank's operations may be disrupted due to physical damage to

its property, branches and data centres as a result of extreme weather events Le

operazioni della banca potrebbero subire interruzioni a causa di danni fisici alle sue

proprietà, filiali e centri dati a seguito di eventi meteorologici estremi. Es: losses of

datas

4) Other risks types: liquidity/ business model: Liquidity risk may be affected in the event

of clients withdrawing money from their accounts in order to finance damage repairs

Il rischio di liquidità potrebbe essere influenzato nel caso in cui i clienti prelevino

denaro dai loro conti per finanziare riparazioni dei danni.

Risks that coul be affected by transition risk, arising when climate related-envirnomental from

policy and regulation, technology, market sentiment:

1) Credit risk: energy efficiency standards may trigger substantial

adaptation costs and lower corporale profitabillity which may lead to a higher PD as

well as lower collateral values Le normative sull'efficienza energetica potrebbero

innescare costi di adattamento considerevoli e ridurre la redditività aziendale, il che

potrebbe portare a una probabilità di default più elevata così come a valori inferiori dei

beni di garanzia.

2) Market risk: Transition risk drivers may generate an abrupt repricing al securities

and derivatives, for example for products associated with industries affected by

asset stranding I driver del rischio di transizione potrebbero generare una

riprogettazione improvvisa dei titoli e dei derivati, ad esempio per i prodotti

associati alle industrie colpite dal disimpegno degli asset.

3) Operational risk: Changing consumer sentiment regarding climate issues can lead

to reputation and litabilty risks for the bank as a result of scandals caused by the

financing of anvronmentally controversial activities

4) Other risks types: Transition risk drivers may affect the viability of some business

lines and lead to strategic risk for specific business models if the necessarv

adaptation or diversification is not implemented An abruptreprang of securities, for

instance due to asset stranding, may reduce the value of banks' high quality liquid

assets, thereby affecting liquidity buffers I driver del rischio di transizione

possono influenzare la sostenibilità di alcune linee di business e portare a rischi

strategici per modelli di business specifici se non vengono implementati gli

adattamenti o la diversificazione necessari. Una riprogettazione improvvisa dei

titoli, ad esempio a causa del disimpegno degli asset, può ridurre il valore degli

asset liquidi di alta qualità delle banche, influenzando così i buffer di liquidità.

The impact of climate risk could be direct or indirect:

Negative consequences: for example in case of a flood, a direct impact means the interruption of

the operativity impact also on the operative risk of the bank.

In other case speaking about indirect impact, a firm that work in a specific area that overcome a

flood, the risks associated to a bank, l’azienda diventa insolvente ma prima non riesce a ripagare

le date, this company starts to not paid the loans, there are several different phases before

insolvency.

Probability of default: the probability of not repay the loans increase

Loss given defualt 1-tasso di recupero(dipende dalla garanzia) 1-recovery

rate, if you have a budling as a garancy, and it is destroyed or demaged, there will

be a reduction of the guarantee.

An impact to repay a loan when you have to face a flood(credit risk)

Operational Risk:

Climate caos: report with banks that finance heavy polluted sectors.

Potential impact of cl