Disclosure Regulation (UE) 2019/2088
Information to be provided to investors pursuant to Article 10, paragraph 1, of Regulation (EU) No. 2019/2088 of November 27, 2019 on sustainability reporting in the financial services sector with regard to ITALIAN ENERGY EFFICIENCY FUND II
Italian Energy Efficiency Fund II (“Fund II”), established by Italian Fund for Energy Efficiency SGR S.p.A. (the “SGR”), promotes environmental characteristics by investing in energy efficiency and renewable energy projects, through which it contributes to the energy transition and decarbonization process, but does not have as its objective sustainable investment.
The Fund II’s investment strategy set out in the Management Rules (the “Rules”) pursues the promotion of environmental characteristics through (i) the identification of investment opportunities consistent with such energy transition characteristics (“Qualified Projects”) and the exclusion of investments in sectors or activities with significant negative environmental or social impact, (ii) the analysis of compliance with particular environmental, social and governance criteria in the selection of investments, and (iii) the implementation by the investee companies of transparency principles and reporting practices that allow for ongoing monitoring of such companies.
Fund II invests in Qualified Projects, which includes investments in energy efficiency and renewable energy projects. Following the identification of investment opportunities belonging to the categories of Qualified Projects, a preliminary due diligence is conducted by specialized advisors. Due diligence activities identify the potential ESG impacts of the transaction and verify compliance with the technical, environmental, and social criteria provided for each type of project and relevant technology, ensuring that they match the environmental characteristics of Fund II.
The allocation of resources is directed only toward companies that comply with the binding elements for promoting the environmental characteristics of Fund II.
During the holding period of an investment, the SGR carries out regular monitoring of sustainability factors, based on information provided directly by the portfolio companies, and measures the promotion of environmental characteristics according to three key performance indicators that measure the level of energy efficiency and emissions reduction achieved.
The data collection process is organized through specific forms with which investee companies feed offline excel files and involves several manual steps for the purpose of aggregating information. The SGR does not currently have an IT system aimed at collecting, aggregating, and managing the data required for reporting on the indicators measuring the promotion of environmental characteristics by Fund II. This may result in the presence of procedural and control limitations for the purpose of determining the indicators.
The SGR, as part of the process of monitoring and managing Fund II’s holdings, has adopted a strategy for the exercise of voting rights in the companies invested by Fund II, aimed at ensuring the consistency of the exercise of such rights with the characteristics of Fund II, therefore including environmental and social characteristics.
The terms not otherwise defined herein shall have the same meaning assigned to them in the Rules.
b) No sustainable investment objective
Fund II is a financial product that promotes environmental or social characteristics but does not have as its objective sustainable investment.
c) Environmental or social characteristics of the financial product
Fund II promotes environmental characteristics by investing in energy efficiency and renewable energy projects, through which it contributes to the energy transition and decarbonization process, according to the scope and the manner identified in the Rules, and in compliance with good governance practices by the investee companies.
d) Investment strategy
The Fund II’s investment strategy set out in the Rules pursues the promotion of environmental characteristics through (i) the identification of investment opportunities consistent with such energy transition characteristics (“Qualified Projects”) and the exclusion of investments in sectors or activities with significant negative environmental or social impact, (ii) the analysis of compliance with particular environmental, social, and governance criteria in the selection of investments, and (iii) the implementation by the investee companies of transparency principles and reporting practices that allow for ongoing monitoring of such companies.
In the selection and management of investments, the SGR is required to comply with the environmental and social regulations of the European Union, as well as the Environmental and Social Standards of the European Investment Bank (“EIB”).
Fund II invests in Qualified Projects, which include investments in (i) energy efficiency projects (“Energy Efficiency Projects”) and (ii) renewable energy projects (“Renewable Energy Projects”), including those relating to the following sectors:
Energy Efficiency Projects:
- energy efficiency, including construction, O&M and energy supply, relating to (merely by way of example):
- street lighting;
- smart city projects, including (but not limited to) video surveillance, air pollution control, connectivity infrastructures and services;
- energy services in existing or newly constructed buildings (including services to residential buildings/condominiums, public and private buildings and facilities);
- cogeneration and trigeneration plants, district heating/district cooling including rehabilitation or extension of existing networks as well as construction of new networks, energy efficiency in existing or newly constructed industrial facilities and SMEs;
- heat and/or power generation from low-carbon energy sources (e.g., solar PV including rooftop PV and solar thermal, hydropower, biomass, biogas, geothermal, onshore and offshore wind, waste to energy, …), provided that the heat and/or power produced is partially or totally utilised in projects listed in the previous point, or are otherwise connected to them;
- production and storage of gaseous, liquid and solid energy carriers from low-carbon energy sources;
Renewable Energy Projects:
- innovation, technologies, products and energy infrastructures related to energy efficiency (e.g., HVAC products and technologies, batteries and storage, demand response, electrification of transport including electric vehicles, charging points and in general all related services, equipment and enabling infrastructure, heating, digitalisation projects, decentralised energy sources, etc.) – renewable energy plants, products and technologies.
Fund II Rules provide for restrictions on investment in sectors and companies that have proven negative impacts on the society and the environment and that are therefore excluded from the investment scope of Fund II. Following the identification of investment opportunities belonging to the categories of Qualified Projects, due diligence activities are conducted in order to identify the potential ESG impacts of the transaction and to verify compliance with the technical, environmental, and social criteria provided for each type of project and relevant technology potentially subject to investment, as described in the Rules. Specifically, for power generation projects, it is established a maximum greenhouse gas emission intensity threshold of 250 g CO2eq per kWh. In addition, due diligence is also carried out on labour law items, aimed at assessing the existence of any situations that are not aligned with (i) current legislation, particularly in relation to the respect of workers’ rights and more generally in labour, social security, or occupational safety matters, (ii) national collective bargaining agreements signed by the most representative trade unions, and (iii) the application of treatments no lower than those provided by the national collective bargaining agreements signed by the comparatively most representative associations at the national level. The assessment of good governance practices of the investee companies also includes verification on the governing bodies and their representatives as well as on the presence of corporate codes of conduct. Should the investee company be lacking a code of conduct, or any other minimum safeguards in the social, environmental and governance areas, the SGR will request their adoption by the investee company.
During the holding period of an investment, the SGR carries out regular monitoring of sustainability factors based on information provided directly by the portfolio companies in relation to specific sustainability indicators. Furthermore, the performance of the investee companies is the subject of a sustainability report that is also provided to investors and summarizes the performance of the investee companies in light of the key sustainability indicators identified by SGR.
At the divestment stage, the SGR also assesses the improvement of the investment’s environmental, social and governance profile and verifies the degree of residual risk linked to it. Based on these findings, the best disinvestment strategy is defined, taking into consideration among the viable options, also the ability to generate sustainable value over a long-term horizon.
e) Proportion of investments
Fund II allocates resources entirely to direct investments aligned with the environmental characteristics described above, with the exception of instruments specifically held to meet the liquidity and risk management needs of the portfolio.
f) Monitoring of environmental or social characteristics
The compliance check for each investment with the environmental characteristics of Fund II is carried out during due diligence with the support of a specialized external advisor. Due diligence activities aim at determining the correspondence between investment decisions and the technical, environmental, and social criteria set up in advance by Fund II Rules. The outcomes of the due diligence process are part of the overall documentation submitted to the Board of Directors for its final evaluation. The results of audit activities on the target companies concerning ESG aspects are also integrated into the rating expressed by the Risk Management function to measure the degree of riskiness of the investment.
Each investee company appoints an Environmental and Social Officer (“ESO”). At least annually, the ESO of the investee company provides the SGR’s ESO with a report on the social and environmental management of the investee company. Through such reporting, it is also possible to update the investment’s compliance in relation to the eligibility criteria set forth in the Rules, and to identify potential risks, while suggesting measures to mitigate them. In addition, during the holding period of an investment, regular monitoring of sustainability factors is carried out on the basis of information that the ESO of each investee company communicates to the SGR’s ESO in relation to specific sustainability indicators. For this purpose, at the end of each quarter, the ESO of the investee company sends to the SGR’s ESO the scores assigned to each of the indicators considered to assess and quantify the social and environmental impact generated by the investee company.
The SGR also establishes and manages an Environmental and Social Management System (ESMS) to ensure that each investment complies with relevant environmental and social safeguards. Fund II also considers the “EIB Statement on Environmental and Social Principles and Standards” and the “EIB Environmental and Social Standards.”
In order to measure the promotion of environmental characteristics by Fund II, the SGR has identified the following 3 indicators of energy efficiency, renewable energy, and avoided emissions:
- Energy savings: it quantifies the energy savings achieved through the implementation of energy efficiency projects by the investee companies;
- Electricity from renewable sources: it quantifies the production of electricity generated from renewable sources;
- CO2 emissions avoided: it quantifies the tons of CO2 emissions avoided through the implementation of Energy Efficiency Projects and Renewable Energy Projects by Fund II.
For each identified indicator, the SGR takes into consideration current or potential internal and external impacts, in accordance with the GRI Standards defined in 2016 by the Global Reporting Initiative (GRI), and a score is given based on these impacts.
h) Data sources and processing
The data collection process is organized by means of specific forms, through which investee companies feed offline excel files, and it involves several manual steps for the purpose of aggregating information.
- Energy savings: the indicator is defined through the difference between the newly introduced energy-efficient technology and the previous technology. Where accurate data on consumption is not available, an estimate of the degree of energy efficiency generated by the new technology compared to the previous technology will be considered;
- Electricity from renewable sources: the indicator quantifies the energy produced from renewable sources by the investee companies operating in the electricity generation sector. Where accurate data on consumption is not available, estimated data will be applied for the purpose of calculating the indicator;
- CO2 emissions avoided: the indicator is calculated from emission factors obtained from sector-based national documents (e.g., ISPRA, TERNA S.p.A.). These emission factors are applied to the differential in energy consumption from non-renewable sources, as it is calculated before and after the implementation of projects by the investee companies. Published data could be subject to restatement in case conversion factors and/or emission coefficients are updated for the years under consideration.
i) Limitations to methodologies and data
The SGR does not currently have an IT system aimed at collecting, aggregating, and managing the data required for reporting on the indicators measuring the promotion of environmental characteristics by Fund II. This may result in the presence of procedural and control limitations for the purpose of determining the indicators, and specifically, with reference to the accuracy, analysis and disclosure of such indicators.
However, the SGR does not record any significant effects on the reliability of the measurement of Fund II’s environmental characteristics after applying the estimates and calculation methodologies for the definition of the environmental performance indicators, as described above.
j) Due diligence
The proper application of the assessments related to sustainability topics concerning Fund II assets is ensured by a preliminary due diligence carried out by external advisors and available through specific reports.
The Investment Team, the Risk Management Function and the Environmental & Social Officer verify the results of those analyses, which represent the supporting documents used by the Board of Directors to make its decisions on whether to finalize an investment opportunity. At the approval stage of the investment transaction, the SGR’s Board of Directors confirms that an assessment of ESG impacts has been carried out.
k) Engagement policies
The SGR, as part of the process of monitoring and managing Fund II’s holdings, has adopted a strategy for the exercise of voting rights in the companies invested by Fund II. In particular, the strategy adopted by the SGR is based on the following principles:
- the SGR constantly exercises the right to participate and vote in the shareholders’ meetings of the investee companies and constantly monitors the corporate events relating to the financial instruments held by the funds managed from time to time by Fund II;
- the methods for exercising the voting rights connected with the financial instruments held by Fund II are identified in full compliance with relevant Fund Rules and, therefore, also with the environmental and social characteristics promoted by the Fund.
Explanation for amendments
First publication date
Adjustment to the provisions on technical standards under EU Delegated Regulation 2022/1288