The central bank of Italy will no longer invest in companies that breach international labour guidelines, manufacturers of controversial weapons or the tobacco industry.
The move is in line with Banca d'Italia’s newly-announced Responsible Investment Charter, which sets out sustainability considerations for the bank’s foreign exchange and investment portfolios – estimated at around €190bn.
The new policy will not apply to the central bank’s €500bn monetary policy portfolio, which is managed centrally under the Eurosystem.
According to the Charter’s exclusion criteria, issuers will be blacklisted if they do not abide by the International Labour Organisation’s eight fundamental conventions, which guarantee the right to unionise, and protects workers from modern slavery, discrimination and child labour.
The bank will also ban investments in controversial weapons as defined by international treaties such as chemical, biological and nuclear weapons, anti-personnel mines, cluster munitions and weapons with non-detectable fragments.
Additional information on Banca d’Italia’s tobacco exclusions were not available.
Banca d’Italia has also said that it will refer to the principles of the UN Global Compact, the UN Sustainable Development Goals and the Paris Agreement as a basis for “incorporating sustainability in its investment strategies”, but it did not provide details on how this will be done.
Finally, the Charter reaffirmed Banca d’Italia’s commitment to the Eurosystem’s common stance on integrating sustainability criteria to non-monetary policy portfolios. The common policy, which was agreed earlier this year, requires EU central banks to begin measuring their climate performance within the next two years.
While the Charter will not apply to Banca d’Italia’s monetary policy portfolio, the bank previously commissioned Moody’s to provide “ESG heatmapping services … [as] part of a broader contract related [to] credit risk assessment for monetary policy”. Banca d'Italia started integrating ESG into its own investments in 2019, and has since reported a reduction of 23% in greenhouse gas emissions and 30% reduction in energy consumption across its euro-area equities portfolio.
More broadly, the Charter’s consideration of social issues reflects an increasing regulatory focus on the topic across the EU. Over the coming week, an EU Commission advisory body is due to release its initial suggestions for the long-awaited EU social taxonomy, which will aim – just like its green counterpart – to establish common criteria for socially sustainable activities that are eligible for investments under the EU Action Plan.