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Moody’s to provide ESG info for Italy’s monetary policy assessments

Tender document shows central bank will now consider ESG beyond its own investments

The central bank of Italy has contracted Moody’s to provide it with ESG “heatmap” services to inform its credit risk assessments for monetary policy. 

Banca d'Italia has been integrating ESG into its own investments since last year, when it developed an approach for its equities portfolio which included screening out firms not compliant with the UN Global Compact, and prioritising those with better ESG profiles.

At the time, a spokesperson told RI: “It is important to highlight that the ESG investment criteria are not applied to operations or investments connected with institutional activities, such as the monetary policy”. 

Banca d’Italia told RI that the ESG criteria “are also being applied [to] equity investments held through ETFs and open-end funds in the US and Japan markets”.

But now Moody’s Analytics has been named in a tender valued at more than $900,000; this includes a number of other non-ESG-related services. A spokesperson for Banca d'Italia told RI that “the ESG heatmapping services to be provided by Moody’s are part of a broader contract related [to] credit risk assessment for monetary policy”. No further details were provided.

Moody's Analytics does not currently offer 'heatmapping' as an off-the-shelf service, but RI understands it involves generating predicted ESG risk assessments for companies not currently covered by ESG ratings, particularly smaller firms.

“We see an increasing interest from customers who need scalable and customizable analytical tools to assess ESG exposure of their portfolios (investments, clients, and suppliers); conduct ESG-related stress testing, and require risk heatmaps at a granular level for corporate segments, industries, and geographies," said a spokesperson for Moody's. "Of particular relevance is the ability to provide a robust and granular ESG risk assessment of SME exposures."

According to a report from the Italian central bank, the integration of ESG relates to €9.2bn, or 7% of its own portfolio, comprising 143 listed companies in Europe. “These investments are managed according to a passive replication strategy of market capitalisation equity indices, adjusted to exclude Italian financial stocks and media,” the report says. 

By the end of 2019, the changes had resulted in the portfolio having a GHG-emissions footprint 18% lower than its benchmark. The footprint from electricity and water also fell to 12% and 42% below benchmark, respectively.  

Banca d’Italia told RI that the ESG criteria “are also being applied [to] equity investments held through ETFs and open-end funds in the US and Japan markets”.

“The Bank of Italy intends to continue to improve the ESG profile of its investments and to look into extending the application of the ESG criteria to other asset classes, such as corporate bonds both in euros and in dollars, as well as green bonds,” a spokesperson said. 

Bank of Italy is a member of the Network for Greening the Financial System, and was one of the central banks to back a green bond fund launched by the Bank of International Settlements last year, which RI recently reported had hit the $1bn mark.