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2021-06-01 Sustainable investments to diversify your portfolio

The increasing attention to environmental issues, accelerated by Covid-19, is directing many investors towards instruments that, directly or indirectly, invest in sustainability. The Morningstar data[1] speaks volumes. As had already happened in the first quarter of 2020, sustainable funds were also more popular among European investors than traditional ones in the first three months of 2021: 51% of flows to mutual funds and exchange-traded funds (ETFs) Europeans has in fact poured into ESG strategies.  

These are financial instruments that are not exhaustive of all the investment vehicles existing in the financial markets, but the data is certainly significant for a trend destined to consolidate over time, also due to the new European regulations on sustainable reporting and taxonomy.

Is it worth investing in sustainability? 

It was said that driving the demand for sustainable investments is greater attention to environmental and social issues, fueled by the health emergency that has highlighted the interconnection between the environment, health, and quality of life.

However, it would be simplistic to associate interest in this type of investment only with ethical reasons or strictly personal ones, as explained by Francesco Bicciato, general secretary of the Forum for Sustainable Finance[2].

"Finance that considers environmental, social, and governance criteria are often confused with charity, but it is a completely wrong idea. Investing in this way is not only useful for society but is worthwhile from an economic and financial point of view. A growing number of academic research and market analysis find that in recent years the returns generated by sustainable finance products have grown in line with those of traditional funds when they have not even been higher”.  

Indeed, the data indicate that instruments that invest in sustainability are at least more resilient than others.  

From the monitoring carried out in June 2020 by Morningstar[3], a company recognized as a leader in the provision of independent financial research, it emerges, for example, that out of 4,900 funds and ETFs domiciled in Europe, of which 745 were sustainable (belonging to seven of the most popular categories), about 59 % of sustainable funds beat traditional correspondents in terms of performance over a 10-year horizon (the figure only considers those that survived the last ten years at the end of 2019). The Morningstar study also shows higher survival rates of sustainable funds than traditional ones. 72% of the sub-funds launched ten years ago still exist today against 45.9% of the instruments that do not integrate ESG criteria in the construction of the portfolio. 

In 2020, the year in which the financial sector also experienced the repercussions of the global pandemic, Morningstar4[4] also found that the baskets that consider risks related to environmental, social, and governance (ESG) factors have shown some resilience to shocks. This is also confirmed by the fact that 91% have lost less in the downturns of the last five years and that 75% of the sustainable Morningstar indices have beaten their traditional counterparts.

  

Diversify: the strategy to reduce (also) the risks of sustainable investments

 The ability to integrate financial analysis with ESG factors can at least partially explain the greater resilience of sustainable investments even in periods of high volatility, such as 2020. Being able to identify the companies best equipped to manage risks of an extra-financial nature or those less exposed to regulatory sanctions, reputational problems, and conflicts with shareholders, workers, or local communities, means finding companies that can have good business results with positive consequences on performance and returns for investors. Similarly, by integrating environmental, social, and governance criteria in the initial investment selection phase, it is possible to anticipate some negative externalities that make the investment itself riskier.  

However, this does not mean that it is possible to cancel the risk, which is an inherent component of the investment.

Even sustainable investments, in fact, move within the financial sector in which the return is linked to the risk. For this reason, in the decision-making process to choose how to allocate one's assets, it is essential not to be influenced by factors related to emotionality.  

It must always be remembered, for example, that the yield history is useful for getting an idea of the potential of investments, but it is not representative of future returns. In the case of sustainable investments, numbers and statistics show that sustainable strategies do not require a compromise on returns, but the fact remains that it is not possible to rely on past returns to make predictions.

A more correct approach to sustainable investments, therefore, is to always consider them within an appropriately diversified portfolio, consistent with one's risk profile and expectations.

Diversification by assets, sectors, geographical location cannot guarantee the absence of losses, but it helps to protect investments from volatility and market shocks because it is unlikely that different financial instruments could collapse together.

Within a correct diversification of the portfolio, therefore, sustainable investments can represent a response for those who want to invest also with the aim of making their own contribution to environmental and social sustainability.

 


[1] Sara Silano, “Perché metà della raccolta dei fondi europei è sostenibile”, Morningstar.it, 3 maggio 2021

[2] Elena Comelli, “Investimenti sostenibili? Non è beneficenza “Danno buoni rendimenti e riducono i rischi”, Quotidiano.net, 20 marzo 2020

[3] Sara Silano, “Fondi sostenibili vs tradizionali: parlano le performance”, Morningstar.it, 22 giugno 2020

[4] Sara Silano, “Gli indici sostenibili passano il test del 2020”, Morningstar.it, 14 aprile 2021

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2021-05-30 Sustainability, finance in the field for climate change

In recent months, the insurance companies have undergone an important job of updating the information material for customers and investors, to comply with the provisions of the Regulation 2019/2088 of the European Parliament and of the Council on the sustainability disclosure of financial services (Sustainable Finance Disclosure Regulation or SFDR)[1], which entered into force on 10 March.  

The objective of the Regulation is to standardize information on products that follow an ESG (Environment, Social, Governance) strategy to build a homogeneous framework within which customers and investors can better understand the level of sustainability of each insurance product and financial.

Before going into the details of the Regulation and the extent of its novelty, it is useful to take a step back to understand why Europe felt the need to intervene on this issue.

  

Sustainable finance for climate change

The SFDR Regulations must be framed in a very broad path that has its roots in the report “The Limits to Growth”, published in 1972 by the Massachusetts Institute of Technology on commission from the Club of Rome. In that document, it was highlighted how it was a priority to adopt a growth model capable of satisfying the needs of current generations without compromising the well-being of future ones.

From the debate triggered 50 years ago and from the evidence that has emerged over the decades, in particular on the negative effects of climate change caused by pollution, a path has begun that has led to making sustainable development a priority in the agendas of international and European politics. . On the model of sustainability, in 2015 the 2030 Agenda for Sustainable Development was built in 2030 and the commitments of the Paris Agreement were made, which established the need to accelerate the decarbonization of the economy and protect the environment for the benefit of both current and future generations.

Taking action to ensure sustainability, however, is a long process that requires profound changes and huge resources. According to the United Nations, the implementation of the 2030 Agenda requires from 5 to 7 trillion dollars in annual investments. The European Commission, for its part, has estimated that achieving the European Union's climate goals for 2030 will require up to 260 billion euros of new investments per year.

These are huge investments, which cannot be made only by the public sector, but, as evidenced by the Paris Agreement itself, require the involvement of the financial world as the main tool for directing capital towards responsible businesses within the framework of sustainable economic development.

"Sustainable investment projects can play a crucial role, helping to reabsorb excess savings and raise production potential, while at the same time designing a growth path capable of reducing social vulnerabilities and combating climate risks", explained Fabio Panetta, member of the Executive Board of the ECB[2].

In this context, the interest of savers themselves in sustainable finance also converges, destined to grow with the generation of Millennials, and, in the future, with what is called the "Greta generation".  

For this reason, in recent years, managers have increasingly oriented themselves towards sustainable investments, in the absence, however, of a common regulatory framework that specifies what could be defined as truly sustainable.

  

Sustainable finance: from the SFDR to the European taxonomy

This leads to the EU Regulation 2019/2088 which, in fact, is the first step in the path started by Europe with the Action Plan for Financing Sustainable Growth to create an integrated ecosystem of ESG regulations.

The SFDR increases and standardizes the reporting requirements of the sustainable investment processes of financial market participants, asking them to disclose the risks and opportunities of their investment policies and individual products on the sustainability front.

This has resulted in the integration of websites and pre-contractual information with a series of information on both the company and its activities and individual products.  

In particular, information was provided on how investment decision-making and remuneration policies take into consideration the sustainability risk, that is an environmental, social, or governance event or condition which, if it occurs, could cause a significant negative impact on the value of the investment.

Similarly, for financial products that promote environmental or social characteristics (Article 8) or that target sustainable investments (Article 9), descriptions of the environmental or social characteristics of the sustainable investment objective have been provided, information on the methodologies used to assess, measure and monitor the environmental or social characteristics or impact of the sustainable investments selected for the financial product, including the data sources, the screening criteria for the underlying assets and the relevant sustainability indicators used.

If the company or the manager does not take into consideration the sustainability factors and risks or if the products do not have these purposes, the Regulation asks to justify this choice, according to the “comply or explain” logic.

All this work has, as its ultimate effect, greater clarity for those who invest, because it makes the products and activities of the managers comparable concerning how they incorporate sustainability into investment policies, negative impacts, and the active promotion of sustainability.

This is not just a formality or an issue that only concerns communication, but a mechanism that will probably incentivize the growth of sustainable investments.

According to Assogestioni, SFDR is an important first step to promote a European market for sustainable products to strengthen a system facing the challenges posed by climate, environmental and social change.

A first step, it was said, destined not to remain the only one.

From 31 December 2021, financial market operators will have to declare to what extent sustainable investments are aligned with the European taxonomy, the "vocabulary" of ESG that Europe is outlining with a long and complex analysis and verification work.

The EU Taxonomy Regulation, which entered into force on 12 July 2020, aims to create the first "list of sustainable investments" in the world, a classification system that will create a common language that investors and businesses can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment, to increase market transparency and investor confidence and to direct a greater volume of investments in sustainable projects.

On 31 December, the first block of technical criteria for selecting the activities to be considered sustainable, relating to mitigation and adaptation to climate change, will become operational. Following, criteria will be defined on pollution control, use and protection of water and marine resources, circular economy, protection and restoration of biodiversity and ecosystems.

A path has therefore started with the SFDR, which will increasingly make the financial world and the players operating in this sector the protagonists of a paradigm shift aimed at improving sustainability.

NOVIS has also adapted to this new regulation, making its investment strategy explicit in terms of sustainability. For more information, see the NOVIS Sustainability-related Disclosure.


[1] 1. Regolamento (UE) 2019/2088 del Parlamento europeo e del Consiglio del 27 novembre 2019 relativo all’informativa sulla sostenibilità nel settore dei servizi finanziari (Testo rilevante ai fini del SEE), EUR-Lex

[2] 2. Fabio Panetta, “Finanza sostenibile: trasformare la finanza per finanziare la trasformazione”, ecb.europa.eu, 25 gennaio 2021

2021-05-23 ESG investments, NOVIS commitment

The challenges posed by climate change have now entered the agenda of international institutions, such as the United Nations and the European Union, but also of financial sector operators, who can concretely help achieve the sustainability goals defined globally by the Agenda 2030 of the United Nations and the Paris Agreement, channeling the invested assets towards activities and companies that have a neutral or positive impact on the environment, offering investors a return consistent with their profile.

NOVIS, a European insurance company, has also launched its Sustainability Insurance Fund in 2019, in the awareness that everyone can make their contribution to reducing the negative impact of climate change that is putting survival itself at risk in different areas of the Earth.


NOVIS Sustainability Insurance Fund: the context

The Sustainability Fund is NOVIS's internal insurance fund that promotes environmental and social characteristics in line with the Sustainable Development Goals (SGDs) defined by the United Nations.

The Fund allows NOVIS to combine the need to specifically address sustainability risks with its investment philosophy based on indirect investments.

As stated in the sustainability document drawn up following the European Regulation on financial services sustainability reporting of March 2021, NOVIS is working to define its strategy focused on aligning its activities with the Goals approved by the United Nations General Assembly.

Currently, the Company's investment decisions are made based on all available information relating to the financial instruments used, including alignment with ESG factors and sustainability criteria, which are however not generally a dominant factor in investment decisions.

The main objective of NOVIS is to make choices mainly aimed at providing a return to customers, by adopting a wide diversification of risk through indirect investments. This implies that, in assessing the sustainability risk (an environmental, social, or governance event or condition which, if it occurs, could cause a significant negative impact on the value of the investment), the company must rely heavily on the measure on the methodology and investment decisions of the managers.

The Sustainability Insurance Fund was therefore launched to specifically address the sustainability risk while maintaining the investment philosophy based on direct investments.


The philosophy of the NOVIS Sustainability Fund 

The Fund aims to promote social and environmental characteristics, with an approach that is general and wide-ranging, not focused on particular aspects or objectives. This choice is the result of an open-minded approach by NOVIS, which considers it inappropriate to be bound to a prescriptive methodology over a broad horizon that may not be flexible enough in the life cycle of products and which would not allow adapting to future changes and challenges, difficult to anticipate in the present.

The promotion of environmental and social characteristics is achieved by investing directly or indirectly in equity or bond instruments issued by companies that comply with stringent environmental, social and corporate governance criteria, based on UN parameters for ESG investments.

One of the minimum criteria for the admissibility of the underlying financial instruments is in fact adherence to the United Nations Principles of Responsible Investment. The documentation provided by the managers or issuers of financial instruments is thus assessed to understand if and to what extent the underlying investment funds include investments in companies:

  • focused on solving environmental problems;
  • operating in sectors such as energy-efficient, the environment, health, and the improvement of social and demographic problems;
  • that demonstrate long-term growth prospects and good administration: in fact, it is assessed whether the company will add value to the company in the long term and whether it displays a responsible culture.

The regular quarterly review of the Fund's composition shows discrepancies with respect to sustainability objectives, NOVIS proceeds to remedy it, for example by replacing shares and financial instruments that are not consistent with the strategy.


How NOVIS Sustainability Insurance Fund invests 

In terms of composition, the Fund mainly invests indirectly in investment funds that follow UCITS regulations. The statute defines that the share of these indirect investments must cover at least 80% of the assets. The remainder can be invested directly in instruments financials such as stocks, bonds, or bank deposits.

In general, the share of the Fund's investments used to achieve sustainable investment objectives is 90%, with a mandatory minimum limit of 80%. There remains, therefore, a 10-20% that does not pursue the promotion of environmental or social characteristics, but that has additional purposes, such as risk mitigation or maintaining liquidity, such as, for example, bank deposits. The selection of banks, in this case, is done without considering the ESG criteria.

In terms of performance, the Fund has had a positive performance since its launch in 2019.

Even in the year of COVID, the Fund proved resilient for the volatility recorded on the international financial markets, although it should be remembered that historical data are in no way predictive of future returns.

2021-05-16 ESG investments: what they are and how they work

In recent years, the attention to sustainability fueled all over the world by youth movements (the best known is the one linked to Greta Thunberg) and by international institutions (United Nations, European Union) has also involved the financial world, which has found itself to interface with investors and savers who are increasingly sensitive to sustainable development issues and interested in using private capital to help achieve the objectives defined by the United Nations 2030 Agenda and the Paris Agreement on climate.

This has meant that even an acronym such as ESG (Environmental, Social, Governance), which defines an investment strategy, has become part of the common language and of the media, becoming in fact synonymous with sustainability. But how did the inclusion of ESG issues in the financial field come about? What exactly does this acronym mean? And how do you concretely invest in sustainability?


From ethical finance to ESG funds: an evolving story 

Finance is not now interested in the possible positive externalities that it can help create by orienting investments.

In the Western world, the first traces of this approach date back at least to the second half of the eighteenth century[1], mostly within religious circles. In the mid-1700s, for example, the Quakers decided to prohibit their members from any form of economic participation involving the slave trade or war. Similarly, Reverend John Wesley, founder of Methodism, expressed his disagreement with the use of money in activities that damaged the health of the body or mind[2]. Thus was born the concept of ethical finance, or finance that integrates purely economic analysis with ethical and moral reasons in the definition of where and how to allocate resources. 

This approach finds its concrete realization in Socially Responsible Investing, an investment strategy that combines the economic-financial dimension with the socio-environmental one to obtain positive externalities for the benefit of the community.

 The first SRI fund dates back to 1928 when in the United States some religious organizations set up the "Pioneer Fund", which envisaged not investing in tobacco, alcohol, and gambling companies. From religious circles, the tendency to combine finance with ethical purposes has extended over time to political and social issues. Emblematic what happened, for example, during the Vietnam War, when an alliance between progressives and students was formed in many US liberal universities so that the financial endowments of the universities and the pension funds of the staff were not invested in arms companies.

 A movement was also created around the fight against Apartheid, supported by the principles of Leon Sullivan, a Baptist priest, a promoter of civil rights, and a member of the board of directors of General Motors. Following this, in 1980 the Boston Bank established a financial index including only companies that did not do business with South Africa.

In fact, over the course of history, the great ethical, political, social issues and the financial world have always been intertwined. It could not fail to happen, therefore, also with the great trend of sustainability, which, starting from the 1970s, has imposed itself among the priorities of the agendas of international politics, effectively changing the paradigm itself of the development modalities of society. Disruptive, in particular, was the publication of the report "The Limits to Growth" of the Massachusetts Institute of Technology in 1972, which began to warn against the risk of using available natural resources without taking into account future generations.  

The awareness of public opinion has led to what we now call sustainable finance, which falls within the framework of ethical finance, but with a focus, precisely, on sustainability.

To move from theory to practice of sustainable investment, however, it was necessary to identify common criteria, which would allow the identification of securities and companies to invest in, overcoming the approach of exclusion on a purely ethical basis.

This brings us to 2005 when the then Secretary-General of the United Nations Kofi Annan invited the largest investors in the world to develop a series of principles that explained how to invest their capital in a sustainable and responsible way. In 2006, the UN PRI, United Nations principles for responsible investments[3], was presented to the world, which launched ESG issues as a parameter on which to measure investment analysis and decision-making processes.

  

What you need to know about ESG investments

 The acronym ESG defines, in fact, the parameters within which the search and selection strategies of the recipients of the investments must move, which can be defined as sustainable.  

The first element of the triad is the environment, Environmental, and implies the need to evaluate how the economic entity in which you want to invest your capital behaves towards the environment. For example, if it is structurally dependent on fossil fuels, if it has a high-water footprint, if it is complicit in deforestation and if it disposes of waste correctly.  

The second dimension is the Social dimension, which examines the social impact of a company or activity: the working conditions of employees, any conflicts with the local community, attention to safety in the workplace and health, protection of diversity, and correct interpersonal relationships between employees.  

Finally, the term Governance implies attention to business management inspired by good practices and ethical principles. The topics under examination concern the logic linked to the remuneration of managers, respect for the rights of shareholders, the transparency of corporate decisions and choices, respect for minorities.  

But how, in practice, is sustainable investment implemented? There are different "modes of action". It is possible, for example, to exclude securities linked to a specific production sector or to entities that are incompatible with ESG criteria or international regulatory standards, or select the "Best in class" securities, identifying the companies with the best scores in ESG terms. within their economic sector. Active shareholding, on the other hand, consists in involving shareholders in companies, to maximize risk-weighted returns, improve business conduct, bringing ethical or moral issues to attention, and contributing to sustainable development.  

Another strategy may be to invest directly in sustainable issues, through Impact Investing, or investing in support of activities that generate a positive social and environmental impact with a financial return on capital, providing economic resources to face the most urgent challenges. for example, in sectors such as sustainable agriculture, renewable energy, education, housing, and healthcare.

  

The crux of the lexicon: what is truly sustainable?

 If over the last few years different ways of investing according to ESG criteria have been identified, there is, however, a knot still to be solved, namely that of defining a vocabulary common to all investors to define sustainable activities and companies. For example, if a company that produces technologies for sustainable agriculture does not use renewable energy sources in its production process, can it be considered sustainable or not? In the absence of an unambiguous definition, financial managers and investment funds have so far decided independently, with the consequence of having unequal valuations on the same company or activity. Given the increase in the supply of ESG funds and demand, the absence of a common vocabulary, however, risks creating confusion. 

For this reason, Europe has decided to take the issue in hand and has started a long work to define a common vocabulary of sustainability based on which each financial operator and investor (institutional or private) can apply shared ESG criteria. A work that has already materialized with the first sustainable financial reporting and that at the end of 2021 will lead to the definition of a European Taxonomy, creating a framework of clarity and transparency that will be able to give further impetus to ESG investments, continuing to feed the relationship between finance and society.


[1] “L’Unione Europea e la finanza sostenibile”, ItaSIF, novembre 2019

[2] Valentina Neri, “La storia degli investimenti sostenibili e responsabili”, LifeGate, 6 luglio 2016

[3] “Principles for Responsible Investment (PRI)”, BorsaItaliana.it

2019-04-05 Information about the change of the official company name

Hereby we would like to inform you that company NOVIS Poisťovňa a.s., with its registered seat at Námestie Ľudovíta Štúra 2, 811 02 Bratislava, Company ID No.: 47 251 301, registered with the Commercial register of the District Court Bratislava I, Section: Sa, Insert No. 5851/B (hereinafter only „NOVIS“) changed its business name with effective date from 5th of April 2019. New official company name is:

NOVIS Insurance Company, NOVIS Versicherungsgesellschaft, NOVIS Compagnia di Assicurazioni, NOVIS Poisťovňa a.s.

The change of the official company name has been done because the legislation in Slovakia does not allow to use the variations of the company name in different languages and we believe that it is highly important for our clients in every country to know that they are in contact with the insurance company.

There are no other changes in the identification data of NOVIS in relation to the change of our business name and there is no change regarding our phone and email contacts. This change also has no impact on a contractual relationship with our clients or business partners. The company's marketing communications also remain unchanged.

2020-03-27 NOVIS offers the same services with equal speed and quality as before the pandemic

As before the pandemic, we would like to ask You, our clients, to contact NOVIS primarily by email and telephone to avoid being at risk of contracting the disease.
This way we can protect You because you do not have to wait in queues at the post office, our employees, who can process your requests while working from home but also post office workers.
 
Our contact email addresses and telephone numbers remain unchanged even in this special regime and we are fully available to answer any questions you may have.
 
We will keep you informed about any changes.