Societe Generale Corporate & Investment Banking (SG CIB) has launched the first Positive Impact Finance product for retail investors in Italy. The new product which combines yield opportunities with commitment to social and environmental impact, will be listed on July 6, 2017 on the EuroMOT segment and included in the Borsa Italiana green and social bonds list.
Societe Generale has committed, for the entire life of the bond, to maintain in its balance sheets an amount of Positive Impact assets equivalent to 100% of the nominal amount invested in the bond. In particular, Societe Generale has agreed to monitor its Positive Impact Finance assets through the Group's Environmental & Social risk management process during the life of the product, in addition to the independent assessment provided by Vigeo, the environmental, social and governance (ESG) research firm.
According to Vincenzo Saccente (pictured), co-head of public distribution at SG CIB in Italy, the Italian market is a fertile ground for this investment approach. "We see increasing appetite from investors for sustainable investment solutions," said Saccente. "As an illustration, even before the listing, there was a good interest from several distributors, which proactively contributed to the bond's distribution in the primary market."
Saccente also said that although traditionally, Northern European countries such as the Nordics have been in the forefront of sustainable and green thematics, the interest for these kind of products in other markets such as Italy is growing as suggested by the increase in demand from investors. In this contest the Italian Stock Exchange (Borsa Italiana) has launched a dedicated segment for green and social bonds, according to Saccente.
The difference with other structured bonds SG has done in Italy is that for the first time the bank has Issued a Positive impact Finance Structured Note, which contributes to one of the three pillars of positive impact finance (Environment, Economic and Social), said Saccente, adding that SG is one of the pioneer banks at the origin of Positive Impact Finance leading today the United Nations Environment Programme Finance Initiative that published in 2015 the Positive Impact Finance Manifesto.
"This means that SG will keep in its balance sheet an amount of positive impact assets equivalent to 100% of the amount invested in the bond to support some Positive Impact projects around the world. Positive Impact Finance is not only focused on positive contribution of one of the 3 pillars, but also identifies and mitigates any possible negative effects of the project. SG is an active supporter of ESG projects and we think we can make a difference by providing investors with new products that are linked to that theme."
The new product will be listed in the exchange and the bank expects, although it is early stages, this segment is supposed to grow because more and more investors are keeping more attention to this thematic, according to Saccente.
"We see good flows coming from supranational entities and also SG, thanks to his structuring capabilities, has been able to provide investors with new sustainable bonds," said Saccente.
According to Saccente, SG has used Finvex for this product because its existing relationship with the index provider but also because the sustainable and ethical characteristics of the Index; the bank remains open to working with other index providers and also to provide other non-equity linked products.
"We think there is also demand for fixed income structures and other underlying assets. We will continue working to grow our range of sustainable investments for Italian retail investors."
Positive Impact Finance is an evolution in the field of sustainable investment, as it isn't only focused on the positive contribution that an investment may have on the economy, the environment or the society, but is also focused on the identification and mitigation of any potentially negative impact, according to Denis Childs, head of positive impact finance and environmental & social advisory at SG CIB.
The bond which has a USD$50m nominal capacity and a US$2,000 minimum investment, will pay annual coupons of 1% for the first two years, and at maturity a variable coupon linked to the performance of the Finvex Ethical Efficient Europe 30 Price.
The Finvex index is composed by 30 stocks selected, rebalanced on a monthly basis, according to ethical and sustainability criteria defined by sustainable investments data firm, Oekom research. Oekom research will select the best companies in terms of sustainability (social and environment dimension) from the stocks 600 of the European large cap companies. In addition, Finvex will apply financial filters such as liquidity and reduction of risk (for example excluding the most volatile stocks).
The French bank also said that the coupons mentioned are before taxes with the actual tax percentage for such bonds standing at 26%. The new index-linked bond is also exposed to currency risk with the actual performance of the bond depending on the currency exchange rate if an investor wants to convert flows in a currency different from US dollars.
Pietro Poletto, head of fixed income markets at London Stock Exchange Group (LSEG) said that in the current market scenario investors are gradually becoming aware of ESG topics.
'Borsa Italiana, with its segment dedicated to sustainable products, offers an important tool to identify bonds aimed at financing projects with a social and/or environmental impact, so being in line with international best practices,' said Poletto.
There are 170 structured products worth just under US$1bn linked to Finvex indices listed on the SRP database, of which 168 are still live products. The Finvex Sustainable & Efficient Europe 30 (FSEURE), Finvex's flagship index which was launched in July 2011, remains the most popular choice for investors.
Other Finvex underlyings offered in Europe's retail markets includes the Finvex Ethical & Efficient Europe 30 (FEEURE), featured in 27 products, predominately public offers in Austria and Germany; the Finvex Sustainable & Efficient World 30 (RSWLDE); the Finvex Sector Efficient Europe 30 (FSECEUE); the Finvex Ecofi SRI Europe PR Index (EISRIEI); and the Finvex Sustainable & Efficient USA 30 Index (FSUSAD).
Related stories:
Finvex makes push for Asia with first Japan index
Societe Generale adds outperformance certificates to Finvex range in Germany and Austria
SG expands sustainable and ethical range in Austria and Germany