Fondo Pensione Nazionale: ESG and Risk Minimisation are Top Priorities for this Progressive Fund

Fondo Pensione NazionaleFondo Pensione Nazionale, founded in 1987, is a complementary pension fund for Italian co-operative and agricultural banks.

As a fondo preesistente, a type of fund found only in Italy, it is subject to regulation that prohibit free investment. Fondo Pensone Nazionale (FPN) has a diversified team that with discreet duties to monitor investment risks and to comply with the recent IORP 2 regulation — something that will have a great impact on pension funds.

The FPN financial team is divided in two branches, one controlling direct investments and the other mandates, and with one team member involved in financial reporting and compliance activity. FPN has created an innovative structure of risk management, independent of the financial department, that supervises all risks and complies with IORP 2.

This structure is composed of a team of two, one of whom monitors financial risks, while the other focuses on operational risks. The general manager, Sergio Carfizzi, who is also the head of finance, oversees these (and other) activities.

FPN is sensitive to ESG issues, aware that they are key factors in ensuring long-term competitiveness. Facing climate change and its consequences, as well as resource depletion, FPN believes public policies needs to be revised. The financial system has a key role to play here: redirecting private capital to more sustainable investments can be part of the solution to achieving a greener and more sustainable economy.

FPN has decided to factor ESG considerations into decision-making in direct investment and external mandates. It is developing specific agreements with external managers to integrate these criteria in the investment process.

Some have already implemented in Climate Risk Policies, with exclusion criteria that covers companies from coal-power generation, the extraction sector for mining activities, and pipeline companies for tar-sand resources.

Direct Investments

FPN has recently invested in the green economy, including forest regeneration and photo-voltaic systems. Every new investment that is evaluated is ESG-orientated.

Direct and indirect investments are structured to avoid exposure to certain sectors or activities, excluding some companies based on criteria such as unsuitable or controversial businesses.Above all, capital is aligned with positive outcomes that enhance the investment process across all portfolios. This avoids the necessity to develop ESG versions of existing portfolios and leaves other products and processes unchanged.

The company is developing an ESG score for all its assets that analyses each pillar of E, S and G to become a leader in the sector.

It achieved a positive overall net return of +0,15% (overall average weighted return of all investment lines of FPN) for 2018, a year that will be remembered as one of the most trying in the decade.

Financial markets and almost all traditional asset classes registered negative return in that period. FPN kept a lower level of risk than the benchmark for each Investment Line (-27 percent standard deviation for the Raccolta; -29 percent for the Crescita, and -34 percent for “Semina” Investment Lines).

General manager Carfizzi has transformed the pension fund, leading it towards greater efficiency and nurturing innovation. He implemented the diversification of investment, with focus on ESG issues, with the intention to invest in the Real Economy.

In addition to managing financial processes, he initiated a restyling of investment line design, introducing a lifecycle programme to help fund members make informed choices. He also developed some forms of additional benefit for pension members (Solidarity, RITA).

Carfizzi believes that fund members should always take the highest priority, maximising their returns and minimising risk. He promotes caution and order, allowing members to follow the lifecycle logic with dynamic choices.

All this is geared to increase collective welfare and adhere to the Fondo Pensione Nazionale mission of good Investment, and a greener, better life.

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