An Introduction to Ethical Mutual Funds

We speak with Arianna Magni, Head of the Institutional and International Business Development Department at Etica Sgr - the only Italian asset management company that, since its launch in 2000, exclusively offers sustainable and responsible mutual funds to private and institutional investors, with the aim of representing the values of ethical finance in financial markets.

The distinctive character of Etica’s funds is the rigorous selection of securities issued by companies and countries that show a special commitment to environmental protection, human rights and good corporate governance.

Etica sustains a constant dialogue with the management and exercises its voting rights in the shareholders’ meetings of the companies in which its funds invest, in order to urge companies towards more responsible behaviour and help them achieve this goal.

By embracing ESG criteria, codified in a transparent methodology, the company can manage risk more effectively and seize interesting investment opportunities.

Below, Arianna introduces us to ethical mutual funds and explains the growing appetite for them.

Can you explain ethical mutual funds to us?

In ethical mutual funds, the goal of achieving positive financial returns goes hand in hand with generating positive effects for the environment and society. We measure the impact of our funds’ equity investments, in relation to the social, environmental and governance indicators linked to the United Nations SDGs (Sustainable Development Goals).

Tell us more about the sustainable and responsible mutual funds Etica offers.

 Etica’s funds’ goal is to create yield opportunities for savers in a medium-long term perspective, aiming at the real economy and rewarding companies and states that adopt virtuous practices. Currently, the range is made up of six mutual investment funds plus three sub-funds in the Luxembourg range (launched at the end of 2019 and mirroring some of the SGR’s historical strategies), distributed across all risk/return profiles.

In ethical mutual funds, the goal of achieving positive financial returns goes hand in hand with generating positive effects for the environment and society.

As climate concerns have prompted more investors to move their money to ethical funds which support the positive changes they want to see, have you seen an increase in people investing in Etica’s ethical funds?

 Yes, sustainability and responsibility are keywords in the financial sector today. When Etica was established in 2000, this was a niche market, but today it has international prominence and can be described as a mainstream market, exceeding $30 trillion of assets under management worldwide, with 34% growth in only two years and Europe at the top of the rankings (according to the Global Sustainable Investment Alliance).

This strong focus on sustainability and responsibility in the financial world is no accident. According to the World Economic Forum, in only a decade, global risks have shifted from being mainly economic in nature to mainly environmental and social. Not only have these risks become more frequent, but they have also become more significant given the extent of the economic and financial damage they can cause.

What have we brought to the world of investment? First of all, the very possibility of sustainable, responsible finance, which, in 2000, seemed like an oxymoron. Etica has legitimised a new and different way of investing that, as well as the purely financial aspect, takes into account other important variables: the environment, human rights and good corporate governance (ESG).

Who should consider investing in Etica’s ethical funds and why?

The funds of Etica Sgr are perfect for long-term oriented investors who believe that it is important to invest for their future and, at the same time, for the future of the planet: we invest today in what we believe is sustainable for our planet and could generate long-term returns for our clients.

Our strength lies in our belief that sustainable and responsible investment can deliver competitive performance versus the market and, in periods of high volatility, allows financial risk to be mitigated more effectively than traditional investments.

Our mission is: “to champion the values of ethical finance in the financial markets, raising awareness of socially responsible investments and corporate social responsibility among the general public and financial operators”. In other words, to think about investing from a long-term perspective, which takes society and the planet into consideration.

Sustainability and responsibility are keywords in the financial sector today.

All the financial instruments that make up the funds of Etica are selected based on careful issuer screening. Selection takes place both by excluding controversial sectors (e.g. oil, arms, nuclear power and gambling) and by targeting the best issuers from the perspective of ESG (environmental, social and governance) matters.

How do you choose the issuers in which your funds invest?

The careful selection of the securities that make up our mutual funds is a defining feature of our concept of sustainable, responsible investment. Our proprietary methodology, which has a long track record, only accepts issuers that demonstrate that they are both financially attractive and, of course, sustainable from an environmental, social and governance perspective.

Our ESG Analysis and Research Team, made up of expert analysts of environmental, social and governance issues, carries out a double screening process on countries and companies, to identify the countries that best align with social and environmental objectives and the companies most sensitive to sustainability issues and collective wellbeing, creating the “Investable Universe” of funds.

We base our assessment of issuers on a range of sources: specialised databases containing reliable and up-to-date information; affiliated partners such as the ICCR (Interfaith Center on Corporate Responsibility), PRI (Principles for Responsible Investments), CDP (Carbon Disclosure Project), EUROSIF (European Social Investment Forum) and SfC (Shareholders for Change); and NGOs such as Amnesty International and Legambiente. We also examine research in the specialist press and corporate publications (e.g. financial statements and sustainability reports) and assess information gleaned from direct dialogue with companies. We seek to look at companies from all angles to decide whether to invest in them. Our assessment of issuers is based exclusively on information from authoritative sources, and all news is duly checked to protect us from the risk of fake news.


About Etica

Etica SGR was founded in 2000 with the conviction that analysing issuers (both companies and countries), also from an environmental, social and governance (ESG) perspective, offers a more long-term view and potential added value in terms of returns.

It is the only Italian asset management company that has been focused exclusively on socially responsible investment since it was founded.

Its product range is divided into 6 Italian mutual funds, one of which related to climate change, and 3 Luxembourg sub-funds (launched at the end of 2019 and mirroring some of the SGR’s historical strategies), distributed across all risk/return profiles, with the aim of offering investors yield opportunities in the medium to long term.

Etica was born out of Banca Etica’s insight and a desire to make the finance and credit sectors more sustainable and responsible. At the start, the company struggled to get investors to see that sustainable and responsible investment products were a different way of investing their savings and that they are not a charity.

Today, 20 years later, investing for our future and for the future of the planet seems to be possible and is much more popular than it was when Etica was founded. However, the company believes in the importance of demonstrating the effectiveness of its strategy through numbers, data and reporting.

Etica is an integral part of a network of excellence in ethical finance: besides being a member of the Forum per la Finanza Sostenibile and EUROSIF, Etica is part of ICCR and a signatory of PRI (Principles for Responsible Investment) and CDP (ex Carbon Disclosure Project). The company was the first Italian asset manager to sign in 2015 the Montréal Carbon Pledge, the initiative that involves a commitment to measure and report the carbon footprint of its investments.

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