Sustainable investing through the integration of ESG factors
Bank of Valletta p.l.c. (the “Bank”, “BOV”) falls within scope of Regulation (EU) 2019/2088 of the European Parliament of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (the Sustainable Finance Disclosure Regulation or “SFDR”), which came into force on the 10 March, 2021 requiring financial market participants, including the Bank, to make certain sustainability-related disclosures to end investors.
The Bank is required under the SFDR to publish on its website information about its policies on the integration of sustainability risks in its investment decision-making process and/or investment/insurance advice, and the consideration or otherwise of Principal Adverse Impacts (PAIs) of their investment and/or advisory processes on sustainability factors.
The transition towards a greener and more sustainable economy is becoming a priority for the Bank. The Bank aims to integrate, where possible, environmental, social and governance (ESG) factors across the products and services being manufactured and distributed, thus integrating these sustainability factors in the assessment. The Bank has developed a stand-alone sustainability risk policy and has also incorporated elements of sustainability in the existing BOV Sales Policy.
The objective is to enhance your financial situation through its investment and insurance services. With an informed insight of the markets, an extensive range of financial services and products, and a reputation for managing the complexities of financial needs, we can customise and manage your investment portfolio designed specifically around your requirements.
The Bank also integrates sustainability risk through its Exclusion Policy, Engagement Policy, and due diligence processes. For direct investments, ESG risks are evaluated using the London Stock Exchange Group (LSEG) Environmental, Social, Governance and Controversy (ESGC) scores when available. For indirect investments, the Bank reviews fund disclosures and strategies. The Bank applies the principle of proportionality, tailoring its approach based on the nature and complexity of its services, while ensuring compliance with EU and national regulations.
The Bank is now incorporating elements of sustainability when recommending investments to you and will steer recommendations towards socially and environmentally responsible investment decisions. Our investment advice or portfolio management will be taking into consideration:
sustainability risk (measured through ESGC risk rating)
your (the client) personal ESG preference
ESGC integration describes an approach where the material ESG factors are considered as part of the broader investment process. Such an approach does not automatically exclude financial products from investment based purely on ESGC grounds. Its purpose is to ensure that the investment decision-makers are aware of and take informed investments decisions with knowledge of key ESGC risks. ESGC factors inform the investment process but are not necessarily the key determinant in final investment decisions, which also consider risk, return, and other factors.
Sustainability Risk Policy
The Bank is required under the SFDR to publish on its website, information about its policies on the integration of sustainability risks in its investment decision‐making and/or investment / insurance advice process.
Sustainability risk is evaluated alongside other investment decisions but may be accepted if outweighed by financial and strategic benefits. The Bank also considers both financial materiality (how sustainability issues affect companies) and impact materiality (how companies affect society and the environment). Environmental risks include climate-related events and changes in policy and regulations; social risks involve issues like human rights and workplace safety; and governance risks relate to leadership, ethics, and transparency. Controversies in any of these areas, such as fraud or environmental violations, can significantly affect a company’s reputation and financial performance.
What is Sustainability Risk?Sustainability risk is defined by Regulation (EU) 2019/2088 (“SFDR”), article 2(22) as “an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment”.
What is ESGC?
ESGC stands for Environmental, Social, Governance and Controversy and is a non-financial factor which is being taken highly into consideration as part of an investment solution to identify material risks and growth opportunities.
The ESGC criteria represents a framework of ethical standards that guide socially responsible investors in evaluating and selecting companies for investment.
Environmental criteria take into consideration how the company performs whilst being environmentally conscious.
Social criteria take into consideration how relationships with internal and external stakeholders are managed.
Governance criteria take into consideration a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Controversial criteria take into consideration negative events or incidents of a company.
The ESGC factor can impact the risk and return of the investment as well as the pricing of the financial asset and the valuation and performance of companies.
Sustainability Risk
The Bank considers that Sustainability Risks can have an impact on the returns of the financial products it makes available by leading to a significant deterioration in the profitability, reputation or goodwill of an underlying investment and may therefore impact its liquidity and/or market price materially.
Investments in Bonds
A wide range of Sustainability Risks can affect bond issuers’ cash flows and affect their ability to meet their obligations. For corporate bond issuers,
Environmental risks include but are not limited to:
companies’ ability to mitigate and adapt to climate change
exposure to increasing water scarcity
potential for higher water prices
waste management challenges
impact on global and local ecosystems
Social risks include, but are not limited to:
product safety
supply chain management and labour standards
health and safety and human rights
employee welfare
discrimination
data & privacy concerns
increasing technological regulation
Governance risks include, but are not limited to:
board composition and effectiveness
management incentives
management quality
alignment of management with shareholders
Property Companies
A wide range of Sustainability Risks apply to property companies.
Environmental risks include but are not limited to:
Physical risk: potential physical damage to property resulting from extreme weather events and climate change, such as droughts, wildfires, flooding and heavy precipitations, heat/cold waves, landslides or storms
Transition Risk: the ability of the property company to respond to regulatory and public pressure to reduce the energy and water consumption of buildings.
Social risks include but are not limited to:
health and safety of tenants and employees
labour standards
employee welfare
human right abuses and exploitation
data & privacy concerns
Governance risks include but are not limited to: Board composition and effectiveness, management quality and alignment of management with shareholders. Failure to effectively manage these risks can lead to a deterioration in financial outcomes such as a fall in the value of real estate assets as well as negative impacts on society and the environment.
Investment in Small Companies
A wide range of Sustainability Risks apply to investments in small companies (including the vast majority of Maltese publicly listed companies).
Environmental risks include but are not limited to:
potential damage to physical infrastructure assets resulting from extreme weather events and climate change
the ability of smaller companies to mitigate and adapt to climate change
the potential for higher prices
Social risks include but are not limited to:
cyber risks and the potential theft of customer data
increasing technological regulation
health and safety and employee welfare.
Governance risks include but are not limited to:
board composition and effectiveness,
management incentives,
management quality
alignment of management with shareholders.
In addition, smaller companies typically have limited, or lower levels of disclosure and resources dedicated to corporate sustainability compared to larger companies. As such they may present additional challenges when assessing their management of Sustainability Risks and the likely impact of such risks on funds which invest in smaller companies. Failure to effectively manage Sustainability Risks can lead to the deterioration in financial outcomes as well as negative impacts on society and the environment.
Investment in Emerging Markets
A wide range of Sustainability Risks apply to investments within global emerging markets. Governance risks can be more pronounced in the developing world. Other risks include Board composition and effectiveness, management incentives, management quality and alignment of management with shareholders.
Governance risks in emerging markets can present a higher risk compared to developed markets; ownership structures more commonly include controlling state interests or the controlling interests of an individual or family amongst other trading in influence and bribery. In addition, share structure can be more complex, with non-voting shares leaving minorities with less recourse and connected parties can introduce political risks, which have far-reaching implications.
What is Sustainable Investing and how do we intend to achieve this?
The Bank assesses sustainability risk as part of its investment decision making process, whether for direct investments, indirect investments (such as funds), or when providing investment or insurance advice, irrespective of the client’s sustainability preferences.
For direct investments, the Bank evaluates both financial and non-financial factors, including ESG risks, using scores provided by LSEG. These ESGC scores combine environmental, social, governance, and controversy data to give a complete picture of a company’s sustainability profile. If data is unavailable, we disclose that sustainability risk could not be assessed.
For indirect investments, such as funds, we use aggregated ESGC scores which is based on the fund’s underlying assets. In insurance advice, sustainability risk is assessed at the level of the underlying investments, especially in “Unit Linked” products. For “With Profits” products, sustainability considerations are outlined in the Key Feature Document.
When available, LSEG ESGC scores are updated weekly and based on over 870 metrics. Companies are compared within their industry and country, with ESG factors weighted from 1 to 10 depending on their relevance. The scoring also accounts for controversies and company size. Final scores are ranked and grouped into four grades:
This process helps ensure that sustainability risks are considered alongside financial factors when making investment decisions or recommendations.
BOV Wealth Management reserves the right of amending the methodology in the future.
As a first control on Sustainability Risk, an Exclusion Policy is being implemented. Entities involved in specific activities such as tobacco and controversial weapons are being excluded from being invested in or recommended.
As the regulatory landscape continues to change at a fast pace, it is envisaged that this policy will need to develop, improve and be amended in the future. The development and emergence of ESG-related data services will also empower better, more granular approaches to sustainable finance.
For more details, we encourage you to read BOV Wealth Management Exclusion Policy.
Engagement Policy
The regulatory requirement for the Bank to have an Engagement Policy in place emanates from Directive 2007/36/EC, referred to as the Shareholder Rights Directive (“SRD”). In 2017, this was amended by Directive 2017/828/EC (“SRD II”), which included provisions regarding the encouragement of long-term shareholder engagement.
The stated aim of SRD II is to strengthen the position of shareholders and to promote a long-term approach to financial and non-financial performance by listed companies, including as regards environmental, social and governance factors.
An engagement policy is viewed as an integral component of sustainable investing, such that the Regulation (EU) 2019/2088 (“SFDR”) requires that financial market participants summarise their respective engagement policies as part of their sustainability disclosures.
The Bank oversees the companies in which it invests to make sure they create long-term value for its investors and stakeholders and act in the interest of shareholders. This supervision involves regular monitoring of various indicators and metrics that not only include economic and/or financial aspects, but also environmental, social and corporate governance elements.
For more details, we encourage you to read our BOV Wealth Management Engagement Policy.
Disclosure Sheet
Click here to view the latest version of the Disclosure sheet
Version 1 dated 9th March 2021 Version 2 dated 30th December 2021 Version 3 dated 31st October 2022 Version 4 dated 13th August 2025
The core changes in the disclosure version 2 cover the following areas being highlighted hereunder:
Outlining the transition towards a greener and more sustainable economy and how this is becoming a priority for the Bank;
How BOV Wealth Management is incorporating elements of sustainability when recommending investments to its clients;
Details about the approach for ESG integration is also provided in the revised disclosure;
An update on the period covered for the Principle Adverse Impact is also provided;
Finally, the revised disclosure provides information about the various factors in the various criteria which fall under the Environmental, Social and Governance pillars.
The core changes in the disclosure version 3 cover the following areas being highlighted hereunder:
AI statement amended to reflect Bank’s PAI policy’
Statement on the Sustainability Risk and specification of any actual or a potential material negative impact on the value of the investment.
The core changes in the disclosure version 4 cover the following areas being highlighted hereunder:
Development of a stand-alone sustainability risk policy;
An update to the methodology on how Sustainability Risk is considered and integrated through the application of the London Stock Exchange Group ESGC risk rating;
Applying ESGC risk rating; capturing also “Controversy” related to environmental, social and governance factors;
Removed the exclusion of investment instruments solely on the basis of Sustainability Risk, reflecting a shift towards a more integrated assessment approach where sustainability risks are considered alongside financial and strategic factors rather than serving as an automatic exclusion criterion;
Introduction of the double materiality concept.
Other ESG integration initiatives
Reference to adherence to responsible business conduct codes and internationally recognised standards for due diligence and reporting and the degree of their alignment with the objectives of the Paris Agreement.
The Bank adopted the United Nations Environmental Programme Finance Initiative (UNEP FI) Impact Analysis Tool in 2021 to qualitatively assess the alignment of its credit portfolio with the Paris Climate Agreement goals and the United Nations Sustainable Development Goals (UN SDGs). Through this assessment the ESG Department designed a strategy with accompanying KPIs an KRIs. The portfolio alignment analysis is also recognised by the European Banking Authority (EBA) as a method to analyse and evaluate Climate and Environmental related risks. The top four sectors identified under this assessment were construction, real estate, electricity production and transportation. This granular analysis helped the Bank to understand the sustainability and climate impacts of its lending practices.
However, the Bank took a deeper dive and carried out a materiality assessment to understand the level of sectors that are material within the local and foreign markets. For this reason, the Bank developed a taxonomy of Climate and Environmental related risks, known as C&E risks drivers, covering physical (acute and chronic) and transition risks. The climate taxonomy was created through industry standards, using the EU Commission guidelines and Task Force on Climate related Financial Disclosures (TCFD), and it was tailormade for the Maltese characteristics and specificities based on ThinkHazard, the Seventh Communication of Malta to the UN, and the EEA. The output identified sector categorisations of Low, Moderate, High, and Very high.
In this regard, the Bank designated the manufacturing of coke/petroleum products under Very High-risk sectors and is in the process of updating its policies to start disengaging from such sectors. On the other hand, for the automotive industry, the Bank is considering following the European Commission guidelines of the transition pathway tool. The idea is to adjust the investment profiles and give preference to engage in the manufacturing of vehicle for those automotive industries that are performing better in their regulatory transition.
Furthermore, the Bank finalised its own internal Climate Stress Testing model and is also in its final stages to calculate its carbon footprint considering its own emissions, Scope 1 and Scope 2, and financed emissions Scope 3 following the methodology of an internationally recognised protocol.
Additionally, the Bank is building capabilities and tools to eventually produce and report additional disclosures aligning with the upcoming multiple regulations and apply high level standards of reporting on C&E risks taking into consideration quarterly review of concentration analysis to be reported to internal management following an established governance process, including the ESG Forum (a management body), as well as the ESG Committee (a Board Committee). The Bank intends to continue to evolve its approach as industry practices develop, and measurements and methodological standards continue to emerge.
