Tag: p2plending

CARDO AI supports BorsadelCredito.it in a new securitization

CARDO AI supports BorsadelCredito.it with Banca Valsabbina and Azimut in a new securitization of € 200 million to support Italian SMEs

Details on the transaction

This transaction follows the previous securitization of € 100 million launched in September 2020, as part of the “Slancio Italia” project.

The new resources of € 200 million will be disbursed on BorsadelCredito.it through loans to SMEs with a maximum duration of 6 years, with 1 year of pre-amortization, and an amount ranging from € 50,000 to € 1,500,000 with a guarantee of up to 90% of the Italian Governmental Central Guarantee Fund (in Italian: Fondo Centrale di Garanzia) for SMEs.

This new securitization will help SMEs to cope and overcome the crisis linked to the spread of the pandemic. The operation, which sees the collaboration of BorsadelCredito.it – ​​the Italian fintech that supports SMEs in accessing credit – with the Valsabbina Bank – Brescian bank present with 70 branches in Lombardy, Veneto, Emilia-Romagna, Piedmont, and Trentino-Alto Adige – Azimut – one of the biggest asset managers in Italy – and CARDO AI – providing institutional investors with advanced technology for private markets to make better investment decisions, is aimed at supporting the real economy.

Compared to the operation of September 2020, the amount available to SMEs has increased from € 100 to € 200 million, thus guaranteeing Italian SMEs firepower for their growth strategies and better crises navigation.

The loans will have a maximum duration of 6 years, including one year of pre-amortization, an amount ranging from € 50,000 to € 1,500,000, and the guarantee of up to 90% of the Central Guarantee Fund (in Italian: Fondo Centrale di Garanzia) for SMEs. The companies applying for the loan will be evaluated within 24 hours based on the credit assessment conducted by BorsadelCredito.it through the use of proprietary artificial intelligence algorithms. The automatic process is then followed by verification of a credit analyst and subsequently the underwriting and disbursement of the loan within a few working days.

The Slancio Italia Project

The “Slancio Italia” project was launched at the beginning of the pandemic, in March 2020, and is managed by BorsadelCredito.it and financed by credit funds such as Azimut as part of the strategic agreement between the two companies established in May 2020 with the creation Azimut Capital Tech. Azimut also covers the fundamental role of the underwriter of the junior part through its private debt funds. Banca Valsabbina supported the two companies as the arranger of the transaction, Account Bank, as well as underwriter of the senior and mezzanine part, for a maximum commitment of € 180,000,000. CARDO AI, a fintech supporting institutional investors in modernizing their portfolio management with advanced technology and data science. In this particular operation, Cardo AI has acted as the data agent role, facilitating an end-to-end data management and ad-hoc reporting creation. Every institutional investor that has subscribed the notes of the securitization vehicle has received a dedicated access to the Cardo AI platform, enabling a complete transparency at the begging and throughout the lifetime of the operation.

Hogan Lovells Studio Legale provided legal assistance as transaction legal counsel, with a team led by Partner Corrado Fiscale. The Master Servicer will be Centotrenta Servicing S.p.A., while Banca Finanziaria Internazionale S.p.A. (in short Banca Finint) operates in the roles of Paying Agent, Issuing Agent, and Representative of the Noteholders (in short RoN).

Since the outbreak of the pandemic, businesses have not stopped needing liquidity. According to the most recent Istat data, in 2020 there was a decline in the turnover of service companies by 12.1%, the largest since 2001. “The loss of turnover affected almost all the sectors surveyed, particularly in the activities most affected by the restrictions related to the health emergency”, writes the statistical institute.

In this context, in 2020 Fintech came to the rescue of companies for 1.65 billion euros (ItaliaFintech data), with an increase of 450% compared to the 372 million again disbursed in 2019. Also the number of new Italian companies getting support by Fintechs, which rose from 1,092 in 2019 to 5,464 in 2020.

Gabriele Blei, CEO of the Azimut Group, comments: “This initiative is in line with our project of Banca Sintetica, which is an alternative to the traditional banking model to support the needs of small and medium-sized Italian enterprises through the use of fintech platforms with which to finance businesses effectively and quickly. Our goal is to deliver to Italian SMEs, loans of 1.2 billion euros over the next 5 years and to do so we can count on the support from our diverse range of alternative customer lending strategies both private and institutional. A project that allows us to create new performance opportunities for the capital of our customers, fueling the virtuous circle between private savings and businesses”.

“After the securitization carried out last year, we are happy to be a partner of this new operation, which doubles the resources made available to SMEs – said Marco Bonetti, Joint General Manager of Banca Valsabbina – Our institute will continue to look favorably on initiatives like this, which on one hand are an important element to support SMEs, which in particular in times of crisis such as the current one should be supported especially in terms of liquidity, and on the other hand confirm the importance and value of the cooperation between the traditional banking system and fintech, a sector in which Borsadelcredito.it is positioned as one of the most attractive” Bonetti concluded.

“We believe that the path of collaboration is the main way to truly innovate the finance world and make it more efficient and more functional to needs, including emerging ones, of the real economy – comments Ivan Pellegrini, CEO of BorsadelCredito.it – In a delicate period like what Italy is facing, we felt the need to make our skills available to provide resources to all those healthy SMEs that are having moments of difficulty but want to restart and look to the future. This is why we are pleased to have partners such as Banca Valsabbina and Azimut, with whom we have created a solid and structural alliance: for us, it is an evolution, we are no longer just providers of loans to the real economy, but technological enablers for traditional finance”.

“Data is now the world’s most valuable asset. We see every day how it empowers smarter and safer investment decisions and how it can bring unparalleled transparency and intelligence by replacing antiquated manual processes and streamlining the reporting workflow – comments Altin Kadareja, CEO of Cardo AI.  – As data agents, we are thrilled to participate and support this securitization transaction granting investors easy access to the normalized loan-level data along with fully integrated analytics and reporting tools, where users can review composition, analyse performance, and project collateral and tranche cashflows.

“BorsadelCredito.it con Azimut e Banca Valsabbina in una nuova cartolarizzazione da 200 milioni.” Finance Community, financecommunity.it/borsadelcredito-it-con-azimut-e-banca-valsabbina-in-una-nuova-cartolarizzazione-da-200-milioni.

EU Taxonomy: A practical guide for navigating troubled waters

EU Taxonomy Article A practical guide for navigating troubled waters

EU Taxonomy: A practical guide for navigating troubled waters

What is the EU taxonomy and what are its implications for financial market participants? In this article you fill find a practical guide on how to comply with the EU Taxonomy

What is the EU Taxonomy?

The EU Taxonomy is one of the main pillars of the EU’s Action Plan for Financing Sustainable Growth (2018), whose one fundamental aim is to reorient capital flows towards a more sustainable economy.

The Action Plan assigns private finance a pivotal role in reaching the EU’s ambitious goal of transitioning to a low-carbon, more resource-efficient, resilient, and competitive economy – in line with its commitment to fully implement the UN 2030 Agenda and the Paris Agreement, both being an integral part of its Green Deal.

However, it is posited that no shift of capital flows towards more sustainable activities can be truly achieved without a common definition of what “sustainable” means.

Through Regulation 2020/852 (“Taxonomy”), the EU establishes a unified classification system aiming at helping financial market participants (FMPs) channel investments towards financial products that truly pursue environmentally sustainable objectives, addressing, therefore “greenwashing” concerns.

The Taxonomy is complementary to the SFDR (Sustainable Finance Disclosure Regulation, Reg.2019/2088), in the sense that it mandates additional transparency requirements (both in pre-contractual, website, and periodic disclosures) in case financial products promote environmental characteristics (article 8 products) or pursue an environmental objective (article 9 products).

What does the EU taxonomy specify?

In particular, the EU taxonomy specifies that such financial products should first disclose to which of the following environmental objectives they contribute:

  • Climate change mitigation
  • Climate change adaptation
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

Within its Final Report on the EU Taxonomy, the Technical Expert Group (TEG) recommends that investors should estimate Taxonomy-alignment separately for each of the environmental objectives for which substantial contribution technical screening criteria (TSC) have been developed. This means that it should be completed separately for climate change mitigation and adaptation (the objectives for which TSC are available as of now).

This is just one and the simplest step in assessing portfolio compliance with the Taxonomy. In the next section, we explore in detail the full process that has to be followed.

How does the Taxonomy work in practice?

As with all other regulations, nothing comes easy. This is particularly true in case investors have companies in their portfolios that are not subject to the EU Non-Financial Reporting Directive, such as non-EU companies and small-medium enterprises (SMEs). For such cases – which are not negligible especially for private debt investors – the TEG advises to follow a 5-steps approach:

Step 0 – Map in-use industry classification systems to NACE sectors eligible under the EU Taxonomy

A pre-requisite for estimating the Taxonomy-alignment of investment portfolios is the mapping of in-use sector classification systems (e.g. SIC, NAICS, BICS, GICS, ICB, RBICS, TRBC, etc) with the European industry classification system (NACE).

The Platform for Sustainable Finance (a permanent expert group of the European Commission) has elaborated a table providing an indicative mapping of selected industry classification systems, and how they relate to the description of economic activities in the EU Taxonomy Delegated Act adopted by the Commission.

Step 1 – Eligibility screening

Identify the companies whose turnover, CAPEX, or OPEX match the economic activities listed in the Taxonomy

For each entity, investors need to be able to assess the proportion of turnover derived from economic activities eligible under the Taxonomy (approx. 70 activities). If data can be obtained, investors should look also into CAPEX and OPEX. 

The turnover KPI (or revenue, if appropriate) is particularly relevant for the climate change mitigation objective. For climate change adaptation the assessment is rather more complicated (especially in the absence of reported data): for an activity to be eligible, there should be evidence that the entity has implemented tailored solutions to prevent physical climate change risks based on the performance of a vulnerability assessment.

It is recommended at this stage to also group eligible activities in two clusters:

  • economic activities that are “enabling” other activities to make a substantial contribution to one or more environmental objectives (e.g. the manufacturing of renewable energy equipment in the case of climate change mitigation);
  •  “transitional” activities, i.e. those activities for which there is no technologically and economically feasible low-carbon alternative (e.g. manufacturing of iron and steel), but that shall qualify as long as their technology is consistent with a 1.5C scenario (they “pass” certain technical screening criteria).

Economic activities such as electricity generation from Solar PV are considered to substantially contribute to climate change mitigation through their own performance.

Step 2 – Substantial contribution screening

Validate if the eligible companies meet the technical screening criteria (TSC) provided for the economic activity

This is likely the most difficult step to verify, especially in the absence of reported data. While some economic activities (e.g. electricity generation from wind) do not have technical thresholds to comply with, most of them have. As an example, electricity generation from geothermal is Taxonomy-eligible, but it should meet the technical criteria of no more than 100g CO2-e emissions per kWh over the life-cycle of the installation, as calculated using specific methodologies (e.g. ISO 14067:2018) and verified by a third party.

The final Delegated Act on climate objectives containing all the TSC has been published on the 9th of December. For ease of consultation, FMPs can use the Taxonomy compass.

The Taxonomy Regulation recognizes that in the absence of reported data, this step can be particularly burdensome. For this reason, it allows for complimentary assessments and estimates, as long as financial market participants explain the basis for their conclusions and the reasons for having made such estimates.

Step 3 – Do Not Significant Harm (DNSH) screening

Validate if the eligible economic activities do not significantly harm other environmental objectives

The Taxonomy Regulation mandates that once the TSC are deemed as satisfied, FMPs should check also that the economic activity that, e.g., contributes to climate change mitigation, does not significantly harm the other five environmental objectives. 

The third step requires investors to conduct due diligence to verify if the company’s activities meet some qualitative, quantitative, and process-based requirements for each other environmental objectives, not only at the production stage but over the life-cycle of the activity itself. 

Also here the lack of data could be a challenge for FMPs. The TEG recommends the reliance on existing credible information sources, such as reports from international organizations, civil society, and media, as well as established market data providers.

Step 4 – Social minimum safeguards screening

Validate if companies meet minimum human and labor rights standards

The Taxonomy mandates that for economic activity to be environmentally sustainable, it should also be aligned with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the International Labour Organisation’s (ILO) Core Conventions, and the International Bill of Human Rights. As for step 3, the TEG recommends relying on internal due diligence processes as well as on external credible information sources.

Step 5 – Calculate the alignment of the investment with the Taxonomy 

Economic activity is to be considered Taxonomy-aligned only if it complies with steps 1-4. Once the aligned portions of the companies in the portfolio have been identified, investors can calculate the alignment of their funds with the taxonomy (as an example, if 10% of a fund is invested in a company that makes 10% of its revenue from Taxonomy-aligned activities, the fund is 1% taxonomy-aligned for that investment, and so on).

FMPs can find use cases studies on the application of Taxonomy requirements for several asset classes available on the PRI (Principles for Responsible Investment) website.

What is the relationship between the SFDR and the EU Taxonomy?

As stated previously, the Taxonomy Regulation is complementary to the SFDR, since it requires additional disclosure requirements for FMPs in case they market financial products promoting environmental characteristics (article 8) or the attainment of an environmental objective (article 9).

As Regulation 2019/2088 mandates, Taxonomy-alignment disclosure of financial products it’s not only due in pre-contractual documents (article 8, 9) but also on websites (article 10) and through periodic reporting (article 11). 

An important point to underline is that website disclosure shall provide, for each art.8 and art.9 product, “information on the methodologies used to assess, measure and monitor the environmental or social characteristics or the impact of the sustainable investments selected for the financial product, including its data sources […] and the relevant sustainability indicators”. In case such products have an environmental focus, there should be also disclosure on the methodology used to estimate Taxonomy-alignment.

Last but not least, DNSH screening for Taxonomy-aligned products should not be confused with PASI (Principal Adverse Sustainability Impacts) reporting, due at entity level pursuant to article 4 SFDR, and at product level pursuant article 7.

Article 4 demands FMPs exceeding 500 employees or stating considering “principal adverse impacts of investment decisions on sustainability factors” to publish on their websites a description of such impacts. The ESAs (European Supervisory Authorities, EBA, EIOPA, ESMA) have developed draft Regulatory Technical Standards (RTS) supplementing Reg.2019/2088, according to which financial undertakings will have to disclose on their websites selected aggregate ESG metrics (approx.20) estimated across all investee companies. Companies with less than 500 employees not considering adverse impacts on sustainability factors of investment decisions will have to publish as well a clear motivated statement for not doing so. In both cases, FMPs will have to disclose relevant information by 30 June 2023.

What are the deadlines for reporting Taxonomy alignment?

The SDFR started applying on 10 March 2021 and the Taxonomy from 1 January 2022. However, the design of the Regulatory Technical Standards – which provide the detailed requirements for pre-contractual, website, and periodic disclosure pursuant to both the SFDR and the Taxonomy – has proven longer than expected. 

In an effort to jointly develop RTS for both the SFDR and the Taxonomy, the European Commission has postponed the application of the Delegated Act containing the RTS to January 2023.

However, financial undertakings subject to an obligation to publish non-financial information pursuant to Article 19a or Article 29a* of Directive 2013/34/EU, shall start disclosing the proportion of Taxonomy-eligible activities within their portfolios from January 2022. Full disclosure of Taxonomy-aligned activities will be required instead from January 2024. Furthermore, Reg.2021/2178 clarifies that exposures to national and supranational issuers including central banks shall be excluded from the calculation of Taxonomy KPIs altogether, while derivatives and exposures to undertakings are not subject to non-financial disclosure regulation (e.g. SMEs) shall be excluded only from the numerator.

It should be borne in mind that such a timeline applies only to matters regarding the publishing of non-financial statements. FMPs considering adverse impacts on sustainability in their investments (PASI) and/or marketing article 8 and 9 products, should follow closely the developments linked to the Delegated Act containing the Regulatory Technical Standards.

(*) Article 19a and 29a pertain to non-financial disclosure requirements for large undertakings

For more details and recommendations on EU, Taxonomy implementation does not hesitate to contact us.

About the Author

Cristina Hanga

Cristina is the ESG Expert at CARDO AI, working across the company’s product suite.

Prior to joining CARDO,  she has worked as an ESG Analyst at Sustainalytics, where she was Lead Quality Control for the Consumer Goods sector, and contributed to several methodology developments. Cristina has also spent a period in KPMG, where she advised companies on ESG disclosure and ESG Ratings.

She holds a Master’s Degree in International Cooperation and Development from the University of Bologna, where she focused particularly on climate change policy.

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