Intesa Sanpaolo’s ESG Scoring Qorus-Infosys Finacle Banking Innovation Awards 2024 - Winner

Today, climate change is a huge concern that affects the stability and survival of milions of people and the ecosystems globally. In this context, the economic system needs more than ever the contribution of sustainable business models. On the other hand side, Banks are required and expected to be proactive in the promotion of ESG (Environmental, Social, Governance) topics as part of their lending activities. The integration of the ESG criteria, envisages a deep understanding of the ESG profile of their corporate borrowers; however, the lack of standardised methodologies and the difficulties to collect relevant ESG data- especially as concerns small and medium enterprises- are two aspects that may jeopardise the accuracy of the Banks’ ESG analysis.

In the light of this context, the ESG Scoring of Intesa Sanpaolo aimed at overcoming the above -mentioned obstacles while developing an internal, overarching and holistic framework for assessing the ESG profile of the corporate customers of the Bank: the ESG Scoring model. The achievement of that ambitious goal, implied as well other 3 interconnected objectives:

• The development of a quantitative model, based on factual data, that also took into cosideration advanced analyticis solutions which are used, inter alia, for the analysis of controversies are covered by the media and the web.

• Extensive coverage, from large multinational corporates to small local enterprises, and a consistent yet flexible methodology that applies a principle of proportionality as regards the expected ESG data to be retrieved in the different cases

• Preferential use of specific corporate data instead of sectorial average ESG data estimations, collected also with the direct participation of corporate customers, requested to fill in some dedicated ESG questionnaires.

The framework definition took into consideration a variety of best practices from the market, mainly those adopted by asset managers- since at the moment there were not any similar solutions in place developed by Banks- methodological recommendations from regulations (i.e CSRD) and international associations (EBA, IOSCO, ESMA, etc) as well as the analysis of the approaches and metrics in use by several international ESG rating agencies. An in-depth study led to the definition of 22 ESG themes (descriptors) supported by 100 KPIs: GHG emissions, physical risk readiness, diversity & Inclusion practices, remuneration policies, controversies and many others.

Each KPI at counterparty level is standardised based according to the company's size, and then normalised ( so, transformed into a Score from 0 to 100 ). The scores obtained at KPI level are the aggregated with a weighting scheme that depends on the solidity of the KPI (based on data availability) and its materiality, according to the industrial sector the company belongs. The aggregation is also being used as a reference for the creation of the ESG classes (from A to E) according to the related positioning of the company.

The project was developed in several phases with a strong involvement of competent functions of the Bank ( in particular the Chief Financial Officer as the main sponsor, business,Risk,Operations and Internal Audit functions) . The milestones of the project have been: 1)Organizational setup of a dedicated ESG Scoring Unit within the Chief Financial Officer area 2)Development of an ESG Scoring Corporate model a.Analysis of internal and external data, selection/scouting of data providers, benchmarking and analysis international ESG rating approaches, definition of an ISP methodology b. Development of a protoype (Python) in a testing environment for impact verification and calibration. c. Presentation of the Model to additional competent functions d. Presentation to Internal Audit and validation e. Implementation on the IT systems 3. Extension to the International Subsidiary Banks' counterparties 4. Development of the ESG Scoring Project Finance model 5. Development of the ESG Scoring Banks model 6. Extension ot the model to corporates that are not customers. 7. Extension of the model to sovereigns

In addition to these milestones, a comprehensive training programme and dedicated communication channels and activities contributed to create and increase the awareness about the ESG scoring among colleagues and customers in the different phases of the project.