Ch 1 Intro ESG Flashcards
What is ESG Investing
Is an approach
To managing assets
Explicitly incorporate E, S G factors in investment decisions with LT return in mind
What might ESG Investing impact
Risk, Volatility and LT return of securities and markets
Can have pos and neg impact on society and environment
What is corporate social responsibility CSR?
A broad CONCEPT that describes a company’s COMMITMENT to conduct business in an ETHICAL way.
What are the three Ps for triple bottom line TPL accounting?
People (social impacts)
Planet (environmental imps)
Profit (traditional focused)
Corporate Responsibility
is an APPROACH aiming to CREATE LT stakeholder VALUE through the implementation of a business STRATEGY that focuses on the
ethical, social, environmental, cultural and economic (esece)
dimensions of doing business
An approach of doing business
What can effective management of sustainability do?
Effective management of the company’s sustainability can:
- reaffirm the company’s LICENSE to operate in the eyes of governments and civil society;
- increase EFFICIENCY;
- attend to increasing regulatory requirements;
- reduce the probability of fines;
- improve employee satisfaction and productivity;
- and drive innovation and introduce new product lines.
What is Responsible Investment?
is an umbrella TERM for the VARIOUS ways in which investors can consider ESG within security selection and portfolio construction.
As such, it may COMBINE financial with non-financial outcomes
and COMPLEMENTS traditional financial analysis and portfolio construction techniques.
What are different approaches to ESG investing?
responsible investment;
socially responsible investment (SRI);
sustainable investment;
best-in- class investment;
ethical/values-driven investment;
thematic investment;
impact investment;
green investment;
social investment;
shareholder engagement.
Responsible investment
Responsible investment
is a Strategy and Practice to incorporate ESG factors into investment Decisions and active Ownership.
At a minimum, responsible investment consists of mitigating risky ESG practices in order to protect value.
What is Socially responsible investment (SRI)?
Socially responsible investment (SRI) refers to
approaches that apply social and environmental criteria in evaluating companies.
generally score companies using a chosen set of criteria, usually in conjunction with sector-specific weightings.
A hurdle is established for qualification within the investment universe, based either on the full universe or sector-by-sector. This information serves as a first screen to create a list of SRI qualified companies.
What is Best-in-class investment?
Best-in-class investment involves Selecting only the companies that overcome a Defined Ranking Hurdle, established using ESG criteria within each sector or industry.
▶ Typically, companies are scored on a variety of factors that are weighted according to the sector.
▶ The portfolio is then assembled from the list of qualified companies.
What is Sustainable investment?
Sustainable investment
Selection of assets that contribute in some way to a sustainable economy,
i.e. an asset that minimizes natural and social resource depletion.
▶ It is a broad term, with a broad range of interpretations that may be used for the consideration of typical ESG
issues.
▶ It may include best-in-class and/or ESG integration, which considers how ESG issues impact a security’s risk
and return profile.
▶ It is further used to describe companies with positive impact or companies that will benefit from sustainable
macro-trends.
What is Thematic investment?
Thematic investment
Selecting companies that fall under a sustainability-related Theme, such as clean-tech, sustainable agriculture, healthcare or climate change mitigation.
not all thematic funds are considered to be responsible investments or best-in-class
What is Green investment?
Green investment refers to
Allocating capital to assets that mitigate:
▶ climate change; ▶ biodiversity loss;
▶ resource inefficiency; and
▶ other environmental challenges.
These can include:
▶ low-carbon power generation and vehicles;
▶ smart grids; ▶ energy effciency;
▶ pollution control; ▶ recycling;
▶ waste management and waste of energy; and
▶ other technologies and processes that contribute to solving particular environmental problems.
What is Social investment?
Social investment refers to
allocating capital to assets that address Social Challenges.
can be products that address the bottom of the pyramid (BOP)
▶ micro-finance and micro-insurance;
▶ access to basic telecommunication;
▶ access to improved nutrition and healthcare; and
▶ access to (clean) energy
What is Impact investing?
Impact investing refers to investments made with the Specific Intent of generating positive, measurable social
and/or environmental impact alongside a financial return (which differentiates it from philanthropy).
▶ offer access to basic services, including housing, healthcare and education;
▶ promote availability of low-carbon energy;
▶ support minority-owned businesses; and
▶ conserve natural resources.
What is Ethical (also known as value-driven) and faith-based investment?
Ethical and faith-based investment refers to Investing in line with certain Principles, often using negative screening to avoid investing in companies whose products and services are deemed morally Objectionable by the investor or certain religions, international declarations, conventions and
voluntary agreements.
Typical exclusions include:
▶ tobacco; ▶ alcohol; ▶ pornography; ▶ weapons;
▶ nuclear power; and ▶ significant breach of agreements, such as the Universal Declaration of Human Rights or the International Labour Organization (ILO)’s Declaration on Fundamental Principles and Rights at Work.
Christian values investing
Christian
Investors wishing to put their money to work in a manner consistent with Christian values seek to avoid
investing in firms that:
▶ facilitate abortion, contraceptives or embryonic stem-cell research; or
▶ are involved in the production and sales of weapons.
Shariah or Islamic values investing
Shariah
Investors seeking to follow Islamic religious principles cannot:
▶ invest in firms that profit from alcohol, pornography or gambling;
▶ invest in companies that carry heavy debt loans (and therefore pay interest);
▶ own investments that pay interest;
▶ liaise with firms that earn a substantial part of their revenue from interest; and
▶ invest in pork-related businesses
What is Shareholder engagement?
Shareholder engagement reflects Active Ownership by investors in which the investor seeks to Influence
a corporation’s Decisions on matters of ESG, either through Dialogue with corporate officers or
Votes at a shareholder assembly (in the case of equity).
- In what sense are ESG considerations non-financial?
(a) They are difficult to value precisely and difficult to time.
(b) They are issues that will never turn into financials.
(c) They sit in a different category of performance.
(d) They can only ever be measured qualitatively
(a) They are difficult to value precisely and difficult to time.
- Which of the following is not a typical method by which ESG is reflected in investment
approaches?
(a) Integrating ESG into investment decision-making.
(b) Engaging actively with companies on ESG matters.
(c) Engaging in public policy debates on ESG issues.
(d) Disclosing the investor’s corporate social responsibility activities.
(d) Disclosing the investor’s corporate social responsibility activities.
- What are the four broad groupings of issues covered by the UN Global Compact?
(a) Environmental, social, governance and impact.
(b) Human rights, labour, environment and anti-corruption.
(c) Poverty, diversity, sustainability and transparency.
(d) Education, development, fairness and independence.
(b) Human rights, labour, environment and anti-corruption.
- The efficiency of shareholder engagement does NOT depend on…
(a) …the scale of ownership of the individual investor or the collective initiative.
(b) …the quality of the engagement dialogue and method used.
(c) …whether divestment is known to be a possible sanction.
(d) …the amount of security in free float.
(d) …the amount of security in free float.
