Intro ESG

Question 1

ESG investing

Answer 1

an approach to manage assets where investors explicitly incorporate
environmental, social and governance factors
in their investment decisions with the long-term return of an investment portfolio in mind.

aim to correctly identify, evaluate and price, social, environmental and economic risks and opportunities.

Question 2

Environmental

climate change
resource depletion
waste
pollution
deforestation

Answer 2

natural world
use and interaction with
renewable and non-renewable resources

Question 3

Social

human rights
modern slavery
child labour
working conditions
employee relations

Answer 3

factors that affect the lives of humans

mgmt of human capital, non-human animals, local communities and clients

Question 4

Government factors

Bribery and corruption
executive pay
board diversity and structure
trade association, lobbying and donations
tax strategy

Answer 4

Involve issues tied to countries/ or jurisdictions or are common practice in an industry

interest of broader stakeholder groups

Question 5

Tripe bottom line TBL

Answer 5

generation of long-term sustainable returns is dependent on stable, well-functioning and well-governed social, environmental and economic systems.

Question 6

Dynamic inter-relationship in ESG

Answer 6

ESG may impact risk, volatility and long-term return of securities

Investments can have both a positive and negative impact on society and environment.

Question 7

Corporate sustainability

Answer 7

an approach aiming to create long-term stakeholder value through the implementation of a business strategy that focuses on the
ethical, social, environmental, cultural and economic dimensions of doing business.

Question 8

corporate social responsibility CSR

Answer 8

company’s commitment to conduct business in an ethical way
led to theory of TBL

TPL: people, planet, profit

Question 9

TBL accounting theory 3Ps

Answer 9

people
planet
profit

Question 10

effective sustainability can

Answer 10

reaffirm the company’s license to operate in the eye of gov’t and civil society

increase efficiency

attend to increasing regulatory requirements

reduce the prob. of fines

improve employee satisfaction and productivity

drive innovation and introduce new product lines

Question 11

Responsible investment

All but engagement related to portfolio construction.

Answer 11

combine financial and non-financial outcomes

complements traditional financial analysis and portfolio construction techniques

Question 12

Engagement by equity and bond holders

Answer 12

concern whether and how an investor tries to encourage and influence and an issuer’s behavior on ESG matters.

Question 13

Social investing

Social impact investing

Answer 13

with a focus on social and/or environmental outcome and some expected financial returns

Return: social return and sub-market financial return

Question 14

Impact investment

Social impact investing

Answer 14

with an intent to have a measurable environmental and/or social return

return: social return and adequate financial market rate

Question 15

ESG investing

Sustainable and responsible investing

Answer 15

enhance lt value by using ESG factors to mitigate risks and identify growth opportunities

return: financial market return focused on long-term value

Question 16

Social responsible investment (SRI)

Answer 16

approaches that apply social and environmental criteria in evaluating companies

Question 17

best-in-class investment

not all are considered to be responsible investment

all-sector approach - try to maintain certain characteristics of an index.

Answer 17

select only the companies that Overcome a Defined Ranking hurdle, established using ESG criteria within each sector or industry.

Question 18

Sustainable investment

may include best-in-class and/or ESG integration

companies with positive impact or companies that will benefit from sustainable macro-trends

Answer 18

selection of assets that contribute in some way to a sustainable economy.

Question 19

thematic investment

not all are responsible investments or best-in-class

Answer 19

select companies that fall under a sustainability-related theme, such as clean-tech, sustainable agriculture, health care or climate change mitigation.

Question 20

Green Investment - a broad sub-category of thematic/impact investing

green bond - raise money for climate and environmental project

Answer 20

allocating capital to assets that mitigate:
climate change
biodiversity loss
resource inefficiency 
other environmental challenges

Question 21

Social investment

address the bottom of the pyramid (BOP)

Answer 21

allocating capital to assets that address social challenges

Question 22

BOP bottom of the pyramid

market-based model of economic development that seeks to simultaneously alleviate poverty while providing growth and profits for businesses serving these communities.

Answer 22

the poorest 2/3 of the economic human pyramid
>4 billion people living in poverty

micro-finance/insurance
access to basic telecommunication
access to improved nutrition and healthcare
access to (clean) energy

Question 23

Impact investment

measurement and tracking of the agreed-upon impact

have diverse financial return expectations

Global impact investing network (GIIN)

Answer 23

investments made with specific intent of generating positive, measurable social and/or environmental impact alongside a financial return.

associated with direct investment

• private debt
• private equity
• real estate

Question 24

Ethical (value driven ) and faith-based investment

avoid the negative

Answer 24

invest 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

exclusions: tobacco, alcohol, weapons

Question 25

shareholder engagement depends on

Answer 25

scale of ownership quality of engagement dialogue and method and whether the company has been informed by the investor that 撤资 divestment is a possible sanction

Question 26

most active challenges within ESG

Answer 26

identify issues which are genuinely material to a sector and company

Question 27

modern fiduciary duties require investors to

Answer 27

incorporate financially material ESG factors into inv. decision-making, consistent with the time frame of the obligation understand and incorporate into decision making the sustainability preferences of beneficiaries or clients, regardless of whether these preferences are financially material. Be active owners, encouraging high std of ESG performance in the companies or other entities in which they are invested support the stability and resilience 弹力of the financial system disclose their investment approach in a clear and understandable manner, including how preferences are incorporated into the schemes inv. approach.

Question 28

Economic perspectives FSB identified climate change as a potential systemic risk

Answer 28

Stockholm resilience centre 9 planetary boundaries climate change loss of biosphere integrity land- system change altered biogeochemical cross core boundaries climate change and biosphere integrity

Question 29

social issues

Answer 29

income inequality | economic cost of social stresses/undernutrition

Question 30

UN Sustainable Development Goals (SDGs)

Answer 30

ALIGNING WITH GLOBAL PRIORITIES

Question 31

Client demand perspective

Answer 31

increase transparency about how/where money is invested ``` driven by: growing awareness that ESG factors influence: company value returns and reputation ```

Question 32

regulatory perspective

Answer 32

hard law - actual binding legal instruments and laws Soft law - quasi- legal instruments which do not have legally binding force/may overtime become hard law

Question 33

Financial materiality of integrating ESG

Answer 33

add risk consideration injects new/forward-looking insights into the investment process lead to: 1. reduced cost and increased efficiency 2. reduced risk of fines and state intervention 3. reduced negative externalities and 4. improved ability to benefit from sustainability mega trends

Question 34

1 efficiency and productivity

Answer 34

conserving resources reducing costs and enhancing productivity cost reduction from improving operational efficiency through better mgmt of natural resources like water and energy. avg IRR b/w 27-80% on their low-carbon investments

Question 35

2 reduced risk of fines and state intervention

Answer 35

at risk from state intervention

Question 36

3. reduced negative externalities main reason gov't intervene in economic sphere

Answer 36

production or consumption of goods and services creates costs or benefits to others that are not reflected in the prices charged for them caused by social factors when it's negative, private costs are lower than societal costs, resulting in market outcomes which may not be efficient - leading to market failures

Question 37

Internalisation成为主观，内在化

Answer 37

refers to al measures (public/private) to ensure that externalities 外部become reflected in the prices of commercial goods/services. environmental and social regulation and taxation rise, it's expected that an increasing proportion of this cost might be forced into companies accounts. can happen through: market-based instruments (tax) regulatory instruments (vehicle emission and safety standard) voluntary instruments (engagements with the car industry to rescue CO2)

Question 38

4. improved ability to benefit from sustainability mega trends

Answer 38

recognize economic implications of: social challenges environmental issues they interacted with - aftermath of 07-08 financial crisis - aging population - rising or em economies - rapid technological changes

Question 39

Challenges in integrating ESG

Answer 39

- implementing ESG may have a negative impact on investment performance - interpretation that fiduciary duty prevents investors from investing ESG - the advice given by inv. consultants and retail financial adviser, has may times not been supportive of products which integrate ESG - lack of understanding - impression that significant resources, which may be lacking in the market or may be expensive, are needed. - gap between marketing, commitment and delivery of funds regarding their ESG performance.

Question 40

greenwashing

Answer 40

misleading claims about environmental practices, performance or product, but has been used more widely to incorporate ESG factors more broadly.

Question 41

meta- analysis

Answer 41

research process used to merge the findings of single, independent studies to reach an overall conclusion. positive correlation between ESG performance and corporate financial performance, including stock prices., providing academic evidence for the financial materiality of ESG factors good esg std lower the cost of capital good esg practices result in better operational performance show that stock price performance is positively correlated with good sustainability practices -fund but has not been consistently able to translate ESG analysis into alpha. 1. alpha from ESG might be captured elsewhere in factors studies 2. impact of different ESG approaches in different studies might cancel each other out 3. cost of implementation consume the available alpha

Question 42

Institutional inestors reflect ESG considerations in 3 ways:

Answer 42

1. incorporate ESG factors into investment decision-making 2. through corporate engagement 3. through policy engagement

Question 43

incorporate in investment decision

Answer 43

asset owners: - include ESG factor for proposal - investment consultants can factor in policy and selection process - can reassure that their views on ESG are implemented by integrating them into investment mandates and monitoring processes asset owner/managers can embed ESG in SAA strategic asset allocation. SAA - process in which an investor chooses to allocate capital across asset classes, sectors and regions based on their need for return and income, and risk appetite. asset manager/owner invest directly can incorporate ESG issue within security selection: - using rating to apply a filter or threshold - integrating ESG issue within their financial and risk analysis - using ESG criteria to identify investment opportunities through a thematic approach

Question 44

putting ESG into practice

Answer 44

investment decision shareholder engagement policy engagement

Question 45

United National initiates UN | 3 initiatives:

Answer 45

- United Nation Global Compact UNGC adhere to 10 principles from Universal Declaration of Human Rights International labour organization's declaration of fundamental principles and rights at work cover human rights, labour, environment and anti-corruption

Question 46

United Nations Environment Program Finance Initiative | UNEP FI

Answer 46

partnership between uNEP and global financial sector tomobilise private sector financial for sustainable development. - PRI principles for responsible investment understand the implication of ESG to investment and ownership decisions and ownership - PSI principles for sustainable insurance - PRB principles for responsible banking

Question 47

- PRI principles for responsible investment

Answer 47

support in 4 main areas: 1. provides tools and reports on best practices for asset owners/managers, consultants and data suppliers, supporting the implementation of the principles across all asset classes and providing insights into ESG issues. 2. host a collaborative engagement platform, by which it leads engagements and also enables like-minded institutions to coordinate and take forward engagement with individual companies and sectors 3. review, analyses and responds to responsible investment-related policies and consultants provide a policy map to investors and facilitates communication between investors and their regulators on the topic of responsible investment 4. develops, aggregates and disseminates academic studies on responsible investment-related themes 6 principes 1. incorporate ESG issues into inv. analysis and decision-making processes 2. will be active owners and incorporate ESG issue into our ownership policies and practices 3. will seek appropriate disclosure on ESG issues by the entities in which we invest 4. will promote acceptance and implementation of the principles within the investment industry 5. will work together to enhance our effectiveness in implementing the principles 6. will each report on our activities and process towards implementing the principles 3 requirements: 1. investment policy that covers the firm's responsible investment approach, covering >50% of assets under management 2. internal or external staff is responsible for implementing responsible inv. policy. 3. senior - level commitment and accountability mechanisms for responsible investment implementation

Question 48

United National framework convention on climate change (UNFCCC)

Answer 48

aims to stabilise GHG emissions to limit man-made climate change hosts two conferences of the parties (COP) meetings: 1. COP3 kyoto 1997, created the kyoto protocol industrialized countries to limit and reduce their GHG emissions in accordance with agreed individual targets 2. COP21 paris 2015, led to paris agreement commits developed and emerging economics to strengthen the response to the threat of climate change by keeping a global temperature rise this century well below 2C above pre-industrial levels.

Question 49

UN Sustainable development goals SDGs

Answer 49

replacement of uN Millennial goals blueprint to address the key global challenges, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. ``` 17 goals are all interconnected aimed at governments. 1. no proverty 2. zero hunger 3. good health and well-being 4. quality education 5. gender equality 6. clean water and sanitation 7. affordable and clean energy 8. decent work and economic growth 9. industry, innovation and infruastrucure 10. reduced inequlities 11. sustainable cities and communities 12. responsible consumption an production 13. climate action 14. life below water 15. life on land 16. peace, justice and strong institutions 17 partnerships for the goals ```

Question 50

Global reporting initiative (GRI)

Answer 50

publishes the GRI standards, provide guidance on disclosure across environment, social and economic factors for all stake holders, including investors, whereas the other major frameworks are primarily investor focused.

Question 51

Value reporting foundation (VRF)

Answer 51

formed upon the merger of the international integrated reporting council (IIRC) and the sustainability accounting standard Board (SASB) provide investors and cooperates with a comprehensive corporate reporting framework across the full range of enterprise value drivers and standards. IRF encouraged companies to integrate sustainability within their strategy and risk assessment by integrating it into the traditional annual report SASB focused on key material sustainability issues, determining what is material for reporting, and aids more standardized benchmarking.

Question 52

CDP former carbon disclosure project

Answer 52

NGO that support disclose and manage environment impact

Question 53

CDSB climate disclosure std board

Answer 53

international consortium 财团of business and environmental NGOs to create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting

Question 54

CRD corporate reporting dialogue

Answer 54

joint project led by the CDP, the CDSB, the GRI, the IIRC and the SASB. To drive better alignment of sustainability reporting frameworks with frameworks that promote further integration of non-financial and financial information better alignment project is focused on driving better alignment in the corporate reporting landscape,.

Question 55

international business council ESG disclosure framework | EDF

Answer 55

aims to bring greater consistency and comparability to sustainability reporting by establishing common metrics for company disclosure. disclosure on a comply or explain basis

Question 56

AIGCC | asian investor group on climate change

Answer 56

initiative to create awareness among asia's asset owners and financial institutions about the risks and opportunities associated with climate change and low carbon investing

Question 57

Global impact investing network (GIIN)

Answer 57

focuses on reducing barriers to impact investment by building critical infrastructure and developing activities, education and research that help accelerate the development of a coherent impact investing industry. - facilities knowledge exchange - highlights innovative investment approaches - builds the evidence base for impact investing - produce tools and resources

Question 58

Global sustainable investment alliance GSIA

Answer 58

international collaboration of membership-based sustainable investment organizations. Forum for advancing ESG investing across all regions and asset classes.

Question 59

ICGN | International corporate governance network

Answer 59

investor-led organization established in 1995 to promote effective standards of corporate governance and investor stewardship to advance efficient markets

Question 60

Task force on climate-related financial disclosures TCFD

Answer 60

takes the Paris agreement's target of staying well under 2 C, with the ambition of staying under 1.5c and tries to operationalize it for the business world - governance: to organization's governance around climate-related risks and opportunities - strategy: the actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy and financial planning - risk mgmt: the processes used by the organization to identify, assess and manage climate-related risks - metrics and targets: the metrics and targets used to assess and manage relevant climate-related risks and opportunities

Question 61

EU's sustainable finance disclosure regulations SFDR

Answer 61

to support institutional asset owners and retail clients to compare, select and monitor the sustainability characteristics of investment funds' by standardizing sustainability disclosures. about integration of sustainability risks consideration of adverse sustainability impacts promotion of environmental or social factors sustainable investment objectives applies to all financial advisors sand financial market participants introduce new concept into EU's regulatory environment Principal Adverse Impact (PAIs) - negative effects from jan investment on sustainability factors 18 indicators 46 voluntary disclosure indicators defines 2 categories of sustainable financial products: article 8 products that promotes sustainability characteristics article 9 products that have stringent, primary objectives for positive sustainability outcomes

Question 62

universal owners - large institutional investors

Answer 62

highly diversified across all sectors, asset classes, and regions inv. returns are thus dependent on the overall economy. reason for implementing ESG stems from the recognition that negative mega trends will overtime, create drag on economic prosperity and may increase instability both with countries and between the global north and south.

Question 63

what's the most probable reason why an investor would engage with policy markers on ESG?

Answer 63

The consideration of ESG-related matters can contribute to the proper functioning of the financial markets.