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Sustainable Investing > Lecture 1 > Flashcards

Lecture 1 Flashcards

1
Q

Entities that can steer the conduct

A
  • Governments (regulation and taxes)
  • Charities (reward and subsidize)
  • Financiers (ownership rights and funding)
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2
Q

Sustainable business

A

Economic activity geared towards improving the environment and society (corporate social responsibility)

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3
Q

Sustainable finance

A
  • Providing the capital and cash to business that it needs to operate
  • This includes investing and also insurance & banking
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4
Q

Sustainable investing

A

The process of incorporating environmental, social and governance (ESG) factors into investment decisions

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5
Q

Paper Schoenmaker & Schramade conclusions

No .. of managing for ..

A

No inclusion of managing for ESG in 2.0

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6
Q

ESG instruments

A

All affect the composition of the investment portfolio

  • Negative/positive screening
  • Integration
  • Impact investing

No change in composition but “active shareholders”

  • Engagement
  • Voting as a shareholder
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7
Q

Misunderstanding Friedman

A

The business of business is business. Managers of companies are on earth to make a profit. However, shareholders can spend their own money and can make non-business decisions.

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8
Q

3 main types of goals that investors pursue in SI

A
  1. Purely financial goals subject to ESG constraints
  2. Mixed financial and impact goals
  3. Impact goals subject to financial constraints
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9
Q

Matching investors to SI typology

A

SI 1: screening (not intending to give up results)
SI 2: Integration (not intending to give up results)
SI 3: Impact investing (giving up returns is acceptable)

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10
Q

Why join a coalition?

A
  • Peer effect: membership of key competitors
  • Outside pressure: consumers and NGOs
  • Reputation: to be seen as leader in sustainability
  • Collective advocacy: coalition can push governments
  • Collective engagement: increases success rate of ESG engagement
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11
Q

Sustainability

A

Concerns the effects on the environment and society of human behavior and of economic activity

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12
Q

Economic activity

A

Conduct of producers and consumers

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13
Q

Traditional investing

A

Goal to achieve the best possible risk-return trade off

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14
Q

Environmental

A

Pollution, waste & circular economy
Natural resource stewardship
Climate change

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15
Q

Social

A

Human and labor rights
Human capital management
Conduct, culture and ethics

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16
Q

Governance

A

Board effectiveness
Executive remuneration
Shareholder protection and rights

17
Q

Social foundations examples

A 
Food security
Adequate income
Access to health care
Access to water and clean cooking facilities
Education
Decent work
Modern energy services
Equality
Political voice
18
Q

Paper Schoenmaker & Schramade conclusions

S&S do not consider ..

A

Governance

19
Q

Paper Schoenmaker & Schramade conclusions

ESG integration according to S&S

A

Optimization over F, S and E (SI 2.1)

20
Q

Paper Schoenmaker & Schramade conclusions

Hard to differentiate integration .. from ..

A

Integration 2.0 from simple F optimization

21
Q

Paper Schoenmaker & Schramade conclusions

In investment industry ESG integration normally means ..

A

Both SI 2.0 and 2.1

22
Q

Paper Schoenmaker & Schramade conclusions

The distinction of .. from .. is blurry. Think of .. as more ..

A
  • SI 2.0 from traditional investing

- SI 2.0 as more long term oriented

23
Q

Paper Schoenmaker & Schramade conclusions

Investors also have investment choices at their disposal that are not part of the S&S investment categorization:

A

(1) voting and (2) engagement, known as “voice”, it emphasizes why investors value G in ESG

24
Q

Paper Schoenmaker & Schramade purpose

A

Identify the aim of investing:

  • Target return without damaging the environment
  • Target environment improve without losing money
  • Something in between
25
Q

Paper Schoenmaker & Schramade method

A

Making a useful categorization of the field of SI that can be translated in practice

26
Q

Categorization of the field of SI

A
  • Traditional Investing: Risk-return trade-off, only consider ESG if fitting within
  • Sustainable Investing 1.0: Exclusion (of investments that do poorly by ESG)
  • Sustainable Investing 2.0: ESG integration (2.0 account for ESG, optimise F and/or 2.1 optimise over F, S and E)
  • Sustainable Investing 3.0: Impact Investing
27
Q

Impact Investing

A

Have additional impact on society by making an investment

28
Q

Scheme for paper analysis

A

Do investment choices that take ESG into account
affect ESG results and investment returns , either
directly or indirectly through the financial performance of firms and investment projects?

29
Q

ESG Investment choices

A

Not only choosing from the SI 1.0-3.0 strategies, but also being an active holder of financial instruments
ESG Instruments

30
Q

Do investment choices that take ESG into account
affect ESG results and investment returns , either
directly or indirectly through the financial performance of firms and investment projects?

Measures of results

A
  • Financial performance measures: Profitability;
    EBITDA; Turnover; Cost of goods sold
  • Investment return measures: Total returns; Return
    to volatility measures
  • ESG results measures: Multiple based on
    improvement of a firm’s ESG factors
31
Q

Sustainalytics & MSCI

A
  • Providers of opinions in form of ESG ratings

- Low correlation; especially for environmental and social aspects, and for smaller companies

32
Q

Sustainable investing coalitions

A

Similarly to other coalitions, these are intended for reciprocal support in sustainable investment

  • Develop methods and stimulate companies towards sustainability
  • Coordinated engagement
33
Q

Consciously owning a stock

A
  • Engagement & voting/stewardship/active shareholder
  • ESG integration
  • Impact investing

Sustainable Investing (7 decks)

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