Los 21.c

Question 1

What are three reasons investors are increasingly interested in ESG factors?

Answer 1

Government focus on climate and social policies.

ESG impact on company performance and risk of financial loss.

Younger investors prioritize ESG in wealth management.

Question 2

What is a negative externality in a corporate context?

Answer 2

When companies or investors do not bear the full cost of their actions (e.g., environmental damage), leading to hidden or explicit costs.

Question 3

What environmental factors can impact a company’s operations?

Answer 3

Climate change, pollution, deforestation, energy efficiency, waste management, water scarcity.

Question 4

What types of risks do companies face due to climate change?

Answer 4

Physical risks: Damage from severe weather.

Transition risks: Costs from switching to low-carbon activities.

Stranded assets: Assets that become unviable.

Question 5

What social factors are important for companies? and how can addressing them benefit a company?

Answer 5

Customer privacy, employee engagement, diversity, labor and community relati
Benefit: Higher productivity, lower turnover, better customer loyalty, reduced litigation risk.

Question 6

What are key governance factors to monitor in a company? and Why is good corporate governance important?

Answer 6

Board and audit committee structure, executive compensation, bribery/corruption, political activities.

Ensures managers act ethically, legally, and protect shareholder interests.

Question 7

How do ESG risks affect equity and debt investors differently?

Answer 7

Equity investors bear more ESG risk.

Debt investors are exposed mainly if ESG issues cause major financial distress or default.