Part II-6 Considering Company-Specific Context Flashcards
(40 cards)
What are important things to consider in a company’s ESG performance, if for example, the company was showing improved energy efficiency?
Is the performance improvement just a blip? Ie. is a plant shut down and therefore not consuming energy
What are common sources of contextual information?
Narrative information in company reports, such as annual reports, quarterly presentations, and sustainability reports
Unstructured data from third parties, such as news outlets and industry briefings; and
Industry reports, which can include sell-side reports
What are effective lenses to evaluate company context?
- Internal operating factors - including a company’s main revenue streams and inputs for value creation
- External operating context - business climate, regulatory climate and other factors
- Company’s governance and management practices - which can be thought of as the crucial interface between internal operations and external environment that ultimately dictates company performance
What are Important factors related to a company’s operating environment ?
1- Business Climate
2- Economic Climate
3- Regulatory Climate
4- Operating location(s)
What are key factors in Business Climate?
Competitive drivers, including competition for resources Peer behavior Pricing power Technological innovation Expectations of key stakeholders
What are key factors in Economic climate?
Commodity prices
Taxes, inflation, interest rates, etc.
What are key factors in Regulatory climate?
Current regulation
Future regulation
Enforceability and severity of penalties
What are key factors in Operating location(s)?
Exposure to environmental changes
Availability of natural resources
Local ecosystem changes
Competition within an industry is typically shaped by
Market concentration and the presence of substitutes-
1- the number of competitors (market concentration) and
2-the extent to which competitors provide comparable products or services (presence of substitutes)
T/F - companies in stricter competitive markets oftentimes face more legal fines and challenges due to antitrust laws
True
T/F - peer behavior can shape how a user interprets expected future performance if the industry as a whole is moving in one direction
True
T/F - providers of capital may assume that a company has a higher level of risk related to a material issue given disclosure of low or no information on the topic
True
T/F - if ESG data is hard to access or is presented in a way that lacks conciseness and/or is difficult to navigate, a user may be less likely to interpret performance favorably
True
T/F -Consumer sentiment and media about a certain issue can increase the importance and financial impact of the metric
True
What may be a good metric to understand the risk of companies with oil reserves in corrupt regions?
A company’s controls and processes to mitigate these risks
T/F - Doing business in a region with a history of strict enforcement and environmental laws might have a greater impact on company performance than doing business in another region with tougher laws but a reputation for very lax enforcement
True
The physical location of a company’s operations significantly influences the materiality of ESG issues as company location determines:
1-Resources access and physical climate, as well as the economic and regulatory boundaries within which a company operates
2-Exposure to environmental changes;
3-Availability of natural resources; and
4-Local ecosystem changes
T/F - It is the decisions management makes to control performance within a company’s unique context that can play a crucial role in determining whether a sustainability factor will cause growth or decline, represents a risk or an opportunity
True
What are some examples of governance and management practices as it relates to ESG?
1-Is compensation linked to sustainability KPIs?
2-Is sustainability information included in reports certified by the board?
3-Do enterprise risk management systems include sustainability KPIs?
4-Are corporate strategies linked to sustainability-related value drivers?
What dimension is this an example of specific contextual information? Environmental regulation in operating areas and trends (air,water, and waste regulations from the EPA and states)
Environmental
What dimension is this an example of specific contextual information? Environmental chemical safety regulation (e.g., a ban on CFCs)
Environmental
What dimension is this an example of specific contextual information? Climate change trends and projections
Environmental
What dimension is this an example of specific contextual information? Environmental attributes of company operations (e.g., operations in sensitive areas, scope of heavy manufacturing relative to peers, energy mix)
Environmental
What dimension is this an example of specific contextual information? Mergers or divestments that could significantly affect absolute or normalized environmental performance
Environmental
