Slide deck module 3 Flashcards
(20 cards)
Why is the example about local coffee shops versus chained coffee shops included in the slides?
It demonstrates the recommended structure for written responses: Opening statement with an opinion or thesis, Definition or context, Supporting facts or statistics with citations, A concluding summary.
What are Scope 3 emissions, and why might companies like Lululemon, Broccolini, and Costco be mentioned?
Scope 3 emissions refer to indirect greenhouse gas emissions that occur in a company’s value chain (e.g., supplier emissions, product end-use). The slides highlight these companies as examples of firms that need to track and manage not just direct (Scope 1) or indirect (Scope 2) emissions, but also the broader supply chain-related (Scope 3) impacts.
How does short-termism differ from a long-term investment approach?
Short-termism focuses on near-term price movements, quick returns, and immediate financial results. Long-termism emphasizes patient capital, sustainable growth, and long-term value creation, including ESG factors that may impact future profitability.
What are two potential consequences of short-termism for companies and investors?
Reduced R&D and innovation: Companies may be hesitant to invest in projects with longer payoff timelines. Neglect of ESG factors: Short-term priorities can overlook environmental, social, and governance issues crucial to long-term sustainability.
How does short-termism impact the broader economy?
It can promote financial instability, contribute to market bubbles, and undermine fundamental value creation—ultimately harming economic growth and stability in the long run.
What is ESG investing, according to the slides?
ESG investing is an approach to asset management in which investors explicitly incorporate environmental, social, and governance factors into their investment decisions with the goal of achieving sustainable, long-term returns.
Name one regulatory response aimed at curbing short-termism.
The EU’s Shareholder Rights Directive (SRD) (2020) requires investors to be more active owners and adopt a longer-term perspective, encouraging responsible stewardship and discouraging excessive short-term trading.
What is the perception (prior) that often prevents broader adoption of ESG factors in investments?
Some investors believe ESG integration may negatively impact returns or that fiduciary duty forbids incorporating ESG concerns. Additionally, many financial advisors historically did not promote ESG-related products.
According to the slides, what are some challenges in post-integration of ESG factors?
Lack of understanding on how to build an effective ESG investment mandate. Perceived need for significant resources (data, tools, expertise). Gap between marketing and the actual delivery of ESG performance (i.e., greenwashing or unmet promises).
How might concerns about fiduciary duty affect the integration of ESG in portfolio management?
Some investors or asset managers worry that focusing on ESG could conflict with the legal responsibility to maximize returns for clients, even though many regulations and market trends now recognize ESG as part of prudent risk management and long-term value creation.
Why are investment consultants and retail advisers sometimes hesitant to recommend ESG products?
They may lack expertise or understanding of ESG strategies, fear performance risks, or follow traditional models that prioritize near-term financial returns, leading to insufficient support of ESG-integrated solutions.
What is an example of a gap between marketing and actual ESG performance in the investment space?
Funds may be labeled or advertised as ‘sustainable’ or ‘green,’ yet fail to demonstrate measurable ESG outcomes in their holdings or engagement activities, resulting in a disconnect—often referred to as greenwashing.
What are ‘Types of Responsible Investment,’ and how are they relevant to decarbonizing industries?
Although the slides mention an upcoming activity on responsible investing types, generally these might include negative screening, positive/best-in-class screening, ESG integration, sustainability-themed investing, and impact investing. They’re relevant because each approach offers different ways to direct capital toward lower-carbon and more sustainable industries.
Give one reason long-termism is especially critical when integrating ESG factors.
ESG metrics often require time to manifest in financial performance (e.g., impact of R&D, supply chain improvements, brand reputation). A long-term focus ensures these efforts receive proper evaluation and support instead of being cut for immediate profit.
How can short-term trading practices undermine ESG commitments made by a company or investor?
Rapid buying and selling for quick returns undermines the capital stability needed to pursue ESG initiatives, potentially discouraging meaningful changes that take time and consistent funding.
Based on Module 3 content, how can regulators encourage investors to adopt ESG considerations?
Regulators can pass directives that require disclosure of ESG practices, mandate active ownership, or provide incentives (e.g., tax benefits) for investing in sustainable or low-carbon sectors, thus steering markets toward longer-term thinking.
What kind of resources might an investor need to effectively integrate ESG strategies?
They may require specialized data sets (e.g., carbon intensity, diversity metrics), advanced analytical tools, trained ESG analysts, and reliable reporting frameworks to accurately evaluate and monitor ESG-related risks and opportunities.
Why might there be a perception that integrating ESG necessitates ‘significant resources,’ and how can it be addressed?
ESG analysis often involves gathering extensive non-financial data, developing expertise, and implementing new systems for measuring and reporting ESG performance. It can be addressed through capacity building, collaboration with ESG data providers, and adopting standardized frameworks to reduce complexity.
What is a good overall takeaway from Module 3 regarding the intersection of ESG and finance?
While integrating ESG factors is increasingly recognized as essential for long-term risk management and value creation, significant barriers—ranging from short-termism to resource constraints—still exist. Overcoming these requires regulatory support, educational efforts, and a commitment to transparent, data-driven approaches.
What are Scope 1, Scope 2, and Scope 3 emissions, and how do they differ in terms of a company’s direct versus indirect contribution to greenhouse gases?
- Scope 1 emissions are direct emissions from sources that a company owns or controls (e.g., company-owned vehicles, factory smokestacks).
- Scope 2 emissions are indirect emissions associated with the generation of purchased electricity, steam, heating, or cooling that a company uses.
- Scope 3 emissions encompass all other indirect emissions occurring in a company’s value chain (e.g., emissions from suppliers, business travel, product end-of-life disposal).
