Chap 4 Key Facts

Question 1

Megatrends

The social megatrends have a rather broad range, and include:

Answer 1

▶ globalisation;
▶ automation and AI in manufacturing and service sectors;
▶ inequality and wealth creation;
▶ digital disruption and social media;
▶ changes to work, leisure time and education;
▶ changes to individual rights and responsibilities and family structures;
▶ changing demographics, including health and longevity;
▶ urbanisation; and
▶ religion.

Question 2

Environmental megatrends with social impact include:

Answer 2

▶ climate change and transition risk;
▶ water scarcity; and
▶ mass migration.

Question 3

The most important internal and external factors were described earlier in the chapter.

These factors are:

Internal social factors::

Answer 3

▶ human capital development;
▶ health and safety;
▶ human rights;
▶ labour rights;
▶ freedom of association and employee relations;
▶ forced labour; and
▶ living wage.

Question 4

External social factors:

Answer 4

▶ stakeholder opposition/controversial sourcing;
▶ product liability/consumer protection;
▶ social opportunities; and
▶ animal welfare and antimicrobial resistance.

Question 5

Countries, sectors and companies are not affected equally by the different social megatrends and social factors.

The analysis of which social factors are material from an investment point of view should start with an understanding of materiality at the geographical and industry levels.

Answer 5

Once this is established, the company-level exposure can be determined by looking at the sector it operates in and which countries or regions it mostly operates in

(looking at locations of key suppliers, plants, customers and main tax jurisdictions).

Question 6

Having identified which social factors are relevant for a particular company, analysts will assess the way the company manages the risks and opportunities associated with these social factors, compared to its peers.

This includes looking at:

Answer 6

▶ the corporate strategy;
▶ policies in place;
▶ processes and measures implemented;
▶ performance indicators; and
▶ public disclosure.

Question 7

This process involves looking at:

Answer 7

▶ current performance;

▶ progress over time;

and

▶ how that progress compares to industry averages and key competitors.

Question 8

FINANCIAL ANALYSIS

Answer 8

Increasingly, investors are integrating social factors into the ratio analysis or financial models of investee companies to gain a better understanding of the potential impacts of social factors on a company’s financial performance.