Does sustainability pay?

Question 1

Any potential change in risk that’s firm specific will be captured where?

Answer 1

In the discount rate. unsystematic risk is not captured in the discount rate, as it is assumed it can be diversified away.

Question 2

So ESG can reduce firm specific risk?

Answer 2

Investing in ESG reduces firm-specific risk by proactively addressing environmental, social, and governance concerns, thereby mitigating operational, regulatory, and reputational risks, and potentially enhancing long-term financial performance.

Question 3

in the case study does sustainability pay Barry Callebaut’s sustainability improvement loan, we know that’s its a Swiss chocolate company and they announced bold ESG targets, in 2017 they were considering getting money from banks what did they do?

Answer 3

they decided to have the interest rate on the loan linked to how well they were performing on a bunch of ESG targets. So if they managed to improve their ESG scores, they pay a lower interest rate than if they didn’t.

Question 4

What did the company also issue?

Answer 4

they issued a climate awareness bond ( , where you have to commit in investing in green projects.

Question 5

Flammer(2021) has a paper of green bonds and what is the main findings?

Answer 5

Question 6

Lets say that you believe that investing in clean energy is good if the market doesn’t react then what?

Answer 6

Nothing happens to share price.

Question 7

What are the long term returns of ESG investing?

Answer 7

Question 8

Answer 8

1) Supply chain incidents ( hired child labour)
2) quality of the standards to help farmers when sourcing products weren’t good.
3) product health statement.
Hence paid higher interest rate.
Whats worse is that none of the things they were penalised for was not related to the companies goals