Environmental Factors Flashcards
The range of environmental factors that have a material impact on investments include, but are not limited to:
a. rapidly changing climate,
b. natural resources (including water, biodiversity, land use and forestry,
and marine resources),
c. pollution, waste, and the circular economy.
What is the main driver behind climate change and what risks does it pose?
Climate change is mostly driven by emissions from greenhouse gases (GHGs). It poses significant risks to human health, economies, and ecosystems
How should we respond to climate change?
Effective responses will involve a combination of climate mitigation and adaptation measures.
What is The Paris Agreement of 2015 and what is its long-term goal?
The Paris Agreement of 2015 is an international treaty that was created to mobilize a global response to the
threat of climate change, amid growing concern reported by scientific experts.
The agreement’s long-term goal is to keep the increase of the global average temperature well below 2°C (3.6°F) above pre-industrial levels and to limit the
increase to 1.5°C (2.7°F).
What has occurred globally since The Paris Agreement was signed?
Since the Paris Agreement was signed, a global consensus has begun to emerge that reaching net-zero carbon dioxide emissions around 2050 is required to turn its goals into reality. Governments, companies, and investors are increasingly adopting net-zero targets as a result.
It is essential to understand that this goal is not an endpoint, but a midpoint in a century-long effort to stabilize atmospheric concentrations in the atmosphere.
It should be seen as a floor under aspirations and not a ceiling over accomplishments.
What is seen by many economists as one of the most effective methods of tackling climate change?
Putting a price on carbon emissions is seen by many economists as one of
the most effective methods of tackling climate change.
Carbon markets have steadily grown around the world, but current levels of carbon pricing remain low.
What 2 risks must policymakers and investors both navigate?
Policymakers & investors must navigate:
* The physical risks of climate change (associated with climate inaction)
and
* the transition risks of climate change (associated with climate action).
Rising carbon costs carry financial risks of their own, because they can affect the value of high-carbon assets, with potential knock-on effects across sectors. This reinforces the need for an orderly and just transition to the low-carbon economy.
What does environmental degradation, the depletion of natural resources, and the associated losses in biodiversity all have in common?
Environmental degradation, the depletion of natural resources, and the associated losses in biodiversity are presenting multiple, interrelated challenges for governments, the public, and businesses.
Such issues as water scarcity, deforestation, degradation of land and oceans, unsustainable agricultural practices, waste, and pollution are increasingly impacting business and investment activities.
What can be used to help alleviate the pressures of environmental degradation, the depletion of natural resources, and the associated losses in biodiversity?
To help alleviate some of these pressures, the model of the circular economy promotes a more efficient use of raw materials, coupled with increased reuse, recycling, and waste management.
Define material environmental issues.
Material environmental issues are factors that could have a significant impact both positive and negative - on a company’s business model and value drivers, such as operating and capital expenditure, revenue growth, margins, and risk. The material factors differ from one sector to another.
How can companies effectively integrate environmental risks into its analysis and investment decision-making processes?
By using various financial tools and models.
The types of risk analysis tools and associated metrics primarily depends on
the asset classes and risk types financial institutions are exposed to. Similarly,
the choice of approach depends on the type of direct and indirect exposure to an environmental risk factor.
Investors have developed a combination of metrics, from carbon footprinting to forward-looking climate scenario analysis.
What sort of benefits do solutions for reducing environmental risk create?
Many solutions for reducing environmental risks bring numerous economic benefits; for example, increasing energy and material productivity (efficiency of use) and such renewables as wind and solar reduce production costs and often have a higher rate of economic return than continuing the use of inefficient technologies and fossil fuels.
What type of policy initiatives and requirements have been increasing at the county and regional levels?
There is an increasing number of policy initiatives at both the country and regional levels to promote the economic and financial mainstreaming of
climate change and environmental factors in jurisdictions around the world.
Requirements for climate-related disclosures (both mandatory and voluntary) are increasing in different parts of the entire investment chain, from the owners of capital (pension funds and insurance companies) to the beneficiaries
(investee companies).
How does technological innovation affect sustainable investing?
Coupled with regulatory tailwinds, technological innovation is giving rise to increasing investment opportunities from the provision of climate and environmental solutions, in areas including clean energy and mobility, sustainable buildings, and advanced materials. For a majority of the world’s population, unsubsidized clean energy represents the cheapest source of new electricity.
Is there a type of product that has grown in conjunction to the rise of sustainable investments?
Yes. There is a growing number of specialized investment products, including low-carbon (active and index) funds and sustainability-linked debt, that aim to
capture this opportunity set.
