ESG Flashcards
Insurance is the sector with greatest risk of increased insurance cost due to physicla climate change .
A property and general Insurance company
Engage with company on issue and sees that a quarterly earnings conference call is coming.
What should sernior analyst do?
Establish clear objective
CEO remuneration is 1.2million GBP.
How will financial model may take account of the CEO variable remuneration that is not disclosed KPI.
Increase cost of capital from
4.6% to 4.8% to reflect increase of risk stemmed from
Uncertainty around alignment of interest
Correlarion brtween ESg performance corporate performance is ?
Positive
Tail risk of a portoflio. This the low chnace of soemthig worse happening. But still happened to rhe portoflio
Ex: coronoa virus , ukraine war
Change is maintianing equity portoflio using ESG as E, S, G independently. To reduce downside of tail risk of the portoflio which one she cooiod avoid
Avoid all companies with low S score
Investment mandate: set of instructions how a pool of assets should be invested.
Which ESG will be specified in investment mandate ?
Reported returns
Stewardship: the job of supervising or taking care of something, such a organisation or property
Not true: environmental costs include higher litigation and insurance cost
Norm based screening is most popular in Canada
Transation to low carbon economy is expected to open investment oppurtuniites.
What would likely have the most financial risk for investors?
Upgrades to buildings to bring them to sustainable standards
Management remuneration packages shouod be alligbed to the function or role pf management as agents responsible to their board.
Whoch of this risk will be greater for imvestor who is passively exposed to ESg index, than for investor witht actively managed investments?
Risk of incorrctly included index constitutents
Whoch of this risk will be greater for imvestor who is passively exposed to ESg index, than for investor witht actively managed investments?
Risk of incorrctly included index constitutents
GRESB (Greater real estate sustainability benchmark)
This provides benchmark for ESg real estate investor
“Undertaking any internal ESG research required “- first step of inegrating ESG in portfolio management process
Thomson reuters - esg index provides governance
Corporate responsibility indices
Green bond funds - is “Thematic investing”
Stewardship of assets (guardian)- preserving and enhancing of the long term value of assets over time
Challenges auditors face in preventing fraud in company accounting
- Auditors maybe mislead by management
- Auditors rely to a great degree on the accuracy of a company’s internal accounting system.
- Audits are based on samples and not all figures are reviewed.
- Only segments of a company business that are deemed material are reviewed.
Ethical investing- investor who wants to ensure that his/her personal, social and moral views direct the investment decision
Triple botton line (ESG)- system of evaluating the Social, Environmental and fiscal impaxts of business.
As per triple bottom line companies shiuod focus on social, environmental as much as they do on profit.
Common governance structure in France and US - CEO and chairman of the board are typically one person
Climate change mitigation:
Retrofiting building
Law suit with $4 billion payout. How is this payout adjusted in financial model?
Raise the cost of capital to reflect the risk of payouts
Describe responsible investing
ESG factors take into account to mitigate risk with a focus on financial return
Bill wants to support charity that reduce mortality, which one shouod be support?
Charity focusing on pollution
