ESG Considerations In Investment Analysis Flashcards
What difference between majority shareholder and minority shareholder?
- majority shareholder: own more than 50% of company’s outstanding shares
- minority shareholder: own less than 50% of company’s outstanding shares
What’s the difference between concentrated and dispersed ownership?
- Concentrated ownership: where a single majority shareholder can have the decision-making authority.
- Dispersed ownership: company’s shares held by diverse group of individual and institutional shareholders with no single shareholder having the ability to exercise unilateral control
What’s the difference between horizontal ownership and vertical (aka pyramid) ownership?
- horizontal ownership: Owning companies at the same level of production, like a car manufacturer owning another car manufacturer
- vertical/pyramid ownership: Owning companies at different stages of production, like a car manufacturer owning a tire supplier, gives more control over supply chain.
What are dual class (multiple-class) share structures?
- Dual-class (multiple-class) share structure: create classes of shares with votings rights and/or a class with no voting rights
What is one problem with Dispersed ownership and dispersed voting power?
- principal agent problem: where managers advantage of this dynamic to misuse company resources for their own benefit
What is a problem with Concentrated ownership and concentrated voting?
- principal-principal problem: occurs when a controlling shareholder approves decisions that are contrary to the interests of minority shareholders.
What is problem with Dispersed ownership and concentrated voting power?
- shareholder has majority control with only a minority of the risk exposure, which is even more likely to create a principal-principal problem
What are voting caps?
- A limit on the percentage of the total vote that voters of a particular class can make.
- limits one class from having all control over votes.
What are 8 types of influential shareholders?
- Banks
- Families
- State Owned Enterprises (eg. energy companies like Portland General Electric)
- Institutional investors
- Group companies
- Private Equity Firms
7: Foreign investors
8: Managers & Board of Directors
What is interlocking directorate?
- when a person serves on the board of more than one company, either in the same industry or related industrie
What is an independent director?
- member of a company’s board of directors who has no material financial or business relationship with the company, allowing them to provide advice and oversight without conflicts of interest
What is the difference between one tiered board and two tiered board?
One tiered board: has board of directors that can be part of company or independent directors
Two tiered board: executive board (aka management board) that is overseen by a supervisory board that often includes representatives of key stakeholder groups (e.g., unions, banks).
What is an example of special voting arrangements?
- may be necessary for independent directors to be approved by a majority of minority shareholders as well as a majority of all shareholders.
What are stewardship codes?
- Stewardship codes are guidelines that outline how institutional investors should engage with companies they invest in.
What is shareholder activism?
- shareholders use equity stakes in a corporation to put pressure on its management
What is CEO duality and a concern with CEO duality?
- CEO duality exists when one individual simultaneously chairs a company’s board of directors and serves as its CEO
- may cause investors to be concerned about the board’s ability to act independently of management.
What is say on pay provision and claw back policy in regard to executive remuneration/compensation?
- say on pay: provision that allows shareholders to vote or at least provide feedback on compensation
- claw back policy: allows companies to regain previously paid compensation if mismanagement or misconduct is subsequently uncovered.
What is straight voting vs dual class voting?
- straight voting: each share has same voting rights
- dual class voting: certain classes of shares have different voting rights or different weight of vote
What are 3 main ways to retrieve ESG factors/information for company’s? PTN
- Proprietary methods: Analysts collect data from regulatory filings, news reports, industry experts, trade organizations, company websites, and other publicly available sources.
- Third-party vendors: Various ESG data providers produce individual company scores and/or rankings of companies within industries as well as detailed industry-level analyses.
- Non-profit industry organizations and initiatives: Various industry organizations work to implement standardized frameworks for ESG reporting. These entities also provide ESG-related data and analysis.
How do equity analysts vs fixed income analysts consider ESG factors?
- equity analysts consider both the opportunities and risks related to ESG factors
- fixed-income analysts primarily consider the downside risks associated with ESG issues.
What are stranded assets?
- assets that experience unexpected write-downs, devaluations, or become liabilities due to environmental factors
What are green bonds? And what is greenwashing in regard to green bonds? Who has primary decision in labeling a security as a green bond?
- green bond is a fixed-income financial instruments which is used to fund projects that have positive environmental benefits
- greenwashing: Misrepresenting a project’s benefits when issuing green bonds.
- bond issuer has primary decision for labeling their bonds green
