ESG RISKS AND TAXONOMY

Question 1

What does TCFD mean?

Answer 1

the Taskforce on Climate-related Financial Disclosures

Question 2

What does the materiality matrix show?

Answer 2

The anglo-saxon definition of materiality only encompasses financial materiality while the EU also takes into account impact materiality (aka double materiality)

Question 3

Who was the Chairman of the Financial Stability Board (FSB)

Answer 3

Mark Carney

Question 4

How does the EU consider the sustainability on each company?

Answer 4

A) The first condition is that they need to substantially positively affect their 6 objectives. ( how much impact is already predetermined with hard standards)

B) The second condition is that they need to not work against the 6 objectives ( meaning how much they harm the other objectives)

C) They comply with minimum social safeguards ( meaning that you need to be inclusive, pay good wages)

D) The last standard is that conditions A and B should be put to technical tests to ensure transparency and honesty when meeting the targets.

Question 5

What is Shareholder theory?

Answer 5

The debate of the fiduciary duty to shareholders. meaning the company’s main objective is to create value and profit for the shareholders.

Question 6

What is the EU appraoch to the Taxonomy?

Answer 6

depends how wide your scope is. You can focus on the climate transition, or you can see a broader scope going over Environment as a whole. Or you can look at sustainability as a whole through the ESG points as.

The Americans tend to focus on the smaller focus whilst the EU looks at sustainability as a whole.

Question 7

What is the difference between social and societal?

Answer 7

Social: internal/individual interactions

Societal: external/larger structures or systems

Question 8

What is global warming potential?

Answer 8

GWP at 100 years measures the effect of 1kg of gas on the climate over a period of a 100 years

Question 9

What does GWP stand for?

Answer 9

Global Warming Potential

Question 10

What unit is taken as reference for the GWP?

Answer 10

1 CO2

Question 11

What is anthropogenic radiative forcing?

Answer 11

The influence anthropogenic climate factors have on radiant energy coming into Earth’s surface

Question 12

What are two examples of anthropogenic radiative forcing?

Answer 12

Aerosols reflecting part of the solar radiation coming into Earth’s surface

Greenhouse gases retaining part of the solar radiation leaving Earth’s surface

Question 13

What does NGFS mean?

Answer 13

Network for Greening the Financial System

Question 14

When was NGFS first established?

Answer 14

December 2017

Question 15

When did the ECB join the NGFS?

Answer 15

May 2018

Question 16

When did the NYC State Dpt join the NGFS?

Answer 16

September 2019

Question 17

How many members were in the NGFS by October 2021?

Answer 17

95 members and 15 observers

Question 18

When did the NGFS publish its first comprehensive report?

Answer 18

April 2019

Question 19

What took place in September 2021

Answer 19

FED and ECB research on climate stress testing

Question 20

What events took place in 2015?

Answer 20

COP21
Paris Agreement
tragedy of the horizons speech

Question 21

How does climate to finance risk transmission work?

Answer 21

Climate risks (physical & transition) have an impact on the economic transmission channels on a macro and micro level which then result in financial risks

Question 22

How to take into account social factors in investment decisions

Answer 22

• determing most financially material/controversial factors
• asses how exposed companies are to these factors
• look for other relevant factors in the supply chain

Question 23

What are some internal social factors?

Answer 23

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

Question 24

What are some external social factors?

Answer 24

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

Question 25

What are the key thematics of social factors?

Answer 25

• Systemic relationship between business activities and social issues
• Social megatrends
• Social issues and best-in-class approach
• High level regulations (United nations)
• Extraterritoriality

Question 26

What is Corporate Governance?

Answer 26

Corporate governance is the process by which a company is managed and overseen

The corporate culture needs to be supportive of that long-term business success in the interests of all stakeholders.

Question 27

What is accountability?

Answer 27

People need to be given authority and responsibility for decision-taking, and be accountable for the consequences of their actions

Question 28

What is Alignment?

Answer 28

Ensuring that different actors of big institutions have same objectives and concerns

Question 29

What is the Agency Problem?

Answer 29

the interests of the professional managers—
the agents—may not always be wholly aligned with the interests of the owners of the business, and so the company may not be run in the way the owners wish.

Question 30

What are the 3 key Board Committees?

Answer 30

Nominations Committee (Corporate Gov Committee)
Audit Committee
Remuneration Committee (Compensation)

Question 31

How to tackle the Agency Problem?

Answer 31

Executive pay

Question 32

What does the Nomination Committee do?

Answer 32

Ensure the board is balanced and effective, and management is accountable

Question 33

What does the Remuneration Committee do?

Answer 33

ensures alignment of interests through executive pay

Question 34

What does the Audit Committee do?

Answer 34

Oversees financial reporting and audit, is also responsible for risk surveillance unless there’s a specific committee for that

Question 35

What are the three key challenges in Corporate Governance?

Answer 35

accountability and the board, accountability and accounts, alignment and executive pay

Question 36

What is the Freidman doctrine (shareholder theory)?

Answer 36

the social reponsibility of a business is to increase profits and maximise return for shareholders. the shareholders are then free to decide which iniciatives to take part in

Question 37

What does SRD mean?

Answer 37

Shareholder Rights Directive

Question 38

What are the three different focuses in sustainable finance?

Answer 38

Climate Finance
Green Finance (Climate + Biodiversity + resources) = E
Sustainable Finance (ESG)

Question 39

What are the six environmental objectives in the EU Taxonomy? (E level)

Answer 39

Climate change Mitigation
Climate Change Adaptation
Sustainable Use & protection of marine resources
Circular economy transition
Pollution prevention & control
Biodiversity protection & restoration

Question 40

When was the Taxonomy adopted?

Answer 40

December 2019

Question 41

What characteristics does a business need to be compliant with the EU Taxonomy?

Answer 41

Significantly contributed to at least 1 environmental objective
Does not significantly harm any of the other objectives
Complies with minimum social safeguards
Compliance with technical screening criteria

Question 42

What are Delegated acts of the Taxonomy?

Answer 42

“Climate Delegated Act”&raquo_space;9 december 2021, application january 2022

Accounting Directive&raquo_space;10 december 2021

Complementary Climate Delegated Act&raquo_space; 15 july 2022

Question 43

What does the Complementary Climate Delegated Act include?

Answer 43

specific nuclear and gas energy activities (applicable Jan 2023)