ESG RISKS AND TAXONOMY Flashcards
What does TCFD mean?
the Taskforce on Climate-related Financial Disclosures
What does the materiality matrix show?
The anglo-saxon definition of materiality only encompasses financial materiality while the EU also takes into account impact materiality (aka double materiality)
Who was the Chairman of the Financial Stability Board (FSB)
Mark Carney
How does the EU consider the sustainability on each company?
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.
What is Shareholder theory?
The debate of the fiduciary duty to shareholders. meaning the company’s main objective is to create value and profit for the shareholders.
What is the EU appraoch to the Taxonomy?
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.
What is the difference between social and societal?
Social: internal/individual interactions
Societal: external/larger structures or systems
What is global warming potential?
GWP at 100 years measures the effect of 1kg of gas on the climate over a period of a 100 years
What does GWP stand for?
Global Warming Potential
What unit is taken as reference for the GWP?
1 CO2
What is anthropogenic radiative forcing?
The influence anthropogenic climate factors have on radiant energy coming into Earth’s surface
What are two examples of anthropogenic radiative forcing?
Aerosols reflecting part of the solar radiation coming into Earth’s surface
Greenhouse gases retaining part of the solar radiation leaving Earth’s surface
What does NGFS mean?
Network for Greening the Financial System
When was NGFS first established?
December 2017
When did the ECB join the NGFS?
May 2018
When did the NYC State Dpt join the NGFS?
September 2019
How many members were in the NGFS by October 2021?
95 members and 15 observers
When did the NGFS publish its first comprehensive report?
April 2019
What took place in September 2021
FED and ECB research on climate stress testing
What events took place in 2015?
COP21
Paris Agreement
tragedy of the horizons speech
How does climate to finance risk transmission work?
Climate risks (physical & transition) have an impact on the economic transmission channels on a macro and micro level which then result in financial risks
How to take into account social factors in investment decisions
- determing most financially material/controversial factors
- asses how exposed companies are to these factors
- look for other relevant factors in the supply chain
What are some internal social factors?
- human capital development;
- health and safety;
- human rights;
- labor rights;
- freedom of association and employee relations;
- forced labor; and
- living wage.
What are some external social factors?
- stakeholder opposition / controversial sourcing;
- product liability/consumer protection;
- social opportunities; and
- animal welfare and antimicrobial resistance.
What are the key thematics of social factors?
- Systemic relationship between business activities and social issues
- Social megatrends
- Social issues and best-in-class approach
- High level regulations (United nations)
- Extraterritoriality
What is Corporate Governance?
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.
What is accountability?
People need to be given authority and responsibility for decision-taking, and be accountable for the consequences of their actions
What is Alignment?
Ensuring that different actors of big institutions have same objectives and concerns
What is the Agency Problem?
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.
What are the 3 key Board Committees?
Nominations Committee (Corporate Gov Committee)
Audit Committee
Remuneration Committee (Compensation)
How to tackle the Agency Problem?
Executive pay
What does the Nomination Committee do?
Ensure the board is balanced and effective, and management is accountable
What does the Remuneration Committee do?
ensures alignment of interests through executive pay
What does the Audit Committee do?
Oversees financial reporting and audit, is also responsible for risk surveillance unless there’s a specific committee for that
What are the three key challenges in Corporate Governance?
accountability and the board, accountability and accounts, alignment and executive pay
What is the Freidman doctrine (shareholder theory)?
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
What does SRD mean?
Shareholder Rights Directive
What are the three different focuses in sustainable finance?
Climate Finance
Green Finance (Climate + Biodiversity + resources) = E
Sustainable Finance (ESG)
What are the six environmental objectives in the EU Taxonomy? (E level)
Climate change Mitigation
Climate Change Adaptation
Sustainable Use & protection of marine resources
Circular economy transition
Pollution prevention & control
Biodiversity protection & restoration
When was the Taxonomy adopted?
December 2019
What characteristics does a business need to be compliant with the EU Taxonomy?
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
What are Delegated acts of the Taxonomy?
“Climate Delegated Act”»_space;9 december 2021, application january 2022
Accounting Directive»_space;10 december 2021
Complementary Climate Delegated Act»_space; 15 july 2022
What does the Complementary Climate Delegated Act include?
specific nuclear and gas energy activities (applicable Jan 2023)
