Lecture #10 Flashcards
What is SRI ? (what does it stand for/) what does it have to do with “ESG”/sustainable investing?
“Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.”
[EXAM] List the 2 Impact Strategies and the 3 Inclusionary Strategies and the 2 Exclusionary Strategies
Impact Strategies
- Impact Investing
- Shareholder Engagement
Inclusionary Strategies
- Thematic ESG Investing
- Positive Screening
- ESG Integration
Exclusionary Strategies
- Negative Screening
- Norms-Based Screening
Shareholder Engagement Impact Strategies: Define Impact Investing and Shareholder Engagement
- Impact Investing: Invests in projects or companies with the goal of creating measurable social or environmental impact alongside a financial return.
- Shareholder Engagement: Uses investor influence (like voting or direct dialogue) to push companies to improve their ESG (Environmental, Social, Governance) practices.
Inclusionary Strategies: Define Thematic ESG Investing, Positive Screening, ESG Integration
- Thematic ESG Investing: Focuses on specific ESG themes, such as clean energy or gender diversity, to guide investment decisions.
- Positive Screening: Invests in companies with strong ESG performance, selecting the “best in class” in each sector.
- ESG Integration: Combines ESG factors with traditional financial analysis to assess a company’s value. It’s the most common RI strategy in Canada.
Exclusionary Strategies: Define Negative Screening and Norms-Based Screening
- Negative Screening: Avoids investing in companies or industries with poor ESG characteristics, such as tobacco, fossil fuels, or unethical practices.
- Norms-Based Screening: Excludes companies that violate international standards or human rights principles, like those set by the UN or OECD.
What does SASB stand for? and who did they emrge into? What do they stand for?
The Sustainability Accounting Standards Board (SASB) was consolidated into the newly established IFRS (International Financial Reporting Standards) into their new subdivison:
- International Sustainability Standards Board (ISSB)
What is the ISSB and why was it created?
- Formed by IFRS Foundation on Nov 3, 2021 at COP26 (Glasgow)
- Responds to global demand for consistent sustainability reporting
- Creates a global baseline of sustainability disclosure standards for investors
What problem does ISSB address? and how was this solved ?
The ISSB was created to solve the issue of fragmented, voluntary sustainability reporting standards that existed around the world.
What does “fragmented”
mean?
- It means that different countries, industries, and organizations were using different sustainability frameworks (like TCFD, GRI, SASB, etc.), each with its own terminology, metrics, and disclosure requirements.
They solve this by:
- By developing a single, global baseline of sustainability standards that:
- Can be used worldwide,
- Are investor-focused, and
- Build on existing frameworks (like SASB and TCFD) instead of replacing them entirely.
What are ISSB’s 4 key objectives?
- Global baseline standards
- Meet investor information needs
- Help companies provide clear, complete disclosures
- Align with local or stakeholder-specific rules
What are ISSB standards designed to be?
Cost-effective
Decision-useful
Globally comparable
Designed to avoid double-reporting
What do SASB Standards help companies disclose?
Industry-specific sustainability risks and opportunities that may impact cash flow, access to financing, or cost of capital over short, medium, or long term.
Why are SASB Standards important to investors?
They provide consistent, comparable sustainability data for better decision-making.
Which IFRS Sustainability Disclosure Standards do SASB Standards support?
IFRS S1 – General sustainability disclosure requirements
IFRS S2 – Climate-related disclosures
How do SASB Standards help with investment decisions?
Better investment decisions
Improved risk management
More effective corporate engagement
What is the difference between weather and climate
Weather refers to atmospheric conditions that occur locally over short periods of time—from minutes to hours or days. Familiar examples include rain, snow, clouds, winds, floods or thunderstorms.
Climate refers to the long-term regional or even global average of temperature, humidity and rainfall patterns over seasons, years or decades.
- Climate change is primarily driven by “” activities, particularly fossil fuel burning, which increases heat-trapping “” “” “” in Earth’s atmosphere, raising Earth’s average surface temperature.
human, green gas levels
what are the 3 main causes of global warming
- 3 main causes of global warming:
(1) Burning fossil fuels
(2) Deforestation & Tree-Clearing
(3) Agriculture & Farming
[EXAM] What is the TCFD? What does it stand for? What organization was it created by ?
Whi is handling it right now
The Task Force on Climate-related Financial Disclosures (TCFD) was created by the FSB in 2015 to develop a framework for companies to disclose climate-related financial risks and opportunities. It was disbanded in 2023, with oversight now handled by the IFRS Foundation
[EXAM] What are the 4 TCFD recommendations and what are the specific disclosures?
-
Governance
Disclose how climate-related risks and opportunities are managed at the leadership level.- a. Describe the board’s oversight of climate-related risks and opportunities.
- b. Describe management’s role in assessing and managing climate-related risks and opportunities.
-
Strategy
Disclose how climate-related issues impact the organization’s business and strategy.- a. Describe the climate-related risks and opportunities the organization has identified.
- b. Describe the impact of those risks and opportunities on the business, strategy, and financial planning.
- c. Describe the resilience of the strategy, considering different climate scenarios (including a 2°C or lower scenario).
-
Risk Management
Explain how the organization identifies, assesses, and manages climate-related risks.- a. Describe the processes for identifying and assessing climate-related risks.
- b. Describe the processes for managing these risks.
- c. Describe how these processes are integrated into the overall risk management framework.
-
Metrics and Targets
Disclose the metrics and targets used to measure and manage climate-related risks and opportunities.- a. Disclose the metrics used to assess climate-related risks and opportunities.
- b. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and related risks.
- c. Describe the targets used and performance against them.
Why are the TCFD disclosures important?
They provide clear, consistent, and comparable info on how companies handle climate risks—helping investors make better decisions, assess long-term risks, and allocate capital effectively.
The Task Force’s four recommendations are supported by “” “” organizations should include in “” “” or other reports to provide “” “” information to investors and others.
specific disclosures, financial filings, decision-useful
Can you list come Transition Risks: Risks related to the transition to a low carbon economy
○ Technology Risk: May make IP, patents, services, or products obsolete, therefore reducing revenues and profits;
○ Policy & Legal Risks: Accelerated adoption of regulations and public policy may strand assets or make some business models too costly to operate in the future; Adoption and increases in carbon price or a tax on emissions;
○ Market Risk: shifts in supply and demand for certain commodities, products, and services;
○ Reputation Risk: tied to changing customer or community perceptions of an organization’s contribution to or detraction from the transition to a lower-carbon economy.
Can you list come Physical Risks: physical impacts of climate change
○ Acute Risk: Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods;
○ Chronic Risk: longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.
○ Disrupt operations and ability to generate revenue (and impact on supply chain);
○ Higher cost of business inputs and raw materials, such as water and natural resources;
○ Financial cost to rebuild or repair physical assets and infrastructure;
What are key climate-related investment opportunities?
- Resource Efficiency – Lower costs via energy, water, waste, and material efficiency
- Energy Source – Invest in renewable energy
- Products & Services – Develop low-emission innovations
- Markets – Enter new green markets (e.g., green bonds, low-carbon infrastructure)
- Resilience – Build capacity to adapt to climate risks and seize opportunities
