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Sustainable Investing > Lecture 2 > Flashcards

Lecture 2 Flashcards

1
Q

What is responsible investing?

A

An approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns

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2
Q

3 main internal objectives for responsible investing

A
  • Financial materiality (ESG as investment risk or opportunity)
  • Doing no harm (preventing/reducing negative impact on the world of investments)
  • Doing good (search for/increase positive impact on the world of investments)
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3
Q

Five dimensions of impact

A
  • An impact is a change in outcome that would likely not happen anyway
  • An outcome is an aspect of well-being of people or the planet

Five dimensions:
what, who, how much, contribution, risk

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4
Q

ESG Data

A
  1. Financial: Reporting data reflected in financial accounts and projections on them
  2. Single materiality: Reporting on the sub-set of sustainability topics that are material for enterprise value creation
  3. Double materiality: Report on matters that reflect the organizations impact on ESG factors
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5
Q

Implementing responsible investment

A
  1. Exclusion
  2. Active ownership. Stewardship
  3. ESG integration
  4. Impact and thematic investing
  5. Outcomes
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6
Q

Implementing responsible investment

  1. Direct and indirect exclusion
A

Direct exclusion: On products and services, industries or entire sectors, companies which violate widely recognized treaties etc

Indirect exclusion: Reactive engagement to bring change, typically on companies in ‘breach’ of widely recognized treaties, exclude in case of no meaningful progress within set timeframe on set objectives

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7
Q

Implementing responsible investment

  1. ESG integration
A

Systematically add material ESG factors in your investment process

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8
Q

Implementing responsible investment

  1. Impact and thematic investing
A

Select specific goal and invest in it (green bonds, green real estate, thematic equities)

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9
Q

Implementing responsible investment

  1. Stewardship: voting
A

Voting on ESG implementations

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10
Q

Implementing responsible investment

  1. Stewardship: engagement & objectives
A

Collaborate with other investors to propose ideas on meetings

Engagement objectives:

  • Better beta
  • Better alpha
  • Doing no harm
  • Doing good
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11
Q

Implementing responsible investment

  1. Stewardship: litigation
A
  • Verify if the company respects ESG related manuals and laws
  • Pursuing legal action on behalf of shareholders in order to seek indemnification often for ESG related misbehavior, achieve ESG improvements as part of the settlement
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12
Q

External objectives for responsible investing

A
  • Commercial objectives

- Regulatory drivers

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13
Q

Phases of responsible investing

A

Part I-A Financial materiality
Part I-B Doing no harm
Part I-C Doing good

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14
Q

Types of screening (GSIA)

A
  1. Negative/exclusionary
  2. Positive/best in class
  3. Norms based
  4. ESG integration
  5. Sustainability themed
  6. Impact community
  7. Corporate engagement and shareholder action
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15
Q

Benefits of responsible investment

A
  • Contributes to real world outcomes
  • Improves staff retention and recruitment
  • Protects brand
  • Enhances financial results
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16
Q

Types of screening (GSIA)

Negative/exclusionary

A

The exclusion from a fund or portfolio of certain sectors, companies or practices based on specific ESG criteria

17
Q

Types of screening (GSIA)

Positive/best in class

A

Investment in sectors, companies or projects selected for positive ESG performance

18
Q

Types of screening (GSIA)

Norms based

A

Investments against minimum standards of business practice based on international norms, such as those issued by UNICEF

19
Q

Types of screening (GSIA)

ESG integration

A

The systematic and explicit inclusion by investment managers of ESG factors into financial analysis

20
Q

Types of screening (GSIA)

Sustainability themed

A

Investment in themes or assets specifically related to sustainability (for example clean energy, green technology or sustainable agriculture)

21
Q

Types of screening (GSIA)

Impact community

A

Capital is specifically directed to traditionally underserved individuals or communities

22
Q

Types of screening (GSIA)

Corporate engagement and shareholder action

A

Use of shareholder power to influence corporate behavior, through direct corporate engagement or by filing proposals based on ESG guidelines

23
Q

Financial materiality

How sustainability creates value for companies

A
  • Growth: New markets, Innovation
  • Return on capital: Green sales, Sustainable value chain
  • Risk management: Lower penalties, Better reputation
24
Q

Financial materiality

How sustainability creates value for companies

Studies suggest

Outcomes

A
  • Studies suggest: Lower cost of capital and better operational performance
  • Outcomes: Better outcomes create opportunities, negative impact creates risks
25
Q

Implementing responsible investment

  1. Outcomes
A

Quantify outcomes

Sustainable Investing (7 decks)

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