Part III-7 Characterizing Financial Impact Flashcards
In which financial impacts does demand for core products and services as well as in intangible assets show up?
Revenue and growth
Impacts on XX are typically related to operational efficiency and cost structure
impacts on cost
Which financial impacts affect valuation?
Assets and liabilities
This financial impact broadly addresses risk
Cost of capital
What type of financial impact is usually associated with demand for core products and services?
Revenues
What type of financial impact is usually associated with market share and long-term growth
Revenues
What type of financial impact is usually associated with operational efficiency and cost structure ?
Expenses
What type of financial impact is usually associated with tangible and intangible assets and liabilities ?
Assets and liabilities
What type of financial impact is usually associated with governance , volatility and risk factors ?
Cost of capital
Does this metric measure a sustainability risk or opportunity? Revenue from products third-party certified to environmental and/or social sustainability standards
Opportunity
Does this metric measure a sustainability risk or opportunity?Area of forestland in endangered species habitat
Risk
If higher metric values indicate improved economic performance, such as revenues, product sales, or employee engagement, is this metric measuring a risk or opportunity?
Opportunity
If higher metric values indicate threats to economic performance, such as number of recalls, employee turnover, or total energy consumed, is this metric measuring a risk or opportunity
Risk
T/F - the timing of sustainability impacts - when they will occur and for how long - can directly influence cash flow projections -
True
T/F - the magnitude, or intensity, of sustainability impacts may directly influence a company’s risk profile and cost of capital
True
Pending trends and regulations and competitive threats are all examples of what type of impact?
Potential impacts
Which risk refers to the inherent factors that can negatively impact individual securities or a very specific group of assets.
Idiosyncratic risk
The opposite of Idiosyncratic risk is a XX risk, which refers to broader trends that impact the overall financial system or a very broad market.
Systematic risk - Systematic risk is the risk inherent to the entire market, attributable to a mix of factors including economic, socio-political, and market-related events (more quantifiable and can be anticipated in some cases)
Systemic risk is the risk that a company- or industry-level risk could trigger a huge collapse.
Idiosyncratic risk can generally be mitigated within a portfolio via diversification
What is important to consider in high-likelihood impacts?
Whether a company’s current conditions differ from those in the past, and if future conditions are likely to be different
T/F - SASB metrics that measure operating efficiency will nearly always be associated with actual impacts -
True
How does total energy consumed and the % of renewable energy measure a company’s actual impacts?
It tells a user the extent to which energy management practices currently impact operating costs and margins
T/F - SASB metrics which capture compliance with existing laws and regulations, the frequency of anomalous adverse events, or crucial risk management and governance factors yield information relevant for interpreting the likelihood of an impact’s occurrence
True
How does total recordable incident rate (TRIR) yield information relevant for interpreting the likelihood of an impact’s occurrence?
It tells a user how often adverse events have occurred in the past, thus providing information to estimate the likelihood of future occurrences
How does description of strategy to manage opportunities for and risks to forest management yield information relevant for interpreting the likelihood of an impact’s occurrence?
It evaluates how well management handles risks related to the physical impacts of climate change - which can greatly affect timber production, and help a user interpret how likely the company is to capitalize on opportunities or experience identified risks
What kinds of impacts currently occur or can occur at any time?
near-term impacts
T/F - Near term impacts usually have an indirect financial or reputational impact on the company
False - Near-term impacts usually have direct financial or reputational impact on the company, usually in less than one year
T/F - SASB topics that measure operating performance, those related to systemic risk, and those related to ESG “mega trends” will nearly always manifest in long-term impacts
True
T/F - disclosure topics and metrics that capture past adverse events almost always manifest in the near-term -
True
T/F - Issues related to operating efficiency (i.e. those that impact a company’s operating margins) most often manifest in low-magnitude impacts
True
T/F - Events such as a major food recall due to food-borne illness, as well as stranded assets, or events that impact a social license to operate most often manifest in low magnitude events
False - high magnitude events
SASB metrics related to everyday operations nearly always capture performance on what types of impact?
Lower magnitude impacts
Revenue from renewable energy-related and energy efficiency related products, as well as the total amount of waste from manufacturing, and recycled - capture performance on what type of impacts?
Lower-magnitude impacts
T/F - Actual impacts tend to be high magnitude -
False - Actual impacts tend to be low magnitude
T/F - Low-likelihood impacts tend to be low magnitude
False - Low-likelihood impacts tend to be high magnitude
What type of impact tend to be one-time events?
Acute
What type of impacts are typically high magnitude and low likelihood, have direct and immediate impacts on a company’s financial statements, result in short- and long-term impacts on its market value, and may indicate a future risk of similar events?
Acute
What type of impact tend to occur gradually over time?
Progressive impacts
What type of impact is often high likelihood and medium to long-term, and are commonly considered operational costs of doing business?
Progressive impacts
What type of impact is described as follows?
Likelihood - Low
Timing - Short term, with potential for lasting medium- to long-term side effects
Acute
What type of impact is described as follows?
Likelihood - High
Timing - Short, medium and/or long-term
Magnitude - Low to high
Progressive
What type of impact is this an example of - Internet Media company data breach resulting in fines and legal proceedings? (Acute or Progressive)
Acute
What type of impact is this an example of - companies leading in energy efficiency will likely face lower current operating costs?
Progressive
Disclosure on XX indicates exposure to risks from grid disruptions (due to poor infrastructure, increasing incidence of extreme weather events related to climate change, .) and electricity price increases as utilities internalize the costs of carbon -
Percentage grid electricity
Disclosure on XX indicates how well a company is positioned to capture possible cost savings and ensure more stable energy prices from the use of renewables - as well as how well companies are protected from high energy costs and energy price and supply volatility associated with the use of fossil fuels for captive power generation
Percentage renewable electricity
