Responsible Investing Flashcards
Responsible Investing
Environmental
- Conservation of the natural world - climate change and carbon emissions - air and water pollution - biodiversity, deforestation, energy efficiency, waste management, water
Social
- consideration of people and relationships - customer satisfaction - data protection and privacy - Gender and diversity - employee engagement, community relations, human rights, labour standards
Governance
- Board composition - audit structure - executive compensation - bribery and corruption - lobbying - political contributions - whistle-blower schemes
What is responsible and ethical investing?
Responsible investing, also known as ethical investing or sustainable investing, describes a holistic approach to investing, where social, environmental, corporate governance and ethical factors are considered alongside financial performance, when making an investment.
Why is responsible investing worthwhile and important?
All businesses, and therefore all investments, have an impact on people and the planet, both positive and negative. Responsible investing seeks to minimise the negative effects generated by business and promote positive impacts, ultimately delivering a healthier economy, society and environment alongside stronger financial returns.
What are the different types of responsible investment?
ESG integration: involves the systematic and explicit inclusion of ESG factors into traditional financial analysis and investment decision-making by investment managers. This approach rests on the belief that these factors are a core driver of investment risk and opportunity, rather than being driven by ethical considerations.
Negative or exclusionary screening: screening that systematically excludes specific industries, sectors, companies, practices, countries or jurisdictions from funds that do not align with the responsible investment goals.
Positive screening: screening in sectors, companies or projects selected for positive ESG or sustainability performance relative to industry peers.
Norms-based screening: involves the screening of investments that do not meet minimum standards of business practice, usually based on international norms and conventions such as those defined by the United Nations (UN).
Corporate engagement and shareholder action: refers to the employment of shareholder power to influence a company’s behaviour.
Sustainability themed investing: relates to investment in themes or assets that specifically relate to sustainability themes. This commonly involves funds that invest in clean energy, green technology, sustainable agriculture and forestry, green property or water technology
Impact investing: targeted investments made into organisations, projects or funds with the intention of generating positive, measurable social and environmental outcomes, alongside a financial return.
COP26 goals
Four overarching goals have been set for COP26 which will guide the course of negotiations and drive the key outcomes:
* secure global net zero by mid-century and keep warming to 1.5 degrees Celsius within reach;
* adapt to protect communities and natural habitats;
* mobilise finance; and
- work together to deliver.
‘Net zero emissions’ refers to achieving an overall balance between greenhouse gas emissions produced and greenhouse gas emissions taken out of the atmosphere.
Getting to net zero means we can still produce some emissions, as long as they are offset by processes that reduce greenhouse gases already in the atmosphere. For example, these could be things like planting new forests, or drawdown technologies like direct air capture. The more emissions that are produced, the more carbon dioxide we need to remove from the atmosphere (this is called sequestration) to reach net zero.
Carbon dioxide, the main contributor to climate change, will stay in the atmosphere and keep heating the planet for years and years.
Decarbonization can mean two things: It can refer to moving away from energy systems that produce carbon dioxide (CO2) and other greenhouse gas emissions
Energy decarbonization involves shifting the entire energy system in an attempt to stop carbon emissions from entering the atmosphere before they are ever released — and part of that process also involves using carbon capture technologies to remove CO2 from the air after it has already been released. This involves decarbonizing power grids, decarbonizing supply chains, and utilizing carbon sequestration in the pursuit of net-zero emissions and a carbon-neutral global economy.
Carbon trading is the process of buying and selling permits and credits that allow the permit holder to emit carbon dioxide.
The model used in all current carbon trading schemes is called ‘cap and trade’.
A polluter must hold enough permits to cover the emissions it releases.
Every current and planned carbon ‘cap and trade’ scheme involves offset credits in one form or another. Credits are a supplementary source of permissions to pollute that can be bought in from countries or industries outside the cap, usually in the developing world. Their purchase allows the emitter to exceed the emissions cap by paying someone else somewhere else to reduce their emissions instead. It is important to remember: offsets do not reduce emissions, they merely replace them.
Minerals for clean energy.
Minerals like lithium, cobalt, and nickel are the building blocks for clean energy economies.
Batteries for electric vehicles (EVs) and renewable energy storage are the biggest factor driving the potential mineral shortage. An EV requires six times more mineral resources than a car that runs on fossil fuels. Cobalt, nickel, graphite, and manganese are essential for batteries, too.
Wind and solar power generation are also mineral-hungry industries. Wind turbines need rare earth minerals for magnets, while solar panels are made with copper, silicon, and silver. An increase in renewable energy is also spurring the need to modernize electrical grids, which can’t be done without more copper and aluminum.
recycling to be critical for clean energy minerals.
Production of new critical minerals isn’t ramping up fast enough because investors aren’t convinced that world leaders are fully committed to their climate goals.
REE = Rare Earth Elements
Western electric vehicle (EV) makers are trying to reduce their dependence on rare earth metals from China. As tensions rise between that nation and others, including the United States, makers worry that supplies might become limited.
Electric vehicles use special magnets to power their engines.
Most are made from rare earth metals.
Rare earth magnets are mostly made of neodymium. The magnets are widely seen as the most effective way to power electric vehicles (EVs). China controls 90 percent of their supply.
