Section 8

Question 1

what does SRI investing refer to?

Answer 1

ethical or values based investing which screens out traditional ‘sin stocks’ (investments considered to be unethical).

Question 2

what is ESG investing

Answer 2

examines the impacts of a wider set of characteristics and themes impacting the performance of companies

Question 3

what are the two key SRI activities

Answer 3

screening

and shareholder advocacy and engagement

Question 4

what is screening

Answer 4

includes or excludes company securities based on ethical criteria

Question 5

what is shareholder advocacy and engagement

Answer 5

institutional investors seek to enact constructive change in investee companies by encouraging wider corporate responsibility or sustainable practices through engagement and thoughtful proxy voting

Question 6

are screening and shareholder advocacy and engagement mutually exclusive

Answer 6

no - both are regularly used together

Question 7

what does ESG generally take in terms of approach to ethics?

Answer 7

Agnostics approach

unless causes repetitional damage or is eroding its social license to operate

Question 8

what is ESG concerned with

Answer 8

Sustainability rater than morals

Question 9

what is the integration of ESG ideas into the traditional financial analysis complementary to?

Answer 9

complementary to the investment process in the longer term

Question 10

what are the focuses of ESG investing

Answer 10

Environmental issues
social concerns
governance (management structure, shareholder rights, director independence and renumeration, board skills and executive compensation) - all proxies of understanding management and decision making quality

Question 11

who publishes the stewardship code and what is this?

Answer 11

published by the financial reporting council it offers a set of principles for investment decisions which are considered to enhance long-term shareholder value

Question 12

what is the Principles for Responsible investing

Answer 12

an independent organisation which aims to encourage responsible investment to enhance returns and better manage risks

Question 13

what is the principles for responsible investing supported by but not part of?

Answer 13

the UN

Question 14

what is the development of ESG factors as part of investment analysis supported by?

Answer 14

Growing empirical evidence that there is a positive relation between corporate financial performance and performance on ESG issues.

Question 15

Why are ESG issues particularly important

Answer 15

The role of fiduciary duty and the ever wider recognition of the sustainability of investing in the long term

Question 16

what has led to increased demand for ESG investing

Answer 16

• environmental issues have come increasingly to the attention of society as a whole
• societal concerns regarding diversity of employment and opportunities, human rights, animal welfare and consumer protection
• more data and information generally means that investors are much better educated and informed about these issues
• empirical studies have shown that responsible investing doesn’t lead to poor investment returns
• easy and widespread availability of investing vehicles to populate portfolios
• increasing evidence of better returns and mitigation to risk

Question 17

what has lead to greater supply of ESG investing

Answer 17

• increasing demand
• increased disclosure requirements for companies regarding ESG factors has improved the transparency of investment choices
• widely accepted international standards for measuring ESG factors allow portfolios to be constructed in more objective ways
• repetitional risk - concern that a firm’s brand would suffer by association with poor ESG characteristics / unethical business behaviour
• financial risk - to mitigate financial risk and the impact on a company’s share price should there be an ESG factor blow up
• 6 principles for responsible investment offers high profile advocacy of the advantages of ESG investing

Question 18

what are challenges of including ESG into investment analysis?

Answer 18

1) ESG factor information remains more resource intensive to acquire and assess than conventional audited financial information. It is still difficult to obtain consistent comparable, audited ESG information
2. Disclosure by companies of their ESG progress often trails reality, suggesting that resources needed to obtain an accurate picture of a company may be lacking

Question 19

what is social impact investing

Answer 19

the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social as well as financial return

Question 20

what is the difference between esg and impact investing

Answer 20

ESG refers to considering ESG factors in investing decisions, along with more traditional influences on valuation, impact investing describes the intentional investment in a company specifically to have a positive impact on environmental or social issues

Question 21

what are the key characteristics of impact investing?

Answer 21

• intentionality - by investor to generate social and/or environmental impact through investments
• return expectations - the generation of financial return on capital and, at worse, a return of capital
• impact measurement - the investor is committed to measure and report the social and environmental performance and progress of underlying investments. This helps ensure transparency and accountability and helps build awareness of impact investing performance

Question 22

what can impact investing involve?

Answer 22

affordable housing, sustainable agriculture, healthcare, clean energy, improving education and creating job opportunities