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SUSTAINABLE FINANCE > Sustainability in Finance > Flashcards

Sustainability in Finance Flashcards

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1
Q

What is sustainable finance?

A

Taking ESG considerations into account when making investment decisions

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2
Q

What is Materiality?

A

you must report on everything that there has a physical effect

Materiality is used to ‘filter in’ the information that is or should be relevant to users during reporting.

Particular information is considered ‘material’ - or relevant - if it could influence the decision-making of stakeholders in respect of the reporting company.

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3
Q

What is financial materiality?

A

Reporting on the Benefits/Losses for stakeholders.

Information on economic value creation at the level of the reporting company for the benefit of investors (shareholders).

Commonly adopted by the Anglo-Saxons

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4
Q

What is impact materiality?

A

Reporting on the Benefits/Losses for stakeholders.

Information on the reporting company’s impact on the economy, environment and people for the benefit of multiple stakeholders, such as investors, employees, customers, suppliers and local communities.

Commonly adopted by the Continental Europeans

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5
Q

What is double materiality?

A

Double materiality is the addition between the financial materiality and impact materiality; where reporting includes the interests of stakeholders and shareholders.

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6
Q

What are the planetary boundaries?

A

Climate Change

Biosphere Integrity

Novel Entities

Stratospheric Ozone Depletion

Atmospheric Aerosol Loading

Land-system Change

Biochemical Flows

Ocean Acidification

Freshwater Change

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7
Q

How many planetary boundaries are there?

A

9

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8
Q

Where were the planetary boundaries first established?

A

The Stockholm Research Paper

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9
Q

When were the sustainable development goal created? (SDG = 2030 agenda)

A

2015 by the UN

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10
Q

What are the different SDGs

A

There are 17 of them

1 - No Poverty
2 - Zero Hunger
3 - Good Health and Well-Being
4 - Quality Education
5 - Gender Equality
6 - Clean Water and Sanitation
7 - Affordable and Clean Energy
8 - Decent Work and Economic Growth
9 - Industry, Innovation, and Infrastructure
10 - Reduced Inequalities
11 - Sustainable Cities and Communities
12 - Responsible Consumption and Production
13 - Climate Action
14 - Life Below Water
15 - Life on Land
16 - Peace, Justice, and Strong Institutions
17 - Partnerships for the Goals

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11
Q

What is the doughnut economics theory?

A

The donut theory presents two limits:

The social floor => The minimum amenities & rights all humans should have (ex: food or healthcare)

The environmental ceiling => the boundaries we must not exceed to maintain a stable planet ( Greenhouse gases on check or appropriate usage of freshwater)

These two circles form a donut; which is the sweet spot between the two limits in which we should live. Everyone happy, including the planet.

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12
Q

Who created the doughnut economics theory?

A

Kate Raworth

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13
Q

What are common goods?

A

goods that are rivalrous and non-excludable

(meaning everyone can access to them freely but one consumer using the good prevents another one from consuming it)

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14
Q

What are public goods?

A

goods that are non-rivalrous and non-excludable

(meaning everyone can access to them freely AND one consumer using the good does NOT prevent another one from consuming it)

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15
Q

What is the Tragedy of the Commons?

A

situation in which individuals with access to a common resource act in their own interest and, in doing so, ultimately deplete the resource.

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16
Q

What does COP meaning?

A

Conference of Party

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17
Q

What was the most important meeting of the earth summit?

A

Rio 1992

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18
Q

What are the three conventions outlined in Rio 1992?

A

Climate Change
Biodiversity
Desertification

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19
Q

What were people worried about in the 80’s?

A

The Ozone layer hole

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20
Q

Which politicians were convinced of the ozone layer hole problem?

A

Margaret Thatcher
Ronald Reagan

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21
Q

What did M. Thatcher and R.Reagan do in reponse to the ozone layer hole?

A

They created the IPCC in 1988

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22
Q

Does the IPCC work under the UN?

A

No, they created it especially so it wouldn’t be cause it was full of lefties

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23
Q

What does IPCC mean?

A

Intergovernmental Panel for Climate Change

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24
Q

What is the goal of the IPCC?

A

To help politicians decisions regarding climate change based on scientific evidence

25
Q

How does the IPCC work?

A

By cycles, 2023 was the end of the 6th cycle of the IPCC.

At the end of each cycle the IPCC produces a synthesis report on climate change

26
Q

How long are the IPCC cycles?

A

6 to 7 years

27
Q

What do the reports of the IPCC contain?

A

Adaptation (building a wall to adapt to rising sea levels)

Mitigation (reducing carbon emissions)

Physical Science (understanding phenomena)

28
Q

What was the first international treaty where major powers committed to a specific objectives to mitigate climate change?

A

The 2015 Paris Agreement

29
Q

What were the objectives of the Paris agreement?

A

1- To mitigate climate change (specifically to keep global warming less than 2º above pre-industrial levels until 2100)

2 - Adapt the economy to global warming

3 - Reorient financial flows towards activities compatible with the points above

30
Q

How can we meet the COP’s objective?

A

To be carbon neutral by 2050 and half carbon emissions by 2030 (according to an IPCC report)

31
Q

Who coined the term Tragedy of the Horizons?

A

Mark Carney on September 29th 2015

32
Q

What is the Tragedy of Horizons?

A

There is a problem to solve, and the effects are faint in 1-3 generations, then tendencies make them to accelerate.

The horizons are quite long, but the politicians have way shorter, like presidents are only in office for 4 to 10 years.

The horizons of CEOs are even shorter: if they do not give results in 3 months he might not survive the quarter.

33
Q

What are the components of climate risk according to Mark Carney?

A

physical risk (arise from the physical effects of climate change and environmental degradation)

liability risk (an investor claiming back against a business which makes a loss due to climate-related events)

transition risk (new regulations, new laws, implementation of new guidelines that businesses need to adapt to solve the climate issue. But then these policies need to work as a way to transform the present into a greener future gradually. An immediate ban on selling or buying oil would hurt any economy)

34
Q

How do you respond to the different components of climate risk?

A

If you have more transition risk, try to lower physical

Reorient financial flows (Green Bonds)

Disclosure (Mark Carney and being transparent for long term)

EU Taxonomy (the dictionary to say if it is sustainable or not)

35
Q

What does the report “Global Warming of 1.5°C (October 2018)” represent to the Paris agreement of 2015?

A

Its a report that incentivises countries to keep the global temperature under 1.5 degrees Celsius instead of 2.

The main reason is because the effects on the world are much greater even with only a 0.5 difference.

natural catastrophes being 2 times more likely or beyond.

36
Q

Explain “physical risk” as a component of climate risk according to Mark Carney?

A

arise from the physical effects of climate change and environmental degradation

37
Q

Explain “liability risk” as a component of climate risk according to Mark Carney?

A

an investor claiming back against a business which makes a loss due to climate-related events

38
Q

Explain “transition risk” as a component of climate risk according to Mark Carney?

A

new regulations, new laws, implementation of new guidelines that businesses need to adapt to solve the climate issue.

But then these policies need to work as a way to transform the present into a greener future GRADUALLY.

An immediate ban on selling or buying oil would hurt any economy

39
Q

Paris agreement: What are Nationally Determined Contributions?

A

NDCs are the pledges that each participating country submits, outlining its climate action plan.

40
Q

Paris agreement: What is climate finance within the meaning of the agreement?

A

Change must come from both public and private actors. Local and international organs need to act to make the financial system greener.

Politicians who pass national budgets for sustainability (increasing them)

International groups like the world bank or the IMF providing green loans.

Greener investment funds, big banks putting money on the greens.

Greener individuals voting with their money.

41
Q

Paris agreement: what are the main provisions of Article 6?

A

Article 6 of the Paris Agreement addresses market and non-market mechanisms for international cooperation.

It allows for the transfer of emission reduction units between countries and sets rules for creating a mechanism for mitigating greenhouse gas emissions.

The provisions of Article 6 aim to enhance global cooperation in achieving emission reduction targets.

42
Q

Paris agreement: What are the provisions for adaptation?

A

It calls for enhanced support for adaptation efforts in developing countries, including financial and technological assistance.

43
Q

Paris agreement: What is “loss and damage”?

A

The agreement acknowledges that some climate change impacts are irreversible losses and damages, although it does not establish a specific financial liability for loss and damage.

44
Q

Paris agreement: Can we know about disputes related to this agreement?

A

The agreement has a robust transparency and reporting framework, and parties are encouraged to engage in dialogue to resolve issues.

Resolved through diplomatic negotiations and consultations among the parties

45
Q

What are green bonds?

A

Green Bond uses deposits to finance sustainable activity.

46
Q

What does UNFCCC stand for?

A

United Nations Framework Convention on Climate Change

47
Q

What is the objective of the UNFCCC ?

A

Stabilizing greenhouse gas concentrations in the atmosphere to prevent dangerous human interference with climate

And consequently ensuring stable food production and sustainable growth

48
Q

What is the objective of the UNFCCC ? (Simplified)

A

Its goal is stabilizing human generated greenhouse gases fast enough to give nature enough time to adapt ensuring stable food production and sustainable growth

49
Q

What is the UNFCCC ?

A

It is an international treaty adopted at the Rio Earth Summit in 1992

50
Q

What is Laudato Si?

A

A book written by pope Francis where he spoke about commons and protecting the earth. This went beyond of Christian people.

51
Q

What is an example of tragedy of horizons?

A

Société Générale chose to have an aggressive ecological strategy for the long term, and on the short term their stock was punished lowering 10%.

52
Q

Why did the ESG stars align on 2015

A

Paris Agreement

COP 21

UN released SDGs

Laudato Si by the pope

Mark Carney speech

53
Q

Why was Mark Carney speech so impactful for the ESG discourse?

A

When he did the speech he was Governor on the Bank of England => meaning he was one of the most powerful and influential men in the world.

54
Q

What are the issues discussed on the topic of biodiversity ?

A

The natural and social sciences have great difficulty in producing reliable estimates of the value of preserving ecosystems and species

> Get reliable loss estimates
Assign a value to these losses

55
Q

What is the Convention on Biological Diversity (CBD)?

A

an international treaty adopted at the Rio Earth Summit in 1992

This text is to biodiversity what the United Nations Framework Convention on
Climate Change (UNFCCC) is to climate

56
Q

What is the purpose of the Convention on Biological Diversity (CBD)?

A

> biodiversity conservation

> the sustainable use of its elements

> fair and equitable sharing of benefits arising from the exploitation of genetic resources (agro-biodiversity)

57
Q

What was the development of the Convention on Biological Diversity (CBD) over the years?

A

It first few years were rough.

But late 90s it started to gain traction in some countries and the EU.

Now is the standard in 196 countries.

58
Q

What is the Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES)

A

It was an international group of experts on biodiversity in 2012.

an international group of experts on biodiversity

59
Q

What is Intergovernmental Science Policy Platform on Biodiversity and Ecosystem Services (IPBES) GOAL?

A

primary missions are to assist governments, to strengthen the means of emerging countries on biodiversity issues, under the
shield of the United Nations (UN).

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