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Investments > Sustainable Finance > Flashcards

Sustainable Finance Flashcards

1
Q

what does CSR stnad for

A

corporate social responsibilty

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2
Q

what does SRI stand for

A

socially responsible investign

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3
Q

what does ESG stand for

A

environmental social and governanance

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4
Q

three pillars of ESG

A

environmental
social
governance

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5
Q

on what basis are environmental scores given

A

resource use score

emissions use score

innovation score

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6
Q

on what basis are social scores given

A

workforce score (healthy workplace with diverse opportunites)

human rights score

community score (good citizens, protecting public health)

product repsonsibility score (quality goods and services integrating the customer’s health and safety)

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7
Q

on what basis are governance scores given

A

management

shareholders (equal treatment)

CSR strategy (integrates social and environmental dimensions into decision making process)

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8
Q

what are the three scopes of carbon emissions

A
  1. direct emissions from company
  2. indirect emission from purchasing energy
  3. all indirect emission that occur in value chain
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9
Q

example of scope 3 emissions

A

car company when the car is being driven by the end user

refrigeration of Bulmers in pub

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10
Q

what is the problem with increased disclosure

A

the more we talk about sustainability - the more people think things are improving

however there is little auditing and governance over disclosure, it is voluntary and not standardised

This can lead to green washing

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11
Q

why is ireland well behind on eu targets

A

politically difficult to get changes through

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12
Q

physical risks of climate change

A

climate related events eg floods, fires

and their economic costs

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13
Q

transition risks of climate change

A

risks from changes in government policy, new technologies, shifts in market preferences

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14
Q

what does EU taxonomy regulation give

A

a list of sustainable activities

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15
Q

what is most controversy surrounding the eu taxonomy about

A

whether to include gas and nuclear

some countries want a true version of what is green so they didn’t want them

while others argument we need to transition slowly

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16
Q

what is the eu regulation for investors

A

sustainable finance disclosure regulation

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17
Q

what is the EU regulation for large and listed companies

A

corporate sustainability reporting directive

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18
Q

what does SFDR stand for

A

sustainable finance disclosure regulation

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19
Q

what does CSRD stand for

A

Corporate sustainability reporting directive

20
Q

what is sustainability risk

A

an environmental, social or governance event or condition that, if it occurs could cause an actual or potential material negative impact on the value of investment

21
Q

what is sustainable investment

A

an investment approach that considers environmental, social and governance factors in portfolio selection and management

22
Q

what are the three investment categories in SFDR

A

Dark Green
Light Green
Residual

23
Q

what is a dark green investment

A

contributes to social and environmental objective

24
Q

what is a light green investment

A

screens environmental and social impact but not the objective of the company

25
Q

what is a residual investment

A

does not integrate any type of sustainability into the process eg tobacco, coal

26
Q

6 ESG Equity Investment Stratgeies

A
  1. exclusion/screening
  2. best in class
  3. active ownership
  4. thematic investing
  5. impact investing
  6. ESG integration
27
Q

what is the exclusion strategy

A

removal of certain sectors or companies from consideration for investment
based on ESG criteria eg coal/oil

28
Q

what is the best in class strategy

A

companies that perform better on ESG than their peers

29
Q

what is the active ownership strategy

A

engaging with companies to improve their ESG performance

30
Q

what is the thematic investing strategy

A

focus on investments that provide solutions to particular ESG issues

31
Q

what is the impact investing strategy

A

achieve positive societal value but still have a minimum return

eg renewable energy

32
Q

what is the ESG integration strategy

A

inclusion of ESG risks and opportunities into traditional financial analysis of equity valuation

33
Q

what is the benefit of more investors using ESG investment strategies

A

companies more likely to notice and take this into account

34
Q

what is the idea behind finance as usual

A

the business of business is business (Friedman 1970)

looking for max financial outcome

only do what is legally required

short term horizons

35
Q

what is the idea behind sustainable finance 1.0

A

still maximising profits but subject to social and environmental factors

36
Q

what is the idea behind sustainable finance 2.0

A

it is the best interest of the firm to create value for long term survival

improving on goals all the time - this period will be at least as good as the last

37
Q

what is the idea behind sustainable finance 3.0

A

environmental and social challenges come first

long term horizons

38
Q

what is tragedy of the horizons

A

prioritising current generations over future generations

39
Q

example of company not balancing S and E

A

great employee engagement

polluting river

40
Q

instruments for governments to internalise externalities

A

taxes and regulation

eg carbon taxes

41
Q

instruments for businesses to internalise exxternalities

A

take social and environmental factors into account when decision making - not just financial factors

42
Q

why integrate ESG factors into excpectations of financial value

A
  • policies could change eg carbon tax
  • reputation of company and how they are viewed by NGOs, media, customers
  • future profits
  • technological innovations
43
Q

how can government force internalisation of externalities

A

taxes eg carbon tax
subsidies eg solar panel

44
Q

how can consumers force internalisation of externalities

A

consumer choice and preferences

could boycott unsustainable products eg nestle with formula milk scandal

45
Q

how can corporates force internalisation of externalities

A

encorporating externalities into the cost of their products

reflect true value

46
Q

how can financials force internalisation of externalities

A

incorporate ESG factors into investment and lending

cost of capital based on firms performance

47
Q

how can NGOs force internalisation of externalities

A

raise awareness, make headlines, reputational risk

Investments (19 decks)

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