Sustainable Finance Flashcards
what does CSR stnad for
corporate social responsibilty
what does SRI stand for
socially responsible investign
what does ESG stand for
environmental social and governanance
three pillars of ESG
environmental
social
governance
on what basis are environmental scores given
resource use score
emissions use score
innovation score
on what basis are social scores given
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)
on what basis are governance scores given
management
shareholders (equal treatment)
CSR strategy (integrates social and environmental dimensions into decision making process)
what are the three scopes of carbon emissions
- direct emissions from company
- indirect emission from purchasing energy
- all indirect emission that occur in value chain
example of scope 3 emissions
car company when the car is being driven by the end user
refrigeration of Bulmers in pub
what is the problem with increased disclosure
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
why is ireland well behind on eu targets
politically difficult to get changes through
physical risks of climate change
climate related events eg floods, fires
and their economic costs
transition risks of climate change
risks from changes in government policy, new technologies, shifts in market preferences
what does EU taxonomy regulation give
a list of sustainable activities
what is most controversy surrounding the eu taxonomy about
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
what is the eu regulation for investors
sustainable finance disclosure regulation
what is the EU regulation for large and listed companies
corporate sustainability reporting directive
what does SFDR stand for
sustainable finance disclosure regulation
what does CSRD stand for
Corporate sustainability reporting directive
what is sustainability risk
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
what is sustainable investment
an investment approach that considers environmental, social and governance factors in portfolio selection and management
what are the three investment categories in SFDR
Dark Green
Light Green
Residual
what is a dark green investment
contributes to social and environmental objective
what is a light green investment
screens environmental and social impact but not the objective of the company
what is a residual investment
does not integrate any type of sustainability into the process eg tobacco, coal
6 ESG Equity Investment Stratgeies
- exclusion/screening
- best in class
- active ownership
- thematic investing
- impact investing
- ESG integration
what is the exclusion strategy
removal of certain sectors or companies from consideration for investment
based on ESG criteria eg coal/oil
what is the best in class strategy
companies that perform better on ESG than their peers
what is the active ownership strategy
engaging with companies to improve their ESG performance
what is the thematic investing strategy
focus on investments that provide solutions to particular ESG issues
what is the impact investing strategy
achieve positive societal value but still have a minimum return
eg renewable energy
what is the ESG integration strategy
inclusion of ESG risks and opportunities into traditional financial analysis of equity valuation
what is the benefit of more investors using ESG investment strategies
companies more likely to notice and take this into account
what is the idea behind finance as usual
the business of business is business (Friedman 1970)
looking for max financial outcome
only do what is legally required
short term horizons
what is the idea behind sustainable finance 1.0
still maximising profits but subject to social and environmental factors
what is the idea behind sustainable finance 2.0
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
what is the idea behind sustainable finance 3.0
environmental and social challenges come first
long term horizons
what is tragedy of the horizons
prioritising current generations over future generations
example of company not balancing S and E
great employee engagement
polluting river
instruments for governments to internalise externalities
taxes and regulation
eg carbon taxes
instruments for businesses to internalise exxternalities
take social and environmental factors into account when decision making - not just financial factors
why integrate ESG factors into excpectations of financial value
- policies could change eg carbon tax
- reputation of company and how they are viewed by NGOs, media, customers
- future profits
- technological innovations
how can government force internalisation of externalities
taxes eg carbon tax
subsidies eg solar panel
how can consumers force internalisation of externalities
consumer choice and preferences
could boycott unsustainable products eg nestle with formula milk scandal
how can corporates force internalisation of externalities
encorporating externalities into the cost of their products
reflect true value
how can financials force internalisation of externalities
incorporate ESG factors into investment and lending
cost of capital based on firms performance
how can NGOs force internalisation of externalities
raise awareness, make headlines, reputational risk
