The ESG Market Flashcards
What is the name & author of the 1987 book which introduced the concept of sustainable development & how it could be achieved?
Our Common Future also know as the Brundtland Report.
It was authored by the UN issued World Commission on Environment & Development which was chaired by Gro Harlem Brundtland, former Prime Minister of Norway.
When does the concept of responsible investing date back to?
It dates back to the 17th century. One of the first ethical mutual fund that moved to screens based on religious traditions was the Pioneer Fund, launched in 1928.
The modern institutionalization of ethical exclusions arguably began at the height of the Vietnam War in 1971, with the establishment of the Pax World Fund.
What is the Who Cares Wins report?
A report published in 2004 by the UN Global Compact which encouraged financial institutions to integrate ESG factors into capital markets.
Concurrently, the UNEP FI produced the so-called Freshfields Report, which showed that ESG issues are relevant for financial valuation and thus, fiduciary duty. These two reports formed backbone for the launch of the Principles for Responsible Investment (PRI) in 2006.
What did the Global Sustainable Investment Alliance report in 2018?
It reported that sustainable investing assets in the 5 major markets stood at USD $30.7 trillion, a 34% increase from two years before.
The proportion of sustainable investing relative to total managed assets grew in almost every region. In Canada, Australia, & New Zealand, responsible investing assets now make up most of the total assets under professional managment.
What portion of ESG assets are held by retail investors?
In 2018, the retail portion of total ESG assets totaled one quarter.
What role do asset owners play in the investment value chain?
Asset owners set the direction of the investment value chain.
Asset owners’ understanding of how ESG factors influences financial returns & how their capital impacts the real economy can significantly drive the amount and quality of ESG investing from the investment value chain.
What are investment mandates?
Contracts established between institutional asset owners & asset managers.
These contracts are important because they define the expectations around the investment product & at times even aspects about the managers processes & resources more broadly.
The large majority (over 90%) of asset owner signatories of the PRI require in their investment mandate that asset owner signatories of the PRI require in their investment mandate that asset managers act in accordance with the asset owner’s responsible investment policy & over half of the asset owners (65%) also require reporting.
Describe the shortfalls of short-termism investments.
Short-termism investing is a focus placed on returns produced in the short-term. It may leave companies less willing to take on projects (such as R&D) that may take multiple years - and patient capital - to develop.
Furthermore, short-term investment strategies tend to ignore factors that are considered more long term, such as ESG factors. This assertion was confirmed by a review conducted on the UK equity market & long-term decision making by Professor John Kay for the UK Government in 2012.
Many actors in the investment value chain have recognized these shortfalls & have sought to increase awareness of the value of long-termism & encourage it.
What is the best practice order of the Financial System Value Chain as described by the PRI?
- Asset Owners
- Investmenet Consultants
- Investment Managers
- Investment Brokers
- Stock Exchanges
- Policy Makers
Describe the theory versus the practice behind asset owners with long-term liabilities.
In theory, asset owners with long-term liabilities (such as pension funds) are well aligned with long-term investing and are due to benefit from it.
In practice, they at times help create the problem by rewarding managers and companies for short-term behavior.
Why are insurers by nature sensitive to certain ESG aspects?
There are a variety of factors impacting insurance products.
These include the frequency & strength of extreme weather events (property & causality) and demographic changes (life insurance).
What does the adoption of ESG investing by retail investors look like in comparison to institutional investors?
Adoption by retail investors has been generally slower than that of institutional investors.
However, surveys have found that millennials are interested in ESG investing, which may increase ESG assets in retail investing in the near future.
How do asset managers influence ESG characteristics in portfolios?
Asset managers influence the ESG characteristics of the portfolio through selection, as well as engaging with investee companies to improve their ESG performance.
While they react to asset owners’ interest in ESG issues, they can also play a key role in proposing new products & approaches to considering ESG factors.
Describe the evolution of ESG offerings from asset managers.
ESG offerings generally began with active-listed equities, but recently evolved to other asset classes, especially fixed-income.
The offering of indexes & passive funds with ESG integration with ESG integration by asset managers started 20 years after that of active investments.
Over the past 10 years, the rise of green bonds has further propelled fixed-income as an asset class of interest to responsible investors.
The use of indexes is nonetheless critical for the investment industry: They are performance benchmarks & the basis for passive investment funds, such as ETFs.
What is the role of investment consultants & retail financial advisors in ESG investing?
Investment consultant & retail financial advisors are investment professionals who help institutions & individuals, respectively, set & meet long-term financial goals, usually through the proposal of investment funds.
They can consider the ESG characteristics of the funds in their screening & short-listing of funds for clients.
