Week 7: ESG Market and ESG Reporting

Question 1

How did the ESG term start?

Answer 1

Kofi Annan UN secretary-general wrote (jan 2004) CEOs to integrate ESG into capital markets

Question 2

What developments happened for SRI in the early 2000s

Answer 2

Growth in shareholder activism, widespread consideration of environmental factors, positive-screening investing

Question 3

What was an initiative from Kofi Annan in 2004?

Answer 3

“Who Cares Wins” : joint financial sector Initiative to let CEOs integrate ESG in capital markets

Question 4

What is the “Freshfields Report”?

Answer 4

produced by the UN Environment Program Finance Initiative (UNEP FI) (2005)
> backbone of Principles for Responsible Investment (PRI) in 2006 by UN

Question 5

What did Nicholas Stern do in 2006?

Answer 5

He introduced “The Stern Report” which led a major review on economics of climate change. At request of the UK government, it said that climate change is the greatest and widest-ranging market failure.

Question 6

What are the sustainable development goals?

Answer 6

17 globally set goals to achieve a better & sustainable future by 2030, adopted by all UN members in 2015

Question 7

What is the UN Global Compact?

Answer 7

It launched with the 10 principle, Kofi Annan to World Economic Forum in 1999

Question 8

What is the Paris Agreement?

Answer 8

legally binding international treaty on climate change and set the global emission goal in 2015

Question 9

What is GHG Protocol?

Answer 9

Developing standards, tools and online training that helps countries etc. to track progress

Question 10

Name the market drivers within ESG investing

Answer 10

Asset owners, Asset managers, Financial services, Policymakers and regulators, Government, Civil society, Academia

Question 11

Who are asset owners and what do they do?

Answer 11

Pension funds, insurance, wealth funds

They set the tone for investment value chain, determine ESG expectations

Question 12

How are pension funds set up?

Answer 12

long-term investment horizon

Fund executives: set up mandates
Board of trustees: monitor pension scheme is run in accordance with mandates
Beneficiaries/pensioners: express preference, seek explanations, push engagement

Question 13

Name 2 things regarding ESG for retail investors and wealth management

Answer 13

• Millenials are interested in ESG investing (more than older generations)
• Normally ESG by retail investors slower than institutional investors.

Question 14

How do asset managers use ESG, name 3 things.

Answer 14

Stewardship: elect securities and offer portfolios to asset owners
Influence in ESG of portfolio through selection, integration and engaging
Can propose new products and approaches: passive ESG funds, green bonds

Question 15

What does a regulator do?

Answer 15

Promote orderly market expansion and are responding to the growing urgency of sustainability reporting

Question 16

What is the IFRS?

Answer 16

Develops global Sustainability Disclosure Standards on sustainability-related risks and opportunities that companies face.

Question 17

What is the SEC?

Answer 17

Developing regulations for the disclosure of climate related risk and GHG data in the US

Question 18

What is the Sustainablity Disclosure Standards and Requirements (SDS & SDR 2023)?

Answer 18

aligned with TCFD (climate related risks) based on the IFRS SDS in the UK

Question 19

What is the European Green Deal?

Answer 19

Growth strategy plan to comply with paris, and help EU become climate-neutral and -resilient by 2050 (made 2019/12)

Question 20

What is the Action Plan on Sustainable Finance?

Answer 20

Call for common language that investors can use

Question 21

What is the EU Taxonomy?

Answer 21

Helps translating EUs environmental objectives into manual for what activities/projects are sustainable (2020/7)

Question 22

What is the SFDR?

Answer 22

Sustainable Finance Disclosure Regulation: how financial market participants disclose sustainability information aligned with Taxonomy (phased in from 2021/3;2023/1)

Financial companies in the EU with > 500 employees need to report

Show public/investors how financial institutions or the financial product meets sustainability benchmarks.

Question 23

What is a new framework given out in 2025 (on 2024 data)?

Answer 23

Corporate Sustainable Reporting Directive (CSRD) about disclosure on ESG data

Question 24

Name 3 ESG reporting frameworks and what they are about.

Answer 24

TCFD, TNFD, CDSB
It is about principles, bigger questions: how information is structured and what information is collected

Question 25

Name 2 ESG reporting standards and what they are about.

Answer 25

SASB, GRI

This is more technical and shows specific requirements, precise metrics for each topic

Question 26

What agreed the EU council on 20 dec 2023 on?

Answer 26

A proposal to regulate ESG ratings providers under ESMA (European Securities and Markets Authority)

Question 27

Name 2 things ESG ratings could measure.

Answer 27

1.Impact on society of company (welfare of stakeholders, better may be bad for shareholders)
2.Potential impact of materially societal and environmental factors on company (set of risk factors that company can plan/mitigate, result in long-term financial benefit; impact of environmental/social risks on corporate financial performance)