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ESG investment

ESG investment

Kartei Details

Karten 49
Sprache English
Kategorie Finanzen
Stufe Universität
Erstellt / Aktualisiert 04.05.2022 / 10.05.2022
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How to incorporate ESG in Investment Decision 

Integrate (material ESG factors)

Screen (positive, norm, negative)


Examples of E factors, data and ratios


  • Climate change
  • Water scarcity and security
  • Energy security
  • Deforestation
  • Biodiversity loss

Data                                                                                  Ratios

  • Total GHG emission                                              Water intensity (consumption unit per asset, sales, etc.)
  • Total Energy consumption                                     GHG intensity (ditto)
  • Total Waste                                                            Energy intensity (ditto)
  • Total fines
  • No of spills

Examples of S factors, data and ratios

Social factors                                                                                      Data

  • Community concerns (eg. health impacts from ops)               # of workplace safety violations
  • Supply chain issues (eg. child labour)                                    # of community protests or incidents
  • Labour relations (eg. gender)                                                 # and cost of product recalls
  • Product safety
  • Trade practices (bribery and corruption)
  • Community involvement (infrastructure dev. )

Social ratios

  • % of women in workforce and mgt
  • lost time incident rate
  • unionisation rate
  • employee turnover rate

Examples of G factors, data and ratios

Factors                                                                                       Data

  • Board accountability (eg. independence of board)          # of board meetings
  • Internal control (eg. independence of audit comm.)         board meeting attendance
  • Financial disclosure (eg. inappropr account. policies)     # of audit committee meetings
  • Shareholder rights (eg. voting rights)
  • Remuneration (eg. LT incentives)
  • Corp. litigation (eg. consumer prot. issues)



  • % of independent directors
  • % of female board members
  • Av CEO to worker pay

Go into detail of how to incorporate ESG in Inv. Decisions


  • of material ESG factors
  • Risk, Return and opps
  • Assess materiality


  • positive, norms based, negative


  • certain ESG outcomes
    • IMPACT 100% ESG outcomes with possibly financial tradeoff
  • Examples
    • Project bonds
      • Funds allocated to specific projects
    • Revenue bonds
      • Typically issued by states, municipalities or government agencies to finance income-generating projects such as public transport
    • Green labelled bonds (use of proceeds)
      • Asset linked for ring-fenced future investments (unspecific) that qualify as green (as defined by issuer)
        • Corporates
        • Finance industries
        • Agencies and local authorities
    • Securitised green bonds
      • Backed/secured by income from loans/leases on green assets
    • Climate themed bonds
      • Broader definition for climate change solutions

How to integrated ESG factors in an integrated analysis. No right and wrong, but quote 4 integration techniques

Fundamental strategies

  • adjust forecasted financials or valuations for expected impact of ESG factors

Quantitative Strategies

  • integrate ESG factors alongside factors such as value, size, momentum, growth, and volatiliy

Smart Beta Strategies

  • create excess risk-adjusted returns ??

Passive strategies

  • adjust weights in portfolio to certain ESG risks


A possible practical integration by stages

1. Qualitative Analysis (ID key issues, then ID material ESG factors)

  • Economy, Industry, Co Strategy, Quality of mgt
  • --> assessing ESG Materiality, ID Co' ESG factors, Summary of material ESG factors

2. Quantitative Analysis

  • Financial FC, Models
  • --> Sector comparison, Deep dive into water related risks, assessment results, now how will ESG identified impact financial modelling and investment decisions
  • --> scoring and rating, Integrating ESG into DCF, ESG Macro modelling

3. Investment Decision

  • Buy/Increase/Hold/maintain/sell/decrease/dont invest

4. Active Ownership

  • Co engagement/voting


=active ownership, i.e. the us of investors influence as owners of secucrities. to maximize LT value, incl. value of common economic, social and E assets