PRI
ESG investment
ESG investment
Kartei Details
Karten | 49 |
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Sprache | English |
Kategorie | Finanzen |
Stufe | Universität |
Erstellt / Aktualisiert | 04.05.2022 / 10.05.2022 |
Weblink |
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How to incorporate ESG in Investment Decision
Integrate (material ESG factors)
Screen (positive, norm, negative)
Thematic
Examples of E factors, data and ratios
E-factors
- 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)
Ratios
- % of independent directors
- % of female board members
- Av CEO to worker pay
Go into detail of how to incorporate ESG in Inv. Decisions
INTEGRATION
- of material ESG factors
- Risk, Return and opps
- Assess materiality
SCREENING
- positive, norms based, negative
THEMATIC
- 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
- Asset linked for ring-fenced future investments (unspecific) that qualify as green (as defined by issuer)
- Securitised green bonds
- Backed/secured by income from loans/leases on green assets
- Climate themed bonds
- Broader definition for climate change solutions
- Project bonds
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
Stewardship?
=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