Podcast
Questions and Answers
What is the primary aim of the UN Principles for Responsible Investment (PRI)?
What is the primary aim of the UN Principles for Responsible Investment (PRI)?
As of December 2021, approximately how many signatories are there to the UN Principles for Responsible Investment?
As of December 2021, approximately how many signatories are there to the UN Principles for Responsible Investment?
Which of the following is NOT an action recommended for investment managers regarding ESG?
Which of the following is NOT an action recommended for investment managers regarding ESG?
What kind of training is advocated for investment professionals in the context of ESG?
What kind of training is advocated for investment professionals in the context of ESG?
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Which of the following best describes the nature of the UN Principles for Responsible Investment?
Which of the following best describes the nature of the UN Principles for Responsible Investment?
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What role do investment service providers play in relation to ESG issues?
What role do investment service providers play in relation to ESG issues?
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What reporting framework is suggested for companies to standardize their ESG disclosures?
What reporting framework is suggested for companies to standardize their ESG disclosures?
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Which aspect of ownership practices is highlighted by the PRI?
Which aspect of ownership practices is highlighted by the PRI?
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What is the relationship between risk and potential reward for investors?
What is the relationship between risk and potential reward for investors?
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How do Net Zero commitments impact the risk/return profile for investors?
How do Net Zero commitments impact the risk/return profile for investors?
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What factors can increase risks for investments in high-carbon sectors?
What factors can increase risks for investments in high-carbon sectors?
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What effect does the transition to a sustainable, low-carbon world have on investment opportunities?
What effect does the transition to a sustainable, low-carbon world have on investment opportunities?
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Which of the following statements regarding climate change risks is accurate?
Which of the following statements regarding climate change risks is accurate?
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Which of the following trends is likely to impact investor outcomes long-term?
Which of the following trends is likely to impact investor outcomes long-term?
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What happens to the risk/return profile for investors with short investment horizons amid climate change?
What happens to the risk/return profile for investors with short investment horizons amid climate change?
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What is one potential drawback for investors focusing on high-carbon sectors?
What is one potential drawback for investors focusing on high-carbon sectors?
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What was the main criticism of ExxonMobil’s strategy according to Engine No.1?
What was the main criticism of ExxonMobil’s strategy according to Engine No.1?
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What consequence did ExxonMobil face due to its refusal to accept future declines in fossil fuel demand?
What consequence did ExxonMobil face due to its refusal to accept future declines in fossil fuel demand?
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According to Engine No.1, which strategy might be more effective when investors seek to avoid climate risks?
According to Engine No.1, which strategy might be more effective when investors seek to avoid climate risks?
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What aspect of ExxonMobil's board was highlighted as a failure?
What aspect of ExxonMobil's board was highlighted as a failure?
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What is a potential outcome of an undisciplined capital allocation strategy mentioned by Engine No.1?
What is a potential outcome of an undisciplined capital allocation strategy mentioned by Engine No.1?
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Which of the following did Engine No.1 imply was necessary for implementing deeper green strategies?
Which of the following did Engine No.1 imply was necessary for implementing deeper green strategies?
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Why might investors prefer deeper green strategies?
Why might investors prefer deeper green strategies?
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What does Engine No.1 specify regarding the adaptation of ExxonMobil’s strategy?
What does Engine No.1 specify regarding the adaptation of ExxonMobil’s strategy?
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What is the estimated negative impact of climate change on global assets under management by 2050?
What is the estimated negative impact of climate change on global assets under management by 2050?
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Which thematic area focuses on advocating for policies to support a net-zero economy?
Which thematic area focuses on advocating for policies to support a net-zero economy?
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According to the Cambridge Institute for Sustainability Leadership, what percentage of value loss could climate change cause in global equity portfolios?
According to the Cambridge Institute for Sustainability Leadership, what percentage of value loss could climate change cause in global equity portfolios?
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What type of investments are noted to contain less risk regardless of asset class?
What type of investments are noted to contain less risk regardless of asset class?
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What is a major risk that firms in high-emission sectors face due to climate change?
What is a major risk that firms in high-emission sectors face due to climate change?
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How did traditional funds in the US compare to sustainable funds during the market downturns of 2008 and 2009?
How did traditional funds in the US compare to sustainable funds during the market downturns of 2008 and 2009?
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What percentage loss in fixed income portfolios could result from climate change, according to predictions?
What percentage loss in fixed income portfolios could result from climate change, according to predictions?
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What is a key strategy to mitigate systemic climate risks in investment?
What is a key strategy to mitigate systemic climate risks in investment?
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What does negative screening imply in relation to asset inclusion within a portfolio?
What does negative screening imply in relation to asset inclusion within a portfolio?
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Which of the following practices is recommended to improve ESG ratings consistency?
Which of the following practices is recommended to improve ESG ratings consistency?
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What requirement does the SFDR introduce for financial providers and advisers?
What requirement does the SFDR introduce for financial providers and advisers?
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What is a potential criticism of 'Article 8' funds according to Morningstar's research?
What is a potential criticism of 'Article 8' funds according to Morningstar's research?
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What is a drawback highlighted in utilizing a positive screening approach?
What is a drawback highlighted in utilizing a positive screening approach?
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What aspect of communication is emphasized when evaluating companies under ESG ratings?
What aspect of communication is emphasized when evaluating companies under ESG ratings?
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What is indicated as necessary for ESG ratings providers?
What is indicated as necessary for ESG ratings providers?
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What type of investment strategy is highlighted as a possible response to issues with positive screening?
What type of investment strategy is highlighted as a possible response to issues with positive screening?
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Study Notes
Risk vs Return
- High-risk investments often have the potential to yield high rewards for investors.
- Conversely, low-risk investments typically offer lower potential returns.
Risk and Opportunities of Climate Change
- Investors' understanding of climate change is evolving, including the physical and transition risks associated with it.
- This evolving understanding is impacting the investment risk/return profile.
- Investors with long-term horizons are also considering the impact of mid-century Net Zero commitments on the risk/return trade-off.
- Increased costs, reduced demand, legal risks, and stranded assets are increasing risks and potentially lowering returns in high-carbon sectors.
- The transition to a sustainable, low-carbon world presents attractive opportunities for investors, as the risks reduce with proven technologies and clearer policy direction, while the potential rewards grow.
UN Principles for Responsible Investment (PRI)
- The PRI was established in 2006 by the United Nations Environment Programme (UNEP) Finance Initiative and the UN Global Compact.
- As of December 2021, the PRI had 4,600 signatories managing assets exceeding US$120 trillion.
- The Principles encourage investors to incorporate Environmental, Social, and Governance (ESG) factors into their investment decisions.
PRI Principles
- Integrating ESG issues into investment analysis and decision-making processes.
- Incorporating ESG issues into ownership policies and practices.
- Seeking appropriate disclosure on ESG issues from investee companies.
- Promoting acceptance and implementation of ESG issues in the investment industry.
ESG Ratings
- The International Organization of Securities Commissions (IOSCO) recommends regulatory oversight to ensure consistency in ESG ratings.
- ESG ratings providers should improve transparency, disclosure, and address potential conflicts of interest.
Active ESG Investing
- Investors and investment managers can adopt a more active ESG investment strategy, which may be preferable to relying solely on ESG scores and ratings.
- A deeper green strategy focuses on positive environmental and social returns, while a lighter green screening strategy aims to avoid climate and sustainability risks.
- Investors may also choose to avoid specific sectors based on their own values and preferences.
Climate Change Impact on Investments
- The global transition to Net Zero is increasing transition risks for many businesses, particularly in high-carbon and impactful sectors.
- Companies in these sectors face increased costs due to litigation and liability risks.
- Climate change is estimated to have a negative impact of $43 trillion on global assets by 2100, according to the Economist Intelligence Unit.
- The Cambridge Institute for Sustainability Leadership estimates that climate change could lead to reductions of up to 45% in global equity portfolios and 23% losses in fixed income investments.
Sustainable Investment Benefits
- Sustainable investment strategies can mitigate climate change risks and are showing evidence of success.
- A Morgan Stanley report (2021) found that sustainable investments contained less risk than traditional alternatives across asset classes.
- Sustainable investments are more resilient to market downturns and recessions, as evidenced by their performance during the 2008, 2009, and 2015 market crises.
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Description
This quiz explores the complex relationship between risk and return in various investment strategies. It delves into how climate change influences investment decisions, emphasizing both the risks and opportunities for investors. Additionally, key principles of responsible investment are discussed to understand their implications on the risk/return profile.