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Saturday Brain Storming Thought (199) 02/12/2023

ESG VALUE

Environmental, Social and Governance (ESG) is a framework used to access an organization’s business practices and performance on various sustainability and ethical issues

It also provides a way to measure business risks and opportunities in those areas

ESG Valuation

ESG (Environmental, Social and Governance), is a set of factors that investors used to evaluate the sustainability and ethical impact of a company

ESG has become an increasingly important consideration in recent years, as more investors are looking to align their investment strategies with their values

Personal ESG Score

A governments and stakeholders push companies to act more responsibly and sustainably, the firms are extending the same scrutiny to their subjects through ESG ratings

Personal ESG reviews an individual from the three primary metrics, environmental, social and governance impacts

Environmental Impacts

1) Evaluate your energy consumption and explore ways to reduce it (ie using energy-efficient appliances, reducing water usage)

2) Consider your transportation habits and explore options for minimizing your carbon footprint (ie using public transport, carpooling, cycling or walking when feasible)

3) Assess your waste management practices and explore opportunities for recycling, composting and reducing waste generation)

Social Responsibility

1) Reflect on your contributions to the community and society at large (ie volunteering, supporting local causes, donating to charitable organisations)

2) Evaluate your consumption patterns and consider supporting ethical and sustainable products and services

3) Assess your treatment of others, promoting diversity, equity and inclusion in your interactions and decisions

Governance Practices

1) Consider your personal financial practices and ensure transparency, accountability and ethical behavior in your financial dealings

2) Reflect on your decision-making and integrity in personal and professional contexts

3) Assess your involvement in responsible investing and supporting companies with strong governance practices

ESG Score calculation

1) Identify key ESG factors

2) Gather data

3) Set Weightings

4) Establish metrics and a scoring methodology

5) Evaluate and score

6) Weighted scoring and overall ESG Score

7) Continuous improvement

Importance of ESG

1) Environmental criteria addresses a company’s operations environmental impact, and environmental stewardship

2) Social criteria refers to how a company manages relationships with and creates value for stakeholders

3) Governance criteria refers to a company’s leadership and management philosophy, practices, policies, internal controls and stakeholders rights

ESG is not about values

ESG is about the ability to create and sustain long-term value in a rapidly changing world, and managing the risks and opportunities associated with these changes

History and Evolution of ESG

1) in 1980

Environment, Health and Safety (EHS), based on the development of environmental and employee regulations

2) In 1990

Sustainability focused on reducing environmental impacts beyond legal requirements

3) In 2000-2010

Corporate Social Responsibility (CSR) – Corporate philanthropy and employee volunteerism used to align social issues

4) In 2020+

Environmental, Social and Governance (ESG) – Holistic concept related to competitive advantage and risk & reward management

ESG Growth

1) Materiality

ESG’s influence on investor risk and return

2) Transparency

Greater transparency on how client money is invested

3) Regulation

Address both national & international threats (ie climate change)

Examples of ESG incidents

1) BP (2010)

BP’s US Deep water Horizon oil spill where BP received $53.80B in fines, clean-up costs and local reparations

2) Volkswagen (2015)

The company was charged €27.40B in penalties for rigging 11 million diesel vehicles to pass emissions tests

3) Cambridge Analytica (2018)

Analytica harvested the personal data of 87 million Facebook users, resulting in FB losing billions in market value

Impact of ESG on fundamental business issues

1) Corporate Reputation

2) Risk Reduction

3) Opportunity Management

4) Culture & Intrinsic Value

ESG and Competitive Advantage

1) Reduced Risk – Mitigates risk to the enterprise

2) Increased opportunities and growth – Supports identification of new markets, customers and products/services

3) Organizational Resiliency – Anticipates and adapts to technological, customer and regulatory changes

4) Workforce Productivity – Engages and empowers employees, increases retention and attracts best talent

5) Reputation & Stakeholder Trust – Increased Stakeholder Trust means better corporate reputation

ESG reporting frameworks and standards

1) IFRS sustainability disclosure standards

2) SASB standards

3) CDSB framework

4) CDP

5) Task force on climate related financial disclosures

6) United Nations global compact

7) Workforce disclosure initiative

Main ESG criteria

1) Climate change and efforts to reduce carbon emissions

2) Energy efficiency practices

3) Addressing water scarcity

4) Combating air and water pollution

5) Implementing waste management strategies

6) Preventing deforestation

7) Protecting biodiversity and averting loss of species

Best ESG Score country

Finaland (9.63 out of 10)

ESG information sheet

Environmental

1) Climate change
2) Deforestation
3) Environmental
4) Report
5) Fruit vs Juice
6) Location of raw materials
7) Groves
8) Organic certification
9) Pesticides
10) Sustainability
11) Water use

Social

1) Health and Safety
2) Human rights
3) Labor standards

Governance

1) Annual general
2) Meeting
3) Board members
4) Management
5) Discussion and analysis
6) Supply chain

Financial

1) Annual report
2) Audit
3) Bond issues
4) Cash flow
5) Crop insurance
6) Dividend
7) Fair trade
8) Financial statement
9) Market share
10) Share price
11) Transportation