ESG Integration & Sustainable Finance Flashcards

In ESG analysis, 'materiality assessment' refers to:

Answer: Identifying which ESG issues are most significant to a company's financial performance and stakeholder relationships

A materiality assessment identifies the ESG topics most significant to a company's business and stakeholders, informing both strategy and disclosure priorities.

Social bonds, as defined by the ICMA Social Bond Principles, must use proceeds for projects that:

Answer: Address or mitigate specific social issues and achieve positive social outcomes for target populations

ICMA Social Bond Principles require that proceeds fund projects targeting specific social issues (e.g., affordable housing, healthcare, food security) and deliver positive social outcomes for identified target populations.

What does a 'negative screen' (exclusion) ESG strategy typically remove from a portfolio?

Answer: Companies or sectors that fail to meet minimum ESG standards or are involved in controversial activities such as tobacco or weapons

Negative screening excludes companies or entire sectors that violate predefined ESG criteria (e.g., tobacco producers, controversial weapons manufacturers, thermal coal miners) from the investment universe.

The SASB (Sustainability Accounting Standards Board) Standards are designed primarily to help companies:

Answer: Disclose financially material sustainability information relevant to investors, organized by industry

SASB Standards provide industry-specific frameworks for disclosing financially material sustainability information, making them particularly useful for investor-focused reporting.

What is the primary risk of 'stranded assets' in sustainable finance?

Answer: Physical assets or reserves that lose value before the end of their expected economic life due to climate-related transition factors

Stranded assets are those that suffer unanticipated or premature write-downs, devaluations, or conversion to liabilities—most commonly fossil fuel reserves that may become unburnable under a low-carbon transition.

ESG due diligence in private equity or infrastructure investing most commonly includes:

Answer: Assessing ESG risks and opportunities at the asset level prior to acquisition and throughout the holding period

ESG due diligence in private markets involves identifying and quantifying material ESG risks and value creation opportunities at the asset level, both pre-acquisition and during ownership.

Which framework specifically guides investors on how to report on stewardship activities, including voting and engagement outcomes?

Answer: UK Stewardship Code

The UK Stewardship Code sets expectations for how asset owners and managers should conduct and report on stewardship activities, including their voting rationale and outcomes of company engagement.