Difference between revisions of "ESG Factors"

Revision as of 21:48, 13 August 2021

Definition

ESG Factors are Environmental Social and Corporate Governance conditions that are subject to Uncertainty and that may have a positive or negative impact on the financial performance or Solvency of an entity, sovereign or individual.^[1]

ESG factors can lead to negative financial impacts through a variety of risk drivers. The causal chains that explain how these risk drivers impact institutions through their counterparties and invested assets are called transmission channels.

Environmental Factors

Environmental factors can be defined broadly as environmental conditions that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Environmental factors are related to the quality and functioning of the natural environment and of natural systems, and include factors such as: Climate Change, Resource Depletion, Energy Consumption, Waste and Pollution, Deforestation and Biodiversity Loss.

Environmental factors can give rise to negative financial impacts through a variety of risk drivers that can be categorised as physical risks and transition risks. Environmental considerations may include:

Social Factors

Social factors can be defined as social matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Social factors are related to the rights, well-being and interests of people and communities, and include factors such as: Inequality, Inclusiveness, Labour / Employee Relations, Working Conditions, Health and Safety, Modern Slavery, Child Labour, Investment in human capital and communities and Human Rights

These factors are increasingly being considered in the business strategies and operating frameworks of institutions and their counterparties.

Governance Factors

Governance factors can be defined as governance matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Governance factors cover elements such as: management structures / executive leadership, executive remuneration, board diversity and structure / independence, audits and internal controls, shareholder rights, bribery and corruption, political lobbying and donations, tax strategy / tax avoidance, inclusion of environmental and social factors in policies and procedures.

Conciderations around the governance of public and private institutions with relevance to ESG factors (have an impact on or are impacted by institutions’ counterparties or invested assets, including governance arrangements for the environmental and social factors in counterparty policies and procedures) include:

References

↑ EBA Report: On Management and Supervision of ESG Risks for Credit Instituions and Investment Firms, EBA/REP/2021/18

[1] EBA Report: On Management and Supervision of ESG Risks for Credit Instituions and Investment Firms, EBA/REP/2021/18

[1]

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 == Environmental Factors ==
-Environmental factors can be defined broadly as environmental conditions that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual.
+Environmental factors can be defined broadly as environmental conditions that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual.  Environmental factors are related to the quality and functioning of the natural environment and of natural systems, and include factors such as: [[Climate Change]],  Resource Depletion, Energy Consumption, Waste and Pollution, Deforestation and [[Biodiversity Loss]].
-Environmental factors are related to the quality and functioning of the natural environment and of natural systems, and include factors such as
-* [[Climate Change]]
-* Resource Depletion
-* Energy Consumption
-* Waste and Pollution
-* Deforestation
-* [[Biodiversity Loss]]
 Environmental factors can give rise to negative financial impacts through a variety of risk drivers that can be categorised as [[Physical Risk | physical risks]] and [[Transition Risk | transition risks]]. Environmental considerations may include:
-=== Emissions ===
-* [[Greenhouse Gas Emissions]], Total GHG emissions (broken down by scope 1, 2 and 3 carbon emissions)
-* Emissions of air pollutants
-* Emissions of water pollutants
-* Emissions of inorganic pollutants
-* Carbon footprint
-* Fossil fuel sectors
-* Reduction policies or initiatives on the use and production of fossil fuels
-* Compliance with Paris Agreement targets
-* Reduction policies or initiatives on emissions
-=== Energy Efficiency ===
-* Energy consumption intensity
-* Use of renewable sources of energy
-=== Water Usage ===
-* Water consumption intensity
-=== Waste Production ===
-* Production of hazardous waste
-* Reusability/Recyclability
-=== Biodiversity and Ecosystems ===
-* Presence/operations (e.g. own, via value chain) in geographic areas impacted by soil degradation
-* Presence/operations (e.g. own, via value chain) in geographic areas and industries that are particularly dependent on biodiversity and ecosystem services
-* Presence/operations (e.g. own, via value chain) in protected areas or areas of high biodiversity value outside protected areas
-* Operations (e.g. own, via value chain) affecting IUCN Red List species and/or national conservation list species
-=== Environmental Hazards ===
-* Presence/operations (e.g. own, via value chain) in areas likely to be affected by heatwaves
-* Presence/operations (e.g. own, via value chain) in areas likely to be affected by water scarcity
-* Presence/operations (e.g. own, via value chain) in areas likely to be affected by floods
-* Presence/operations (e.g. own, via value chain) in areas likely to be affected by coastal erosion
-* Presence/operations (e.g. own, via value chain) in areas likely to be affected by wildfires
 == Social Factors ==
-Social factors can be defined as social matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Social factors are related to the rights, well-being and interests of people and communities, and include factors such as:
+Social factors can be defined as social matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Social factors are related to the rights, well-being and interests of people and communities, and include factors such as: [[Inequality]], Inclusiveness, Labour / Employee Relations,  Working Conditions,  Health and Safety, Modern Slavery, Child Labour,  Investment in human capital and communities and Human Rights
-* [[Inequality]]
-* Inclusiveness
-* Labour Relations
-* Employee Relations
-* Working Conditions
-* Health and Safety
-* Modern Slavery
-* Child Labour
-* investment in human capital and communities
-* Human Rights
 These factors are increasingly being considered in the business strategies and operating frameworks of institutions and their counterparties.
-=== Community and Society ===
-* Relations with local communities (networks)
-* Social impact of products and services
-=== Employee Relationships and Labour Standards ===
-* Freedom of association and right to organise
-* Forced labour
-* Minimum age and child labour
-* Equal representation
-* Equal remuneration
-* Discrimination
-* Human capital management and employee relations (training and development opportunities)
-* Workplace health and safety
-=== Customer Relationships ===
-* Customer protection and product responsibility
-* Personal data security and privacy
-* Rights of customers to obtain information about ESG factors
-* Quality and innovation in customer relations
-=== Human Rights ===
-* Contribution to human rights projects
-=== Povery and Famine ===
-* Contribution to poverty reduction
 == Governance Factors ==
-Governance factors can be defined as governance matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual.
+Governance factors can be defined as governance matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual. Governance factors cover elements such as: management structures / executive leadership,  [[Remuneration Framework | executive remuneration]], board diversity and structure / independence, audits and internal controls, shareholder rights, bribery and corruption, political lobbying and donations, tax strategy / tax avoidance, inclusion of environmental and social factors in policies and procedures.
-Governance factors cover elements such as:
-* management structures / executive leadership
-* [[Remuneration Framework | executive remuneration]]
-* board diversity and structure / independence
-* audits and internal controls
-* shareholder rights
-* bribery and corruption
-* political lobbying and donations
-* tax strategy / tax avoidance
-* inclusion of environmental and social factors in policies and procedures
 Conciderations around the governance of public and private institutions with relevance to ESG factors (have an impact on or are impacted by institutions’ counterparties or invested assets, including governance arrangements for the environmental and social factors in counterparty policies and procedures) include:
-=== Ethical Considerations ===
-* Integrity of conduct/conduct frameworks
-* Values and ethics
-* Bribery and corruption
-* Accountability/rule of law
-=== Strategy and Risk Management ===
-* Strategy implementation, operational execution and monitoring
-* Internal controls and risk management policies and procedures
-=== Inclusiveness ===
-* Discrimination
-=== Transparency ===
-* Observance of disclosures, information rules and practices
 == See Also ==
 * [[ESG Risks]]
-* [[ESG Criteria]]
+* [[List of ESG Factors]]
 * [[ESG Risk Transmission Channel]]