Difference between revisions of "ESG Factors"

Latest revision as of 16:14, 15 January 2023

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 through Greenhouse Gas Emissions
Resource Depletion (Water, Soil Nutrients, Fishing Stock)
Energy Consumption
Waste and Pollution (of Air, Soil, Inland Water, Oceans)
Deforestation
Other Environmental Degradation (Dam Construction, Deep Sea Mining)
Biodiversity Loss and Protected Sites / Protected Species
Animal Welfare / Animal Testing

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, Collective Bargaining
Working Conditions
Health and Safety
Modern Slavery / Forced Labour
Human Trafficking
Child Labour
Forced Resettlement
Controversial Weapons
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
product quality, safety and suitability
shareholder rights
bribery and corruption, illegal and unethical payments
political lobbying and donations
anti-competitive practices
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]

@@ Line 1: / Line 1: @@
 == Definition ==
-'''ESG Factors''' are environmental, social or 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.<ref>EBA Report: On Management and Supervision of ESG Risks for Credit Instituions and Investment Firms, EBA/REP/2021/18</ref>
+'''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.<ref>EBA Report: On Management and Supervision of ESG Risks for Credit Instituions and Investment Firms, EBA/REP/2021/18</ref>
 ESG factors can lead to negative financial impacts through a variety of [[Risk Factor | risk drivers]]. The causal chains that explain how these risk drivers impact institutions through their counterparties and invested assets are called [[Risk Transmission Channel | ''transmission channels'']].
 == Environmental Factors ==
-Environmental factors are related to the quality and functioning of the natural environment and of natural systems, and include factors such as climate change, biodiversity, energy consumption, pollution and waste management. They can be defined as environmental matters that may have a positive or negative impact on the financial performance or solvency of an entity, sovereign or individual.  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:
+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]] through Greenhouse Gas Emissions
-=== Emissions ===
+* Resource Depletion (Water, Soil Nutrients, Fishing Stock)
-* [[Greenhouse Gas Emissions]], Total GHG emissions (broken down by scope 1, 2 and 3 carbon emissions)
+* [[Energy Consumption]]
-* Emissions of air pollutants
+* Waste and Pollution (of Air, Soil, Inland Water, Oceans)
-* Emissions of water pollutants
+* Deforestation
-* Emissions of inorganic pollutants
+* Other Environmental Degradation (Dam Construction, Deep Sea Mining)
-* Carbon footprint
+* [[Biodiversity Loss]]  and Protected Sites / Protected Species
-* Fossil fuel sectors
+* Animal Welfare / Animal Testing
-* 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 ===
-* [[Climate Change]]
-* Resource Depletion
-* 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:
 == Social Factors ==
-Social factors are related to the rights, well-being and interests of people and communities, and include factors such as (in)equality, health, inclusiveness, labour relations, workplace health and safety, human capital and communities. These factors are increasingly being considered in the business strategies and operating frameworks of institutions and their counterparties.
+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. Considerations may include issues such as:
-=== Community and Society ===
-=== Emplyee Relationships and Labour Standards ===
-=== Customer Relationships ===
-=== Human Rights ===
-=== Povery and Famine ===
 * [[Inequality]]
 * Inclusiveness
-* Labour Relations
+* Labour / Employee Relations, Collective Bargaining
-* investment in human capital and communities
+* Working Conditions
-* Human Rights
+* Health and Safety
-* Modern Slavery
+* Modern Slavery / Forced Labour
-* Child Labour
+* Human Trafficking
-* Working Conditions
+* Child Labour
-* Employee Relations
+* Forced Resettlement
+* Controversial Weapons
+* Investment in human capital and communities and
+* Human Rights
-== Governance Factors ==
-Governance factors cover governance practices, including executive leadership, executive pay, audits, internal controls, tax avoidance, board independence, shareholder rights , corruption and bribery, and also the way in which companies or entities include environmental and social factors in their policies and procedures. 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.
-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:
+These factors are increasingly being considered in the business strategies and operating frameworks of institutions and their counterparties.
-=== Ethical Considerations ===
+== 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
+* [[Remuneration Framework | executive remuneration]]
+* [[Board Diversity]] and structure / independence
+* audits and internal controls
+* product quality, safety and suitability
+* shareholder rights
+* bribery and corruption, illegal and unethical payments
+* political lobbying and donations
+* anti-competitive practices
+* tax strategy / tax avoidance
+* inclusion of environmental and social factors in policies and procedures.
-=== Strategy and Risk Management ====
-=== Inclusiveness ===
+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:
-=== Transparency ===
-* management structures
-* employee relations and
-* [[Remuneration Framework | executive remuneration]]
-* bribery and corruption
-* board diversity and structure
-* political lobbying and donations
-* tax strategy
 == See Also ==
 * [[ESG Risks]]
-* [[ESG Criteria]]
+* [[List of ESG Factors]]
 * [[ESG Risk Transmission Channel]]
@@ Line 100: / Line 61: @@
 <references/>
-[[Category:ESG Risk Management]]
+[[Category:Energy Risk]]
+[[Category:ESG Factors]]