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 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:
-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
-* [[Climate Change]]
+* Resource Depletion (Water, Soil Nutrients, Fishing Stock)
-* Resource Depletion
+* [[Energy Consumption]]
-* Energy Consumption
+* Waste and Pollution (of Air, Soil, Inland Water, Oceans)
-* Waste and Pollution
 * Deforestation
-* [[Biodiversity Loss]]
+* 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 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:
 * [[Inequality]]
 * Inclusiveness
-* Labour Relations
+* Labour / Employee Relations, Collective Bargaining
-* Employee Relations
 * Working Conditions
 * Health and Safety
-* Modern Slavery
+* Modern Slavery / Forced Labour
+* Human Trafficking
 * Child Labour
-* investment in human capital and communities
+* Forced Resettlement
-* Human Rights
+* 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.
-=== 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:
-Governance factors cover elements such as:
 * management structures / executive leadership
 * [[Remuneration Framework | executive remuneration]]
-* board diversity and structure / independence
+* [[Board Diversity]] and structure / independence
 * audits and internal controls
+* product quality, safety and suitability
 * shareholder rights
-* bribery and corruption
+* 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
+* 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]]
@@ Line 136: / Line 61: @@
 <references/>
-[[Category:ESG Risk Management]]
+[[Category:Energy Risk]]
+[[Category:ESG Factors]]