Intro to Responsible Investment (RI)

There are three broad categories of climate-related financial risks:

• Physical riskRefers to risks generated by extreme weather and climate events such as rising sea levels;
• Transition riskRefers to risks that could result from the process of transition to a low carbon economy
• Liability riskRefers to a risk scenario in which parties who have been negatively affected by climate change could seek compensation from those they hold responsible.

The World Bank estimates that water scarcity could cost up to 6% of the world’s GDP by 2050.

Water is an important issue for investors because companies, especially those in water-intensive industries such as mining and agriculture, face significant financial risks. These risks include business interruption (directly through local infrastructure or indirectly through suppliers) and the potential market impact of negative media attention if the company is affecting a local community’s water supply or quality.

This is a problem not only because it’s ethically problematic, but also because companies with strong representation of women on their boards tend to outperform on a number of financial metrics.

Research has shown that companies with more women on their boards tend to outperform their competitors on a number of financial measures, including return on equity, return on sales, and stock price growth.

A 2018 report from the Canadian Centre for Policy Alternatives found that Canada’s 100 highest paid CEOs earned 209 times more than the average worker. This growth in CEO pay can contribute to rising social inequality, negative media attention and reputational risks for the companies involved. It also raises questions about a company’s overall governance and incentive structures.

To address CEO pay, responsible investors advocate for companies to adopt ‘say on pay’ policies, which allow shareholders to vote on the remuneration of executives.

The International Labour Organization (ILO) and the United Nations Declaration on the Rights of Indigenous Peoples advance the principle that indigenous groups should be incorporated into the development of new capital projects that affect them.

It is especially important for the extractive sector to obtain and maintain support from local communities, Aboriginal or otherwise. Even if a project has received the necessary regulatory approval, community opposition has the potential to prevent a company’s project from coming to fruition – at great cost to the company.

It was a sudden a collapse in the middle of the workday. Obviously this is was a terrible tragedy. But what makes it even worse is that it was totally preventable.

This factory should not have been allowed to operate. But it was operating because companies, including leading global and Canadian brands, were not actively monitoring health and safety in their supply chains. The result was a tragic loss of life, as well as massive reputational, legal and ultimately financial risks for the companies involved and for their shareholders.