TheEU Sustainable Finance Disclosure Regulation (SFDR)requires asset managers todisclose ESG risksin investment decisions, promotingtransparency on sustainability factors. It applies toall financial market participantsin the EU.
TheEU Taxonomy (A)defineswhat qualifies as a "green" investment, while theShareholder Rights Directive (B)focuses oncorporate governance and investor engagement.
References:
* European Commission SFDR Guidelines
* CFA Institute Guide to ESG Regulation in the EU
* Principles for Responsible Investment (PRI) Sustainable Finance Report

Stranded asset risk refers to the financial risk associated with assets that may suffer from unanticipated or premature write-downs due to regulatory, environmental, or market shifts. Equity investors generally bear a higher risk than fixed-income investors because they are the residual claimants on a company's assets. If an asset becomes stranded, equity investors absorb the losses first before bondholders or other creditors.
Equity holders are exposed to long-term sustainability risks, such as fossil fuel companies losing value due to climate policies, technological advancements, or consumer preferences shifting toward renewable energy.
Fixed-income investors, particularly those holding investment-grade bonds, have priority in claims, and their risk is more directly tied to credit quality and duration rather than asset obsolescence.
References:
* CFA Institute ESG Investing Handbook
* Principles for Responsible Investment (PRI) Report on Climate Risks and Stranded Assets
* TCFD (Task Force on Climate-related Financial Disclosures) Guidelines
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Working conditions on a tree plantation are most likely an example of a social issue. This encompasses aspects related to labor practices, employee welfare, and human rights.
* Labor Practices: Evaluating working conditions involves assessing factors such as wages, working hours, health and safety standards, and the provision of benefits. Ensuring fair and safe working conditions is a critical social concern.
* Employee Welfare: Social analysis of working conditions includes examining the treatment of workers, their access to healthcare, training opportunities, and overall well-being. Poor working conditions can lead to labor unrest and reputational damage.
* Human Rights: Ensuring that working conditions respect human rights is essential. This includes preventing forced labor, child labor, and discrimination. Companies must adhere to international labor standards to uphold workers' rights and promote social justice.
References:
* MSCI ESG Ratings Methodology (2022) - Highlights the importance of assessing social issues, such as working conditions, in evaluating a company's ESG performance.
* ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the impact of labor practices and employee welfare on the social dimension of ESG analysis.

The principle that institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship is not addressed in the European Fund and Asset Management Association (EFAMA) Code.
UK Stewardship Code: This code includes principles that address monitoring investee companies (A), reporting periodically on stewardship and voting activities (B), and having robust policies on managing conflicts of interest in relation to stewardship (C).
EFAMA Code: While the EFAMA Code covers monitoring and reporting on stewardship activities, it does not explicitly address the need for a robust policy on managing conflicts of interest.
CFA ESG Investing Reference:
The CFA Institute's resources on stewardship codes and principles provide a detailed comparison of various stewardship codes globally, including those by the UK and EFAMA. The UK Stewardship Code is noted for its comprehensive approach, including conflict of interest management, which is less emphasized in the EFAMA Code.

The UK's Green Finance Strategy emphasizes the importance of ensuring that environmental and climate factors are systematically considered in financial decisions, including lending and investment activities. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)