According to the Capitals Coalition, the stock of renewable and non-renewable natural resources that combine to yield a flow of benefits to people is best described as natural capital. Here's a detailed explanation:
Natural Capital:
Natural capital refers to the world's stocks of natural assets including geology, soil, air, water, and all living things. It is from this natural capital that humans derive a wide range of ecosystem services that make human life possible.
The Capitals Coalition defines natural capital as the stock of renewable and non-renewable natural resources (such as plants, animals, air, water, soils, and minerals) that combine to yield a flow of benefits to people.
CFA ESG Investing Reference:
The CFA Institute's ESG curriculum discusses natural capital extensively, emphasizing its importance in sustainable investing and the need for integrating natural capital considerations into financial decision-making.

Wastewater treatment plants are capital-intensive projects, requiring significant investment upfront for infrastructure and technology, which can be a major barrier to entry. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)

Sovereign debt has the lowest degree of ESG integration compared to investment-grade corporate debt and emerging markets corporate debt. This is due to several factors:
* Limited ESG Data: There is generally less ESG data available for sovereign issuers compared to corporate issuers. Sovereign ESG assessments rely on country-level indicators, which may not be as detailed or specific as corporate ESG disclosures.
* Complexity of ESG Factors: The ESG factors affecting sovereign debt are more complex and broader in scope, encompassing issues like political stability, governance, human rights, and environmental policies. This complexity makes it challenging to integrate ESG factors effectively.
* Market Practices: The integration of ESG factors into sovereign debt investment processes is less advanced compared to corporate debt markets. While there is growing interest, the methodologies and frameworks for assessing sovereign ESG risks are still developing.
References:
* MSCI ESG Ratings Methodology (2022) - Discusses the challenges and current state of ESG integration across different asset classes, highlighting the relative lag in sovereign debt.
* ESG-Ratings-Methodology-Exec-Summary (2022) - Provides insights into the varying degrees of ESG integration in different asset classes and the factors contributing to these differences.

Analyzing a portfolio's social impact exposure involves understanding the broader social context before drilling down to individual company specifics. The best approach is to first understand the material social topics at the country and sector levels, then the company level.
Country and sector levels, then the company level (B): Starting at the country level provides insight into the social issues prevalent in the region, influenced by local laws, regulations, and cultural norms. Next, analyzing at the sector level helps to identify sector-specific social risksand opportunities. Finally, understanding these issues at the company level allows for a more detailed analysis of how individual companies manage these social impacts.
Company and country levels, then the sector level (A): This approach might miss out on sector-specific social issues that are critical for a comprehensive analysis.
Company and sector levels, then the country level (C): This approach overlooks the broader country-level social context, which can significantly influence sector and company-level social impacts.
References:
CFA ESG Investing Principles
MSCI ESG Ratings Methodology (June 2022)

When a company reduces water usage and increases the use of more expensive resources due to more stringent regulations, this directly impacts its operating expenditure (OPEX). Here's a detailed breakdown:
Regulatory Compliance:
As regulations become stricter, companies often need to adopt new technologies or practices that may be more costly. This increase in cost is directly related to the day-to-day operations of the company, affecting operating expenditures.
For example, implementing water-saving technologies or switching to sustainable raw materials that are more expensive than traditional ones will raise the ongoing costs associated with production.
Impact on Revenues:
While reducing water usage and adhering to stricter regulations can have long-term benefits for the company, such as improved sustainability ratings and possibly higher market valuation, these changes do not typically have an immediate direct impact on revenues. Revenues are more directly influenced by sales and market demand.
Impact on Provisions:
Provisions are set aside for future liabilities or losses, such as environmental remediation costs or legal disputes. While stricter regulations might eventually lead to increased provisions, the immediate impact of switching to more expensive resources affects operating expenditure first.
CFA ESG Investing Reference:
The CFA ESG Investing curriculum highlights the importance of understanding how regulatory changes can affect various aspects of a company's financials. Operating expenditure is often highlighted as the most immediately impacted area when companies adapt their operations to comply with new environmental standards.