Environmental Factors in ESG Investing

This chapter explores the critical role of environmental factors within the context of environmental, social, and governance (ESG) investing, with a particular focus on climate risk management. As climate-related risks increasingly affect financial markets, understanding and integrating environmental considerations into investment strategies has become essential. In this context, frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD) are explored for their role in promoting transparency and standardized reporting, which enable investors to assess the potential impacts of climate change on both businesses and portfolios. A key focus is placed on tools like scenario analysis, which are crucial for evaluating the long-term resilience of investments under various climate scenarios. This chapter discusses on the integration of environmental risks into existing enterprise risk management frameworks. It outlines the process of identifying, assessing, and mitigating climate risks, offering a detailed view of how these processes can be embedded into organizational strategies and corporate culture. The chapter also highlights investors’ strategies for managing environmental risks, including diversification, active engagement with portfolio companies, green investments, and the use of ESG criteria to identify sustainable opportunities. The growing demand for environmental metrics, such as carbon pricing and greenhouse gas reduction targets, is addressed as investors increasingly seek to align their portfolios with sustainability objectives. Ultimately, the chapter underscores the importance of environmental factors in ESG investing, illustrating how proactive climate risk management can contribute to more resilient and sustainable financial outcomes.