ACFIM0018 – Green and Sustainable Finance
Group project assignment: description and requirements
As part of this assignment, your group is required to examine how companies' environmental and social practices impact their performance.
Step 1: Choosing stocks
You are expected to construct a portfolio with 3 to 5 sustainable stocks. The criteria for choosing stocks will depend on your group's decisions. Please refer to lecture 2 to see different approaches used in ESG analysis.
For groups with 4 members, you can choose 3 or 4 stocks; for groups with 3 members, 2 or 3 stocks are sufficient. For groups with 5 members, you are expected to choose 4 or 5 stocks.
In your report, please describe the criteria and methods you use. It is common to use combined methods. Therefore, you are welcome to use more than one method. However, using a single method is also appropriate.
Step 2: Analyse ESG factors.
After selecting stocks, you will need to analyse their ESG performance.
1. How is the ESG performance of sectors/industries that your stocks belong to? Are they subjected to high regulatory risks? Are they environmentally-friendly industries?
2. For each stock, we analyse the performance itself:
• Changes overtime (i.e., have scores/performance increased or decreased over time?)
• How does the performance compare to its industry or peers?
• Drivers of the Scores: What factors contribute to a stock having a high or low ESG (Environmental, Social, or Governance) score? Which components constitute or contribute to its score? How do these companies incorporate ESG factors into their business operations, and what is the consequent effect on their overall sustainability? In this step, you are also expected to analyse whether companies face high climate risks, including both transition and physical risks.
Step 3: Analyse market performance
How does the market respond to ESG trends or climate change? For example, how did the market react to news related to climate change or regulatory changes? Or, consider the market's response when more firms in your chosen industries began disclosing ESGor carbon emissions information. Or analyse how the market responded to Trump's decision to withdraw from the Paris Agreement.
You may choose any relevant news for analysis or conduct your own research for information.
Step 4: Stock performance
1. Applying the exercise provided from Lecture 4, determine your ESG preferences and assign weights to the stocks in your portfolio.
2. Compare this to the performance of the ESG portfolio and the market portfolio.
If you select firms from the S&P 500, you may use the S&P 500 index for comparison. Alternatively, depending on your portfolio, you can choose from the Dow Jones Industrial Average, Nasdaq Composite, Russell 1000 Index, Russell 2000 Index, NYSE Composite, FTSE 100, FTSE 250 Index, FTSE All-Share Index, or MSCI World Index.
Step 5: Report
Recommended structure and content of the research report. The report should include six sections:
1. Executive summary page
2. Company selection/Screening criteria to form. ESG portfolio
3. ESG performance analysis
4. Market trend analysis
5. Stock market performance
6. Conclusion/Limitation
Please note: the word count of each part is just recommended. Please feel free to adjust them by yourself.
1. Executive summary page (approx. 200 words, depending on your group size). Should contain:
• Information about the overall ESG score of your portfolio and stock performance (High ESG and high stock returns, or ESG neutral but high stock returns, or high ESG scores but low ESG).
• Your overall/highlights/snapshot view of the portfolio’s ESG score and the performance of your portfolio (i.e., Do you have optimistic views that the current ESG score will maintain and stock performance will perform. better? Or not?)
2. Company selection/Screening criteria to form ESG portfolio (approx. 150 - 200 words). Should contain:
• Please refer to step 1 and lecture 2.
3. ESG performance analysis (approx. 600 – 1000 words, depending on your group size). Should contain:
• Please refer to step 2: Critical analysis of the company’sESG performance.
4. Market trend analysis (approx. 200 – 300 words, depending on your group size). Should contain:
• Please refer to step 3
5. Stock market performance (approx. 200 - 300 words, depending on your group size) Should contain:
• Please refer to step 4
6. Conclusion/Limitation (approx. 150 - 200 words, depending on your group size). Should contain:
• In this section, give an overview of your portfolio. You can raise any limitations we should consider (for example, the divergence of ESG ratings, if any) or any overall concerns.
PLEASE MAINTAIN CONSISTENCY THROUGHOUT THE REPORT! Please remember that this is a practitioner-style. report, not an academic essay. The report should not include direct references to academic articles within the main text. You are expected to use academic findings to support your analysis, and these references should be included in the footnotes.
Footnotes should be used to cite the sources of information and data used in the report. All tables, figures, graphs, diagrams or formulas must be contained within the main body of the project. Formulas, tables, figures and diagrams with numerical content, and references in footnotes to data sources SHOULD NOT be included in the word count. If you chose to present narrative/textual content in a format of a table, a diagram, or a figure, than this text SHOULD be included in the word count.