1.1.6 35–45 minutes · Read, practise, review
What you will learn
- Explain why stakeholder interests can align or conflict over time.
- Identify limitations in sustainability claims and ratings.
- Choose metrics that test an objective without concealing important effects.
1.1 · Introduction to Investing
Introduction to Investing
Introduction to Investing · the work you will do
- 1Start with a purpose
- 2Identify the claim
- 3Trace the risks
- 4Explain the choice
Before you begin
A company cuts its emissions per product while total emissions rise. Is its sustainability claim accurate? Decide what you can conclude and what further information you need.
Take an initial view. Try the choices as you work through the explanations, then revisit your first view.
Video coming soon · about 4 minutes
Sustainable investing: evidence and trade-offs
Use the narration below while the recording is being made, then try the decisions in this lesson.
Read the full narration
Welcome to On Judgement. A company cuts its emissions per product while total emissions rise. Is its sustainability claim accurate? Decide what you can conclude and what further information you need. Take a first view. You can change it when you have considered the evidence.
Shareholders, workers, customers, suppliers, communities and lenders can be affected by a business decision. Their interests can align: a safer process might reduce injuries, disruption and costs. They can also conflict: a costly improvement may burden today's cash flow while benefiting future users. A useful analysis identifies the mechanism, the time horizon and the constraints. “Stakeholders matter” is not yet a decision rule. The investor must relate the issue to the mandate, the evidence and the responsibilities involved. Avoid implying that every cost reduction is harmful or every increase in spending is beneficial.
Check what is measured, which activities are included, which period is used and what comparison is made. Absolute measures describe totals. Intensity measures describe a total relative to something else, such as units produced or revenue. Both can be useful but can tell different stories. Targets should have a baseline, scope, date and credible plan. A future ambition is not a completed result. Selective disclosure or language that suggests more than the evidence supports can mislead. An attractive image or a large market-size statistic does not establish a company's contribution.
A rating provider makes choices about issues, indicators, sources, missing data and weighting. Industry-relative performance and absolute impact are different concepts. A strong score on one dimension can coexist with weakness on another. Use ratings to structure investigation, not replace it. Ask whether the rating measures risk to the company, effects of the company, or another objective. Look for the underlying data and disagreements that matter to the investment decision. Financial accounts also contain estimates; a numerical presentation does not remove judgement.
Match metrics to the stated goal. Injury rates can illuminate safety, but reporting quality and hours worked matter. Staff turnover needs context about roles, industry and voluntary versus involuntary departures. A falling emissions-intensity figure should be read alongside absolute emissions and production. Metrics can change behaviour. Rewarding the number of training hours may encourage attendance without learning. Rewarding only one environmental metric can overlook other effects. Pair key numbers with explanation, independent checks where proportionate and questions about unintended consequences.
Let's work through Intensity falls; the total rises. A fictional business produces 100 units at 10 kg emissions per unit in Year 1. In Year 2 it produces 140 units at 8 kg per unit. Calculate intensity and total changes. Pause here and try the calculation or reasoning before continuing.
Year 1 total: 100 × 10 = 1,000 kg. Year 2 total: 140 × 8 = 1,120 kg. Intensity change: (8 ÷ 10 − 1) × 100 = −20%. Total change: (1,120 ÷ 1,000 − 1) × 100 = +12%.
The claim “emissions per unit fell 20%” fits the figures. “Our total emissions fell” does not. Whether this meets an objective depends on its precise definition. The two measures should not be substituted silently.
Now try the choices in this lesson. If your answer changes, identify the reason. Choose metrics that test an objective without concealing important effects. Use the case activities to put the idea into your own words, and return to the evidence when more than one conclusion is defensible.
Whose interests, and over what period?
Shareholders, workers, customers, suppliers, communities and lenders can be affected by a business decision. Their interests can align: a safer process might reduce injuries, disruption and costs. They can also conflict: a costly improvement may burden today's cash flow while benefiting future users.
A useful analysis identifies the mechanism, the time horizon and the constraints. “Stakeholders matter” is not yet a decision rule. The investor must relate the issue to the mandate, the evidence and the responsibilities involved. Avoid implying that every cost reduction is harmful or every increase in spending is beneficial.
A claim needs a boundary
Check what is measured, which activities are included, which period is used and what comparison is made. Absolute measures describe totals. Intensity measures describe a total relative to something else, such as units produced or revenue. Both can be useful but can tell different stories.
Targets should have a baseline, scope, date and credible plan. A future ambition is not a completed result. Selective disclosure or language that suggests more than the evidence supports can mislead. An attractive image or a large market-size statistic does not establish a company's contribution.
Ratings are models
A rating provider makes choices about issues, indicators, sources, missing data and weighting. Industry-relative performance and absolute impact are different concepts. A strong score on one dimension can coexist with weakness on another.
Use ratings to structure investigation, not replace it. Ask whether the rating measures risk to the company, effects of the company, or another objective. Look for the underlying data and disagreements that matter to the investment decision. Financial accounts also contain estimates; a numerical presentation does not remove judgement.
Measure progress and consequences
Match metrics to the stated goal. Injury rates can illuminate safety, but reporting quality and hours worked matter. Staff turnover needs context about roles, industry and voluntary versus involuntary departures. A falling emissions-intensity figure should be read alongside absolute emissions and production.
Metrics can change behaviour. Rewarding the number of training hours may encourage attendance without learning. Rewarding only one environmental metric can overlook other effects. Pair key numbers with explanation, independent checks where proportionate and questions about unintended consequences.
Intensity falls; the total rises
Two measures tell different stories
How could an improving intensity headline obscure a rise in total emissions?
A fictional business produces 100 units at 10 kg emissions per unit in Year 1. In Year 2 it produces 140 units at 8 kg per unit. Calculate intensity and total changes.
- Year 1 total: 100 × 10 = 1,000 kg.
- Year 2 total: 140 × 8 = 1,120 kg.
- Intensity change: (8 ÷ 10 − 1) × 100 = −20%.
- Total change: (1,120 ÷ 1,000 − 1) × 100 = +12%.
The claim “emissions per unit fell 20%” fits the figures. “Our total emissions fell” does not. Whether this meets an objective depends on its precise definition. The two measures should not be substituted silently.
Put it into practice
1. Repair the claim
Rewrite “We cut emissions by 20%” so that it accurately describes the worked example.
Apply the idea: discuss your reasoning, or add a short note where the task asks for one.
Compare with a model response
“Emissions per unit fell 20%, from 10 kg to 8 kg. With production rising from 100 to 140 units, total measured emissions rose 12%, from 1,000 kg to 1,120 kg.” Include the measurement boundary and period in a real report.
2. Choose better measures
A company wants to improve worker safety. Compare total reported injuries, injuries per hours worked and training attendance. Suggest two questions before judging progress.
Apply the idea: discuss your reasoning, or add a short note where the task asks for one.
Compare with a model response
Total injuries shows scale; a rate adjusts for exposure; training attendance measures an activity rather than safe outcomes. Ask about hours, severity, reporting completeness and whether definitions changed. No single measure settles every question.
3. Read two ratings
Provider A rates a company highly relative to industry peers. Provider B reports high absolute environmental harm. Explain how both could be accurate.
Apply the idea: discuss your reasoning, or add a short note where the task asks for one.
Compare with a model response
The providers may assess different questions. Relative performance within a harmful industry does not imply low absolute harm. Check scope, data, date and method before deciding how each informs the mandate.
Jargon buster
Stakeholder
A person or group affected by or able to affect a business.
Absolute measure
A measure of a total amount.
Intensity measure
A measure expressed relative to activity, output or another denominator.
Baseline
The starting point used for comparison.
Greenwashing
Misleading presentation of environmental or sustainability characteristics.
Output
A direct result of an activity.
Outcome
A resulting change or effect.
Knowledge check
Choose on the page. Read the feedback, reconsider mistakes and use Try again to reset a question.
What to take forward
Match the claim, metric and objective. Read totals alongside intensity, examine rating methods and assess stakeholder effects over time.