Key Terms

Just as you have personal stakeholders in your own life, companies have stakeholders as well.

KEY TERM: STAKEHOLDER

An individual or group that has an interest in a company, organization or business

Groups in which, without their support, the company would cease to exist. Stakeholders can affect or be affected by the actions (or inactions) of a business, and they can exist both within and outside of a business.

The impact that businesses can have on their stakeholders can be thought of like a ripple effect. When you drop a rock into a pond, the ripples of the impact expand and reach out well beyond the initial contact spot - sometimes even reaching those standing far away on the shore. Just as a rock creates ripples in a pond, the decisions and actions of businesses have a ripple effect that can extend beyond their company and can affect their customers, stockholders or the community in which they are based.

Today, we will be focusing on the S in ESG or SOCIAL…

KEY TERM: SOCIAL FACTORS

Factors that relate to how companies manage their relationships with employees, suppliers, customers and the communities where they operate. Social relates to the relationships a company has and the reputation it fosters with people and institutions in the communities where it does business. Every company operates within a broad, diverse society.

Examples:

• Working conditions • Equal opportunities • Human rights • Employee diversity • Health and safety • Child labor and slavery • Community engagement • Philanthropy • Privacy and data security

When evaluating a company’s social impact, we want to consider how it impacts society… both the good and bad.

In the same way that employees and customers care about how a company treats them, investors and regulators increasingly expect businesses to consider the social impact they have. This can be the way they treat suppliers, employees, customers or even how they react to controversial news.

When making decisions, it is crucial for companies to consider and understand the risks and benefits of their social decisions.

Can you think of ways that companies can be social LEADERS?

Why do you think it is important for companies to take their social responsibility seriously?

How Do SOCIAL Factors Impact Company Value?

When companies fail to consider the effects of their operations, policies and practices on society, they can become exposed to financial risk.

• Company reputation damages interest of investors • Customers’ respect leads to lower sales • Employee treatment can lead to lower quality employees or cause companies to be understaffed • Turnover and low engagement can lead to lower productivity and/or lower quality products • Lawsuits, regulatory fines or penalties related to workplace safety or discrimination

When a company positively or negatively impacts social factors, their stock price may fluctuate.

Review Last Week’s Investment Key Terms:

Stocks: Shares (pieces) of ownership in a company.

Stock Market: The collection of physical and electronic markets where buyers and sellers can trade shares. It is like a giant, global auction. The stock market is the sum of all individual stocks and when an individual stock moves, the market as a whole also moves by a tiny amount.

Ticker: The symbol by which stocks are identified. Tickers are a few letters that distinguish a company’s shares in the stock market.