Homework 1

Group 4: Sustainable Finance

Friday, February 9th 2024

McGill University

Kamakhya Gupta
Samuel Gouffé
Saurabh Iyer
Adwiteeya Chaudhry
Hamilton Huang
Saatvik Kapila
Jeffrey Jiang
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Q.1. Conduct an ESG analysis of Cisco Systems: How well is the company managing
financially material ESG issues? What are the key ESG issues that the firm is facing?

Cisco Systems, Inc. is a leading global provider of networking and information technology
solutions. Established in 1984 and headquartered in San Jose, California, Cisco designs,
manufactures, and distributes a wide range of products tailored for the communications and IT
industry. Their portfolio encompasses innovative solutions spanning from campus and data
center switching to enterprise routing, wireless technologies, and computing infrastructure
management. In addition to their extensive product lineup, Cisco offers comprehensive service
and support options, including technical assistance, advanced services, and advisory services.
Their clientele includes businesses of all sizes, public institutions, governments, and service
providers, showcasing the versatility and reliability of their offerings.

Furthermore, Cisco is committed to fostering collaboration and strategic alliances with other
companies to enhance their product offerings and expand their market reach. With a focus on
innovation and customer satisfaction, Cisco continues to be at the forefront of shaping the
future of networking and IT solutions worldwide.

Figure 1: Key Statistics (Cisco, 2024)

Furthermore, Cisco is committed to fostering collaboration and strategic alliances with other
companies to enhance their product offerings and expand their market reach. With a focus on
innovation and customer satisfaction, Cisco continues to be at the forefront of shaping the
future of networking and IT solutions worldwide.

ESG Analysis and Financially Material Issues: Cisco Systems

The most important and relevant ESG factors for Cisco Systems are given in Figure 2. The
Cisco Systems Purpose Report for 2023 offers an overview of the company's efforts in ESG
(Environmental, Social, Governance) areas. Key focuses include addressing climate change
and reducing greenhouse gas emissions, promoting circular economy initiatives, fostering
diversity and inclusion within the workforce, upholding human rights and ethical supply chain
practices, advocating for digital inclusion, and prioritizing responsible technology
development. Cisco details its objectives and advancements in initiatives such as achieving net-
zero greenhouse gas emissions, improving diversity and inclusion, ensuring sustainability in

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products and operations, and advancing digital inclusion and education. The report underscores
Cisco's dedication to utilizing its technology and resources to tackle pressing social and
environmental issues, with the aim of fostering a more inclusive and sustainable future.

Figure 2: ESG topics (Cisco Systems)

Figure 3: ESG Business Process

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First, let’s have a look at the main financially material (and immaterial) ESG issues that Cisco
is facing, and then we’ll analyze the company’s response and how efficiently is it managing
them. The SASB (Sustainability Accounting Standards Board) Standards are the market’s
response to what ESG issues are financially material. SASB identifies sustainability issues that
are likely to affect the financial condition or operating performance of companies within an
industry. Using their website, we get the following financially material issues for Cisco
Systems:

Figure 4: ESG Issues relevant to Cisco’s business

So, the key ESG issues that Cisco Systems is facing are:

1. Data Security (Product Security): The Hardware industry must prioritize data security to
protect consumers from potential threats. Vulnerabilities in hardware and software can occur
at any stage, from design to product use, risking consumer data and trust. Identifying and
addressing these vulnerabilities is crucial for maintaining consumer trust and competitive
advantage. Moreover, addressing cybersecurity concerns can lead to revenue opportunities,
such as securing government contracts and offering security products.

2. Employee Diversity & Inclusion: Having a diverse workforce is crucial for innovation
because it enables companies to understand the needs of a wide range of customers. This
understanding leads to designing better products and effective communication with
customers. Companies that struggle to attract and retain diverse talent risk losing market
share to competitors who have a diverse staff capable of meeting the needs of different
customer groups. Additionally, companies seen as representative of diverse customer bases
may build stronger brand loyalty, giving them a competitive edge. Successful recruitment
and retention of diverse employees can also lead to lower turnover rates and cost savings.

3. Product Lifecycle Management: Entities in the Hardware industry are facing growing
challenges related to environmental and social impacts linked to product manufacturing,
transportation, usage, and disposal. The rapid obsolescence of hardware products can
exacerbate these issues. To address this, companies are increasingly designing products with
the entire lifecycle in mind. This includes considerations such as energy efficiency, use of

4
 hazardous materials, and facilitating safe disposal and recycling. Prioritizing
environmentally and socially responsible design and manufacturing can help companies
avoid costs associated with these impacts, while also potentially increasing consumer
demand and market share. Additionally, companies that minimize these externalities may
face fewer regulatory and cost burdens, such as those related to extended producer
responsibility.

4. Supply Chain Management: Companies in the Hardware industry often have slim profit
margins and stay competitive by relying on complex global supply chains and outsourcing
production to electronics manufacturing services (EMS) companies. They typically choose
suppliers in countries with lower costs, which may have fewer labour regulations. This
makes it hard for them to control social and environmental standards during production. As
a result, they face risks to their reputation and costs from incidents like safety or labour
issues. Companies that actively monitor and engage with suppliers can better protect their
long-term value.

5. Materials Sourcing: Companies in the Hardware industry rely on many crucial materials
for their products, often with limited substitutes. These materials are often sourced from a
small number of countries, leading to uncertainty due to geopolitical factors. Sustainability
issues like climate change and resource scarcity in these regions also affect the industry's
supply chain. Increased competition for these materials from other sectors can lead to price
increases and supply risks. Managing potential shortages, disruptions, and price volatility is
challenging due to opaque supply chains. Failing to effectively manage sourcing can limit
access to materials, reduce profits, and increase costs.

Now, let’s further look at some key ESG factors for the company and how relevant is their
impact on the company’s value drivers, i.e. sales, profits, investment, and cost of capital.

S. No. Issue Issue Type Whether issue is financially material? *

Yes, Cisco partners with Bridges to Prosperity, an
organization focused on building footbridges in
rural areas of Africa to help alleviate poverty and
close the gap between regions experiencing
uneven economic growth. Cisco invested in their
Economic
1 Social latest initiative—Fika Map—which leverages the
empowerment #1
power of technology, machine learning, and data
to equip and enable government agencies, local
communities, and other stakeholders to identify
transportation barriers and prioritize where to
build bridges.
Critical human
2 needs and disaster Social No details available
relief
No, Community-impact participation is measured
by employees’ actions, including advocating for
3 Community impact Social causes they care deeply about, volunteering,
donating, and participating in programs that
positively impact communities

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 No, Providing educational content to offline
communities. Investments through Cisco and
4 Digital inclusion Social
Cisco Foundation connect unconnected
communities to the Internet.
Water stewardship in operations and supply chain.
5 Water Environment Implementation of water projects in direct
operations and across the supply chain.
Environmental
6 regeneration and Environment No details available
protection
Employee health
7 and safety and Social No details available
labor rights
Employee well
8 Social No details available
being
Yes. In ESG reporting hub there is data w.r.t waste
9 Operational waste Environment
generated, incinerated, recycled, and composted.
Innovation and No. Cisco Foundation has committed to fund US$
10 responsible Governance 100M in climate solutions through fiscal 2030
technology #2
Corporate
11 Social No details available
Governance
Data security and
12 Governance No details available
privacy
13 Business Ethics Governance No details available
Human rights and
14 working conditions Social No details available
in the supply chain
Yes. 100% of new Cisco products and packaging
incorporate Circular Design Principles. Reduce
foam used in Cisco product packaging by 75% as
15 Circular Economy Environment
measured by weight (FY19 base year) Increase
product packaging cube efficiency by 50% (FY19
base year).
16 Talent Social No details available
Inclusion &
17 Social No details available
Diversity
Yes. Cisco committed US$5 million to expand its
partnership and focus on climate adaptation and
Climate Change & resilience in the Horn of Africa, where over 20
18 Environment
GHG Emissions #2 million people are threatened by droughts.
Cisco Foundation has committed to fund US$
100M in climate solutions through Fiscal 2030.

* Issue is Financially material if it has an impact on the company’s value drivers (Sales, profits,
investment, and cost of capital)
#1 - No financial data is available in the impact report to justify the claim made.
#2 – Cisco Foundation is a distinct legal entity, so any cashflows from/to this entity won’t
impact Cisco’s cashflows.
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 Figure 5: Cisco’s ESG materiality assessment

Management of Key ESG issues: Cisco Systems

To get a better understanding of how efficient and proactive Cisco has been, we look at the
leading independent ESG and corporate governance research firms and how they evaluate the
performance of the company.

1. Sustainalytics

Sustainalytics assesses a company's exposure to industry specific ESG risks and its
effectiveness in managing them. A lower score is preferable, indicating better risk
management. Scores are divided into five levels: Negligible (0-9.9), Low (10-19.9),
Medium (20-29.9), High (30-39.9), and Severe (40+). Cisco Systems demonstrates
proficient management of financially significant ESG issues, receiving a low ESG risk
rating of 13.9, suggesting minimal risk exposure.

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 Figure 6: Sustainalytics Research Information

The company ranks 159 out of 644 in the technology hardware industry group for its ESG
performance, and 1240 out of 15605 globally. This rating reflects Cisco's strong
management of material ESG risks, and its effective ESG programs, practices, and policies.

2. MSCI

CISCO has upheld its status as a sector leader with a consistent AA ranking since April
2020. MSCI ESG Research provides ESG Ratings to evaluate a company's ability to handle
financially significant environmental, social, and governance (ESG) risks compared to its
peers. Based on this assessment, it appears that the company effectively manages risks
crucial to financial stability.

Figure 7: Cisco’s MSCI Rating

In comparison to its industry counterparts, Cisco Systems stands out as a leader. The company
excels in cleantech opportunities and managing controversial sourcing. However, Cisco
Systems falls behind in adhering to supply chain labour standards. In areas such as corporate
governance, corporate behaviour, human capital development, privacy, and data security, Cisco
Systems performs at an average level.

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 Figure 8: Cisco’s ESG Rating Distribution

Figure 9: Key Issues in relation to Industry peers

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3. Thomson Reuters

Figure 10: ESG Score Evolution for Cisco Systems

Figure 11: Category wise Score split

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CISCO ranks 5th of 122 amongst the Communications and Networking companies’
industry group.

Figure 12: ESG Scoring Profile

Conclusion

In general, CISCO demonstrates strong performance across various platforms, outpacing its
peers in financially significant factors, as noted by Sustainalytics and MSCI. The company
emphasizes sustainable material sourcing, incorporating green packaging, and maintains robust
governance practices, including board compensation and audit oversight. However, there are
areas where improvement is needed. CISCO lags in investing in green initiatives and aligning
disclosures with sustainable goals, including those outlined by the TCFD.

Additionally, Investment in gambling, considered a 'sin', contradicts sustainable finance 1.0.

The company also has some human rights concerns arising from instances of discriminatory
behaviour, leading to legal action. Considering the industry Cisco operates in, data privacy is
a big deal for the company and any breach poses significant challenges.

Overall, while CISCO effectively manages ESG risks crucial to its financial stability, it faces
challenges in areas like data privacy and human rights. However, these incidents are limited
and can be addressed through management intervention and a proactive approach to ESG. That
said, we still believe that Cisco is a good candidate for an investor interested in ESG investing.

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Q.2. Conduct an ESG analysis of Dell Technologies: How well is the company managing
financially material ESG issues? What are the key ESG issues that the firm is facing?

Dell Technologies Inc. is a leading provider of desktop personal computers, software, and
associated peripherals. The company engages in the design, development, manufacturing,
marketing, sales, and support of a wide range of information technology infrastructure
products, including laptops, desktops, mobile devices, workstations, storage solutions,
software, cloud services, and notebooks. These products are marketed under various brand
names such as Dell, Pivotal, Dell EMC, SecureWorks, and Alienware. Additionally, Dell offers
financial services like customer receivables financing agreements related to its products,
software, and services. Serving diverse clientele including corporate businesses, government
agencies, educational institutions, healthcare organizations, and small to medium-sized
businesses, Dell operates globally with a presence across the Americas, Asia-Pacific, the
Middle East, Africa, and Europe. The company's headquarters are located in Round Rock,
Texas, USA.

Figure 13: Key Statistics (Dell, 2024)

ESG Analysis and Financially Material Issues: Dell Technologies

ESG Reporting Framework

Dell follows a comprehensive reporting framework for its ESG issues and initiatives. The
company supports various standards and publishes the following reports:
a. ESG Report
b. GRI Index (Global Reporting Initiative)
c. SASB Index
d. World Economic Forum Stakeholder Capitalism Metrics Index
e. CDP Water Security and Climate Change Response
f. United Nations Global Compact Communication on Progress

Apart from the above, the firm also published internal reports on –
a. Cultivating Inclusion Summary
b. Supply Chain Sustainability Summary
c. Responsible Minerals Sourcing Summary
d. FY23 ESG Performance Metrics
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All ESG reports published by Dell follow a common theme or a set of objectives:

1. Climate Action
2. Circular Economy
3. Cultivating Inclusion
4. Transforming Lives
5. Upholding Trust

Figure 14: Dell’s ESG goals

First, let’s have a look at the main financially material (and immaterial) ESG issues that Dell
is facing, and then we’ll analyze the company’s response and how efficiently is it managing
them. The SASB (Sustainability Accounting Standards Board) Standards are the market’s
response to what ESG issues are financially material. SASB identifies sustainability issues that
are likely to affect the financial condition or operating performance of companies within an
industry. Using their website, we get the following financially material issues for Dell
Technologies.

Figure 15: ESG Issues relevant to Dell’s business

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So, the key ESG issues that Dell Technologies is facing (same as Cisco Systems) are:

1. Data Security (Product Security): The Hardware industry must prioritize data security to
protect consumers from potential threats. Vulnerabilities in hardware and software can occur
at any stage, from design to product use, risking consumer data and trust. Identifying and
addressing these vulnerabilities is crucial for maintaining consumer trust and competitive
advantage. Moreover, addressing cybersecurity concerns can lead to revenue opportunities,
such as securing government contracts and offering security products.

2. Employee Diversity & Inclusion: Having a diverse workforce is crucial for innovation
because it enables companies to understand the needs of a wide range of customers. This
understanding leads to designing better products and effective communication with
customers. Companies that struggle to attract and retain diverse talent risk losing market
share to competitors who have a diverse staff capable of meeting the needs of different
customer groups. Additionally, companies seen as representative of diverse customer bases
may build stronger brand loyalty, giving them a competitive edge. Successful recruitment
and retention of diverse employees can also lead to lower turnover rates and cost savings.

3. Product Lifecycle Management: Entities in the Hardware industry are facing growing
challenges related to environmental and social impacts linked to product manufacturing,
transportation, usage, and disposal. The rapid obsolescence of hardware products can
exacerbate these issues. To address this, companies are increasingly designing products with
the entire lifecycle in mind. This includes materials and ions such as energy efficiency, use
of hazardous materials, and facilitating safe disposal and recycling. Prioritizing
environmentally and socially responsible design and manufacturing can help companies
avoid costs associated with these impacts, while also potentially increasing consumer
demand and market share. Additionally, companies that minimize these externalities may
face fewer regulatory and cost burdens, such as those related to extended producer
responsibility.

4. Supply Chain Management: Companies in the Hardware industry often have slim profit
margins and stay competitive by relying on complex global supply chains and outsourcing
production to electronics manufacturing services (EMS) companies. They typically choose
suppliers in countries with lower costs, which may have fewer labour regulations. This
makes it hard for them to control social and environmental standards during production. As
a result, they face risks to their reputation and costs from incidents like safety or labour
issues. Companies that actively monitor and engage with suppliers can better protect their
long-term value.

6. Materials Sourcing: Companies in the Hardware industry rely on many crucial materials
for their products, often with limited substitutes. These materials are often sourced from a
small number of countries, leading to uncertainty due to geopolitical factors. Sustainability
issues like climate change and resource scarcity in these regions also affect the industry's
supply chain. Increased competition for these materials from other sectors can lead to price
increases and supply risks. Managing potential shortages, disruptions, and price volatility is

14
 challenging due to opaque supply chains. Failing to effectively manage sourcing can limit
access to materials, reduce profits, and increase costs.

Now, let’s further look at some key ESG factors for the company and how relevant is their
impact on the company’s value drivers, i.e. sales, profits, investment, and cost of capital.

Figure 16: Dell’s ESG materiality assessment

Management of Key ESG issues: Cisco Systems

Using a combination of the ESG materiality map provided by Dell, SASB Index for Dell
Technologies, and coursework in class, we will list the financially material ESG issues that the
firm faces and how it is addressing these issues. Then we compare Dell to its peers in the
industry using MSCI and Sustainalytics.

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 ESG Issue Explanation Response
Hardware products and related software The firm communicates a deep commitment
offered by entities in the Hardware to protecting customer data through
industry may have vulnerabilities that dedicated teams and following best practices.
expose customers to data security threats. The annual report mentions that
Data
Such threats, if not identified, could erode cybersecurity threats are a major risk factor,
Security
the trust of the customer base. The costs of however, there have been no significant
(Product
addressing cyber security risks, both breaches of data recently. Additionally, the
Security)
before and after the incident could be firm also published a Corporate Security and
significant. Resilience report in 2023 outlining the tools
and best practices followed to ensure data
security.
Greater workforce diversity is important Cultivating inclusion in a major theme across
for innovation since it helps firms Dell’s ESG reports and the firm also
understand the needs of a diverse and publishes a separate report on the topic. As of
global customer base. Firms that 2023, 34.8% of the global workforce
successfully recruit and retain a diverse identified as women and 29.2% of global
and inclusive workforce also may achieve leaders identified as women. 16.1% of the
Employee lower employee turnover rates, resulting U.S workforce identified and Black/African
Diversity & in cost savings. A diverse workforce Americans or Hispanic/Latino. By 2030, the
Inclusion improves risk management, extends firm aims to have 50% of global workforce
market prospects, fosters innovation and and 40% of global people leaders individuals
creativity, increasing employee who identify as women. Additionally, by
performance and engagement. 2023, 25% of the U.S workforce and 15% of
U.S people leaders will be those who identify
as Black/African American or
Hispanic/Latino.
Firms in the hardware industry face The firm formalized a plan in 2002 to
increasing challenges associated with minimize or eliminate the use of certain
environmental and social externalities. harmful materials. Dell also discloses its
Entities that prioritize designing and approach to managing regulated substances
manufacturing products with improved in its products.
environmental and social impacts may
avoid costs associated with externalities, Percentage of eligible product models that
and they may likely grow customer and were registered to EPEAT in FY23:
market share while eliminating harmful Consumer Computers: 58%
Product materials. Commercial Computers: 93%
Design and Displays Commercial & Consumer: 76%
Lifecycle Power Edge Servers: 48%
Management
Percentage of eligible product models that
were registered to ENERGY STAR
qualified in FY23:
Consumer Computers: 97%
Commercial Computers: 98%
Displays Commercial and Consumer: 60%
Power Edge Servers: 79%

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 Firms in the hardware industry generally Dell outlines a four-element approach to a
have narrow profit margins. This pushes sustainable supply chain in its ESG report.
them to contract with suppliers in a. Risk Assessment
countries with lower direct costs. These b. Capacity Building
countries often have limited labor c. Audit
regulations or enforcement protecting d. Corrective Action
workers. These issues are difficult to
address because the firms do not have The firm conducts rigorous assessment
direct control over social and before onboarding suppliers and constantly
Supply
environmental standards in production. refreshes their ratings based on engagement.
Chain
This increases the exposure to reputational When areas of nonconformance with the
Management
risks and impacts on short- and long-term RBA code of conduct are discovered, Dell
costs and sales. helps the suppliers to follow corrective
course of action. Furthermore, there are also
initiatives to reduce GHG emissions in the
supply chain. There are various plans in place
to support suppliers in energy efficiency,
water stewardship, best labor practices, safe
use of chemicals and many more.

The hardware industry relies on many Dells has a mineral due diligence process
critical material as important inputs. Many designed with five steps. The firm
of these inputs have no substitutes and are investigates their supply chain to ensure
often sources from a few countries, which responsible mineral sourcing is implemented.
may be subject to geopolitical uncertainty. Step 1: Establish a strong company
Failure to effectively manage sourcing management system.
may constrain access to necessary Step 2: Identify and assess risks in the supply
materials, reduce margins, impair revenue chain.
growth, or increase cost of capital Step 3: Design and implement a strategy to
respond to identified risks.
Material
Step 4: Carry out independent third-party
Sourcing
audits of supply chain due diligence at
identified points in the supply chain.
Step 5: Report on supply chain due diligence.

By 2030, the firm has a goal to have 100% of

their packaging to be made from recycled or
renewable material. Additionally, more than
half of the product content will be made from
recycled, renewable, or reduced carbon
emission material by 2030.

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 Figure 17: Sustainability Factors that can have a material impact

To get a better understanding of how efficient and proactive Cisco has been, we look at the
leading independent ESG and corporate governance research firms and how they evaluate the
performance of the company.

1. Sustainalytics

Figure 18: Sustainalytics Research Information

Dell ranks 263rd out of 644 in the Technology Hardware group with a low risk profile and
2570th out of 15605 in the global universe.
The company has low exposure to different material ESG issues and its ESG programs,
practices and policies are robust.

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2. MSCI
As per MSCI, Dell Technologies achieved an A rating since December 2021, marking an
improvement from its previous BBB rating. Relative to its industry counterparts, Dell
performs at an average level. While excelling in areas such as cleantech opportunities,
addressing controversial sourcing practices, and managing electronic waste, Dell falls
behind in ensuring adequate supply chain labour standards. In terms of corporate
governance, corporate behaviour, and human capital development, Dell's performance is on
par with the industry average.

Figure 19: Dell’s MSCI Rating

Figure 20: Dell’s ESG Rating Distribution

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 Figure 21: Key Issues in relation to Industry peers

3. Thompson Reuters

Figure 22: Dell’s ESG Score Evolution v/s Industry

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DELL ranks 47th of 124 amongst the Computers Phones & Household Electronics
companies’ industry group.

Figure 23: Category wise Score split

Figure 24: ESG Scoring Profile

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As is clear in the figures above, Dell is particularly lagging with respect to trust within
shareholders, mainly driven by the uneven balance of voting rights within the company.

Conclusion

Dell is committed to four key initiatives:

1. Achieving net zero greenhouse gas emissions by 2050, with goals including reusing or
recycling a metric ton of products for every metric ton sold by 2030, ensuring all packaging
is made from recycled or renewable materials by 2030, and incorporating recycled,
renewable, or low-carbon materials in over half of product content by 2030.
2. Promoting workforce inclusivity by aiming for 50% of its global workforce and 40% of
global leadership to be women by 2030, along with increasing representation of
Black/African American and Hispanic/Latino employees in the U.S.
3. Fostering digital inclusion by aiming to improve the lives of 1 billion people through digital
initiatives by 2030 and encouraging 75% of team members to engage in community giving
or volunteerism.
4. Enhancing trust in AI practices with the goal of being rated as the most trusted technology
partner by customers and partners by 2030.

Figure 25: Dell’s Physical Risks Outlook

Despite these key initiatives, there are certain ESG risks associated with Dell that raise
uncertainty. Dell’s R&D activities are creating high physical risk for the company. Climate
change continues to be the biggest risk factor faced by Dell. In this outlook, Dell is clearly
behind its peers in overall comparison, with an elevated level of physical risk. While there is
some degree of positive alignment that Dell has shown with certain factors, it still has a long
way to go to strongly align its operations to the UN’s Sustainable Development Goals. Hence,
we would suggest an investor to be cautious while choosing Dell as a candidate for ESG
investing.
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Q.3. Compare Cisco Systems and Dell Technologies in terms of their compatibility with
Sustainable Finance 3.0. Explain your reasoning.

To be aligned with Sustainable Finance 3.0, firms need to drive toward a common good, where
environmental priorities come first, and financial gains come second. Sustainable Finance
builds upon earlier stages with one stark difference – a shift from risk avoidance to embracing
opportunities to create impact through finance.

Cisco has developed its own materiality matrix which identifies key issues that have an impact
on the company. This helps Cisco prioritize what issues to focus on first to benefit stakeholders.
For example, Climate Change and GHGs is the top material issue for the company. In alignment
with Sustainable Finance 3.0, Cisco has developed an environment stewardship program, using
an industry-specific water checklist, developed in partnership with industry peers and Water
Stewardship Asia Pacific, to help suppliers support the Alliance for Water Stewardship (AWS)
Standard. The company’s emissions are also aligned with a sub-1.5-degree Celsius target and
has consistently been ranked a leader compared to industry peers by MSCI.

Similarly, Dell also developed its own Materiality matrix, where data privacy and security is
its number one priority. In alignment with Sustainable Finance 3.0, Dell has pledged to use
authentication and zero-trust solutions for all their commercial products by 2030. However,
using MSCI metrics, the company is releasing emissions at a target of 1.8 degrees Celsius (but
still under the 2-degree target set by the Paris Agreement). The company is also only an average
performer when it comes to its sustainable finance initiatives.

Overall, it appears Cisco may be more aligned with Sustainable Finance 3.0 compared to
Dell, as evidenced by Cisco’s MSCI score of 8.33 which is much higher than Dell’s score of
6.67. However, both firms are above average of compared to the peers (1.82). But both still
have areas for improvement to be fully aligned.

Sources:
MSCI – Cisco
MSCI – Dell

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Q.4. Estimate the costs of equity of Cisco Systems and Dell Technologies using the data
provided. Assume that the current risk-free rate is 2%, and the expected market return
is 5%.

The regression outputs for the Beta computation are shown below:

SUMMARY OUTPUT (Cisco Systems)

Regression Statistics
Multiple R 0.586495
R Square 0.343976
Adjusted R Square
0.329398
Standard Error
0.065323
Observations 47

ANOVA
df SS MS F Significance F
Regression 1 0.100684 0.100684 23.59508 1.48E-05
Residual 45 0.192021 0.004267
Total 46 0.292705

Coefficients
Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept -0.00157 0.009626 -0.16296 0.871279 -0.02096 0.017819 -0.02096 0.017819
X Variable 1 0.731954 0.150686 4.857477 1.48E-05 0.428457 1.035451 0.428457 1.035451

Figure: Regression Output (Cisco Systems)

SUMMARY OUTPUT (Dell Technologies)

Regression Statistics
Multiple R 0.469463
R Square 0.220395
Adjusted R Square
0.203071
Standard Error
0.104674
Observations 47

ANOVA
df SS MS F Significance F
Regression 1 0.139384 0.139384 12.72155 0.000872
Residual 45 0.493045 0.010957
Total 46 0.63243

Coefficients
Standard Error t Stat P-value Lower 95% Upper 95%Lower 95.0%
Upper 95.0%
Intercept 0.009778 0.015425 0.63391 0.529349 -0.02129 0.040845 -0.02129 0.040845
X Variable 1 0.861215 0.241458 3.566728 0.000872 0.374894 1.347537 0.374894 1.347537

Figure: Regression Output (Dell Technologies)

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So, we get the following outputs from the regression for the betas:

Cisco Beta: 0.73

Dell Beta: 0.86

Applying these betas and using CAPM, we can compute the costs of equity of Cisco Systems
and Dell Technologies as follows:

Risk-free rate: 2%
Expected Mkt Return: 5%
Mkt Risk Premium: 3%

Cisco Cost of Equity: 4.20%

Dell Cost of Equity: 4.58%

Hence, based on the data provided, the beta for Cisco Systems is 0.73 and the beta for Dell
Technologies is 0.86. Using the CAPM model, the costs of equity for Cisco Systems and Dell
Technologies are 4.20% and 4.58% respectively.

Excel Sheet: Cost of Equity Computations

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Q.5. If your ESG incorporation strategy is ESG integration, which company would you
choose to invest in? Why?

ESG integration entails the systematic incorporation of ESG factors into investment analysis
and decision-making processes, with the goal of improving long-term returns and risk
management without compromising performance. This strategy aligns seamlessly with Cisco's
demonstrated dedication to ESG principles, particularly in areas such as governance and
environmental sustainability. We believe that Cisco is more favourably positioned than Dell for
sustainable growth and the creation of long-term value in a market increasingly prioritizing
sustainability.

When assessing Cisco Systems and Dell Technologies for investment through the lens of ESG
integration, we amalgamate insights from ESG analysis, financial metrics, and ESG integration
principles. Cisco distinguishes itself through robust governance, impactful environmental
strategies like the ESG Reporting Hub, and a proactive stance on social challenges. For
instance, Cisco has committed US$300 million over the past five years to driving social justice.
These elements, coupled with Cisco's strong financial performance and a lower cost of equity,
indicate a perceived lower ESG risk, making Cisco an appealing choice for ESG-integrated
investing. On the other hand, Dell's relative higher cost of equity in its industry may reflect
investors’ concern regarding ESG-related risks or expectations for elevated returns tied to
growth. This doesn't diminish Dell's commitment to upholding strong ESG values, but it
underscores the significance of assessing ESG risks in investment decisions. As previously
mentioned, in ESG integration, a lower perception of ESG risks corresponds with a more
favourable investment outlook, positioning Cisco as the preferred option in this context.

After considering ESG performances, financial metrics, and ESG integration principles, Cisco
Systems emerges as the more favourable investment. Cisco's comprehensive ESG initiatives
and lower cost of equity demonstrate a balanced approach to managing ESG risks and
capitalizing on opportunities, aligning well with the objectives of ESG-integrated investment
strategies.

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