What are the three categories used to assess likelihood of financial impact in SASB's Factor 1?

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Multiple Choice

What are the three categories used to assess likelihood of financial impact in SASB's Factor 1?

The concept being tested is how SASB’s Factor 1 views the likelihood of a sustainability issue impacting a company’s finances through three main financial channels. First, revenues and costs—the issue can affect top-line revenue or operating costs (for example, demand shifts, price pressure, or remediation expenses). Second, assets and liabilities—the issue can influence asset values, impairment, insurance, or contingent liabilities on the balance sheet. Third, cost of capital (risk profile)—sustainability risk can change the risk perceived by lenders and investors, altering the company’s cost of debt and equity. That’s why the best answer includes revenues & costs, assets & liabilities, and cost of capital. Other options miss one or more of these essential channels or use terms that don’t align with how the framework assesses financial impact, such as focusing only on assets, capital costs, or using profits or capital efficiency misaligned with the three-channel structure.

The concept being tested is how SASB’s Factor 1 views the likelihood of a sustainability issue impacting a company’s finances through three main financial channels. First, revenues and costs—the issue can affect top-line revenue or operating costs (for example, demand shifts, price pressure, or remediation expenses). Second, assets and liabilities—the issue can influence asset values, impairment, insurance, or contingent liabilities on the balance sheet. Third, cost of capital (risk profile)—sustainability risk can change the risk perceived by lenders and investors, altering the company’s cost of debt and equity.

That’s why the best answer includes revenues & costs, assets & liabilities, and cost of capital. Other options miss one or more of these essential channels or use terms that don’t align with how the framework assesses financial impact, such as focusing only on assets, capital costs, or using profits or capital efficiency misaligned with the three-channel structure.

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