Which of the following ESG risks is not well suited for inclusion in the discount...

The manual distinguishes firm-specific (idiosyncratic) risk from systematic (market/sector) risk: “Risk also appears as either idiosyncratic or systematic risk:▶Idiosyncratic risk describes firm- or stock-specific risk.”

It also notes sector-wide environmental risks “may affect the discount rate used,” showing that systematic (sector/market) risks can be reflected in the discount rate.

For company-specific assessments, the manual’s DCF case study explains the team “prefers DCF and explicit model scenarios for sales, margins and asset turns … rather than an adjustment to a discount rate … for a company specific assessment.”

Together, these extracts support that company-specific (idiosyncratic) ESG risk is not well suited to be embedded in the discount rate, whereas sector- or market-wide risks are.