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Home > CFA Institute > ESG Investing Certificate > ESG-Investing

ESG-Investing Certificate in ESG Investing Question and Answers

Question # 4

Which of the following technologies is most likely to be viewed by investors as a strategic solution to the decarbonization of high-temperature processes?

A.

Nuclear fusion

B.

Next-generation battery storage

C.

The use of renewable energy to produce hydrogen

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Question # 5

The Sustamalytics database is most likely used for:

A.

manager ESG assessment

B.

company ESG assessment.

C.

creating an ESG benchmark

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Question # 6

Which of the following statements about the decoupling of economic activities from resource usage is most accurate?

A.

Moving to a circular economy boosts decoupling

B.

The Jevons paradox explains why decoupling happens

C.

Absolute long-term decoupling is more common than relative decoupling

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Question # 7

In which country is the proposal of shareholder resolutions most common?

A.

UK

B.

US

C.

Australia

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Question # 8

Which of the following is an environmental megatrend that has a severe social impact?

A.

Urbanization

B.

Globalization

C.

Mass migration

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Question # 9

Suppose the average price-to-earnings (P/E) ratio for the financial industry is 10x. A financial institution with high ESG risk compared to its industry, is most likely assigned a fair value P/E ratio:

A.

lower than 10x

B.

of 10x

C.

higher than 10x

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Question # 10

Asset owners can reflect ESG considerations through corporate engagement by:

A.

discussing ESG issues with an investee company’s board.

B.

working with regulators to design a more stable financial system.

C.

using ESG criteria to identify investment opportunities through a thematic approach.

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Question # 11

If a Japanese company's board does not have committees, it most likely:

A.

Has a cross-shareholding practice.

B.

Follows a statutory auditor approach.

C.

Is in breach of the national Corporate Governance Code.

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Question # 12

Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the:

A.

sector level

B.

country level.

C.

company level

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Question # 13

A challenge to ESG integration for investment managers is the:

A.

Narrow range of possible ESG data.

B.

Inherently subjective nature of ESG analysis.

C.

High correlation among third-party ESG ratings.

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Question # 14

A fund focused on investing in the best ESG performers relative to industry peers across a range of different criteria is most likely engaged in:

A.

positive screening only.

B.

norms-based screening only.

C.

both positive screening and norms-based screening.

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Question # 15

Which of the following types of ESG bonds provide financing to issuers who commit to future improvements in sustainability outcomes?

A.

Green bonds

B.

Sustainability bonds

C.

Sustainability-linked bonds

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Question # 16

Which of the following social factors most likely impacts a company's external stakeholders?

A.

Working conditions, health, and safety

B.

Employment standards and labor rights

C.

Product liability and consumer protection

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Question # 17

Which of the following scenarios best illustrates the concept of a 'just' transition?

A.

A region transitioning to solar power subsidizes businesses to install solar arrays

B.

A region transitioning to a smaller public sector workforce funds outplacement programs for displaced office workers

C.

A region transitioning away from iron ore mining helps displaced miners to work in the safe decommission of abandoned mines

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Question # 18

ESG performance attribution:

A.

Is simple to apply within fixed-income portfolios.

B.

Can be measured using commercially available tools.

C.

Can be decomposed using Brinson and risk factor attribution.

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Question # 19

Which of the following sectors receives the highest investment from the Inflation Reduction Act of 2022 (IRA)?

A.

Clean energies

B.

Clean transport

C.

Clean electricity

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Question # 20

low risk exposure to this factor in the short run

A.

With reference to data security and customer privacy issues a technology company in the research and development stage with no commercially marketed products is most likely to have:

B.

medium risk exposure to this factor in the short run.

C.

high risk exposure to this factor in the short run.

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Question # 21

Environmental analysis will potentially determine adjustments to:

A.

Financial forecasts only.

B.

Valuation multiples only.

C.

Both financial forecasts and valuation multiples.

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Question # 22

Which of the following is an example of secondary data?

A.

A news article

B.

A letter to shareholders

C.

A Bloomberg Disclosure score

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Question # 23

A company’s emission reduction commitments are best evaluated using:

A.

Scope 3 emissions.

B.

science-based targets.

C.

financial modelling of material environmental factors.

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Question # 24

According to the Sustainability Accounting Standards Board (SASB), GHG emission is material for more than 50% of the industries in which sector?

A.

Health care

B.

Technology and communications

C.

Extractives and minerals processing

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Question # 25

When using a threshold assessment to integrate governance factors into the investment decision-making process, fund managers most likely focus on the:

A.

cost of capital

B.

quality of management

C.

level of confidence about future earnings

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Question # 26

Which of the following is most likely a secondary source of ESG information?

A.

Annual reports

B.

ESG rating reports

C.

Corporate sustainability reports

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Question # 27

Anti-corruption laws are a relevant governance factor for which of the following investments?

A.

Private equity

B.

Sovereign debt

C.

Infrastructure assets

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Question # 28

An investor requires a social return and will tolerate a sub-market financial return. This best characterizes:

A.

social investing.

B.

impact investing.

C.

sustainable and responsible investing.

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Question # 29

In the ESG rating process, an assessment of risk, policies, and preparedness is best categorized as part of a(n):

A.

operational assessment.

B.

fundamental assessment.

C.

disclosure-based assessment.

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Question # 30

According to an OECD Centre for Opportunity and Equality (COPE) 2015 report, the average income of the richest 10% of the population is about:

A.

4 times that of the poorest 10% across the OECD

B.

9 times that of the poorest 10% across the OECD

C.

14 times that of the poorest 10% across the OECD

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Question # 31

What did Semite, Bhagwat, and Yankee's 2018 study conclude about board diversity and governance?

A.

Diverse boards invest less in research and development.

B.

Diversity in the board of directors reduces stock return volatility.

C.

Greater homogeneity among directors leads to higher profitability.

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Question # 32

The investor initiative FAIRR focuses on screening out companies

A.

mining ancestral lands.

B.

using suppliers that do not pay a living wage.

C.

exhibiting poor antibiotic stewardship in animal farming

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Question # 33

Which of the following was established by the United Nations Environment Programme Finance Initiative (UNEP FI)?

A.

Principles for Sustainable Insurance (PSI)

B.

Climate Disclosure Standards Board (CDSB)

C.

Global Sustainable Investment Alliance (GSIA)

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Question # 34

Credit-rating agencies are most likely classified as:

A.

algorithm-driven ESG research providers.

B.

traditional ESG data and research providers.

C.

“nontraditional" ESG data and research providers.

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Question # 35

Which of the following is an example of shareholder engagement? Institutional investors:

A.

responding to policy consultations

B.

making ESG recommendations to policy makers

C.

discussing ESG issues with an investee company’s board

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Question # 36

In the investment management industry, triple bottom line accounting theory:

A.

replaces a broader framework of sustainability.

B.

complements a broader framework of sustainability.

C.

has been replaced by a broader framework of sustainability.

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Question # 37

Which of the following board committees aims to ensure that the board is balanced and effective?

A.

Audit committee

B.

Compensation committee

C.

Corporate governance committee

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Question # 38

Are the following statements relating to investor engagement accurate?

Statement 1: Investors need to frame the engagement topic into a broader discussion around strategy and long-term financial performance with the management team.

Statement 2: Active investment houses are working to ensure that their portfolio managers can deliver stewardship alongside their regular monitoring of investee companies.

A.

No, only Statement 1 is accurate

B.

No, only Statement 2 is accurate

C.

Yes, both statements are accurate

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Question # 39

Which of the following asset classes is most sensitive to climate-related transition risk?

A.

Equity

B.

Fixed income

C.

Alternative investments

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Question # 40

Among asset owners, which of the following is most likely a challenge to ESG integration?

A.

Consultants and retail financial advisors offer too many options for ESG products

B.

Even large asset owners have limited resources to conduct their own ESG assessment

C.

The scale of investments is not enough to influence the products offered by fund managers

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Question # 41

Which of the following corporate governance structures is most common around the world?

A.

Joint auditors

B.

Single-tier boards

C.

Cumulative voting

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Question # 42

According to the "Shades of Green" methodology developed by the Center for International Climate Research (CICERO), which of the following best categorizes a green bond where accurate assessment of the contribution of the project or solution to a low-carbon, climate-resilient future is not possible with the information available?

A.

Yellow.

B.

Light Green.

C.

Medium Green.

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Question # 43

Which of the following are social megatrends?

A.

Changing demographics and mass migration.

B.

Changes to family structures and mass migration.

C.

Changes to family structures and changing demographics.

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Question # 44

Which of the following is most likely an effect of an aging population?

A.

Reduced healthcare expenditures

B.

Increased business risk for the consumer goods sector

C.

Increased ratio between the active and inactive part of the workforce

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Question # 45

Which of the following is most likely an example of quantitative ESG analysis?

A.

Issuer-reported carbon emissions

B.

Executive compensation policies linked to progress on ESG-related goals

C.

The presence and credibility of investments, policies, and commitments to ESG-related goals

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Question # 46

For sovereign debt, the predominant approach to ESG investing is most likely:

A.

Screening

B.

Integration

C.

Stewardship/Engagement

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Question # 47

Which of the following are most likely to raise the risks of greenwashing by private equity investors? Investors that integrate ESG factors for the purposes of:

A.

Value creation

B.

Risk management

C.

Attracting ESG-conscious capital allocators

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Question # 48

Which of the following statements about the Green Claims Directive (GCD) is most accurate? The GCD:

A.

applies to mandatory green claims made by businesses towards consumers

B.

aims to make green claims reliable, comparable, and verifiable across the world.

C.

requires verification by independent auditors before green claims can be made and marketed

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Question # 49

Which of the following statements about corporate governance is most accurate? Companies with a more diverse board of directors are most likely associated with

A.

lower profitability

B.

lower stock return volatility.

C.

less investment in research and development.

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Question # 50

Compared to an optimal portfolio that does not have any ESG restrictions a portfolio that optimizes for multiple ESG factors will most likely experience

A.

lower active risk

B.

higher active risk.

C.

lower tracking error

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Question # 51

The Cadbury Commission proposed that:

A.

transparency around drivers of performance pay should be increased

B.

the Public Company Accounting Oversight Board should be established.

C.

every public company should have an audit committee meeting at least twice a year

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Question # 52

Which of the following is a success factor characteristic of investor collaboration? Investors should have:

A.

an engagement approach that is bespoke to the target company.

B.

clear leadership with appropriate relationships, skills, and knowledge.

C.

objectives that are linked to material strategic and governance issues.

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Question # 53

An analyst gathers the following information about three investors' approaches to ESG integration:

The approach of which investor most likely raises the risk of greenwashing?

A.

Investor 1 uses ESG analysis to identify risks affecting revenue such as exposure to environmental regulation.

B.

Investor 2 implements ESG practices to create business value by boosting employee retention.

C.

Investor 3 includes ESG factors prominently in reporting to appeal to ESG-conscious capital allocators.

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Question # 54

Which of the following statements is aligned with the Pensions and Lifetime Savings Association (PLSA) Stewardship checklist?

Statement 1: Investors should seek to ensure that fund managers deliver effective separation of long-term ESG factors from their investment approach.

Statement 2: Investors should work with their advisers to consider the level of resource available for stewardship activities.

A.

Statement 1 only

B.

Statement 2 only

C.

Both Statement 1 and Statement 2

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Question # 55

The main growth driver of greenhouse gas (GHG) emissions is:

A.

Methane from the melting permafrost

B.

Carbon dioxide from fossil fuels and industry

C.

Carbon dioxide from land use, land-use change, and forestry

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Question # 56

Which of the following statements is most accurate? Faith-based Islamic investors:

A.

may invest in gambling companies.

B.

may own investments that pay interest.

C.

look to invest in line with Shariah principles.

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Question # 57

In response to policy changes, several of the world’s largest automakers made pledges to halt producing cars with internal combustion engines by 2035. Which of the following would an asset manager most appropriately use to address this trend?

A.

Factor risk asset allocation model

B.

Liability-driven asset allocation model

C.

Regime switching asset allocation model

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Question # 58

Green investment is a broad sub-category of:

A.

Philanthropy.

B.

Ethical investment.

C.

Thematic investment.

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Question # 59

Over the past several years, the proportion of sustainable investing relative to total managed assets has fallen in:

A.

Europe

B.

Canada

C.

the United States

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Question # 60

Increased investment crowding into more ESG-friendly sectors is most likely to increase:

A.

valuations.

B.

expected returns.

C.

materiality thresholds.

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Question # 61

The carbon offset market:

A.

Is very transparent.

B.

Is based on a rigorous scientific process.

C.

Comprises both voluntary and regulated aspects.

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Question # 62

During the decommissioning phase of a company’s mining project, the government tightens regulations on land restoration. Which of the following is most likely impacted?

A.

taxes

B.

revenue

C.

provision

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Question # 63

Which of the following most likely indicates strong corporate governance? A company board with:

A.

gender diversity.

B.

a chair who also serves as the company's CEO.

C.

directors that have similar professional backgrounds.

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Question # 64

Which of the following is most likely to cast doubt on a director’s independence?

A.

Holding cross-directorships

B.

Receipt of director's fees from the company

C.

Serving as a director for a relatively short period of time

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Question # 65

Which of the following statements regarding engagement and stewardship is most accurate?

A.

Smaller asset owners seek to carry out stewardship activities directly themselves.

B.

Engagement focuses on preserving and enhancing long-term value of the investee company.

C.

Investor engagement in response to a share price fall is more likely to be effective than long-standing messaging.

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Question # 66

Which of the following statements regarding the UK Stewardship Code is accurate? The Code:

A.

Requires signatories to report quarterly on their stewardship activities.

B.

Includes principles for asset owners, asset managers, and service providers.

C.

Allows signatories to fulfill its demands solely by publishing policy statements.

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Question # 67

Which of the following is most likely a success factor characteristic of the engagement approach? Investors pursuing the engagement should have:

A.

Meaningful assets under management.

B.

A prior relationship with the target company.

C.

An objective that is specific and targeted to enable clarity around delivery.

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Question # 68

Which of the following statements about stewardship codes is most accurate? Stewardship codes:

A.

apply only to public equity investments.

B.

have similar principles in most parts of the world.

C.

pursue social policy goals without making a clear link to value.

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Question # 69

Which issue was most similar in the governance challenges faced by Enron and WeWork?

A.

Auditor lapses

B.

Related-party deals

C.

Dominance of the chief executive officer (CEO)

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Question # 70

According to market reviews conducted by the Global Sustainable Investment Alliance at the start of 2022, the smallest sustainable investment strategy globally (in terms of assets) is:

A.

Impact investing.

B.

Best-in-class investing.

C.

Norms-based screening.

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Question # 71

A company is accused of surveying employees to prevent them from forming a union. The decision of an asset manager to divest from holding shares in the company is an example of:

A.

universal exclusion.

B.

idiosyncratic exclusion.

C.

conduct-related exclusion.

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Question # 72

Considering ESG integration, an advantage relevant to private real estate markets but not equities and fixed income is most likely:

A.

majority ownership

B.

coverage of assets by ESG rating agencies

C.

adherence to the Global Real Estate Sustainability Benchmark (GRESB) rather than the Sustainability Accounting Standards Board (SASB) framework

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Question # 73

Which of the following statements about voting is most accurate?

A.

Voting is a necessary but not a sufficient element of good stewardship

B.

Concerns about the diversity of a company's board cannot be reflected in voting decisions

C.

If there are concerns about the financial viability of a business, investors need to pay close attention to voting decisions on the reappointment of members of the audit committee

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Question # 74

Best-in-class funds most likely:

A.

target a higher ESG rating than that of a corresponding index

B.

include only companies that are considered responsible investments

C.

score companies using a common set of ESG criteria and weightings across sectors

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Question # 75

Pension funds are most likely classified as:

A.

asset owners

B.

fund promoters

C.

asset managers

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Question # 76

In contrast to active investors, passive investors are most likely to:

A.

seek a direct discussion with senior management and then the board

B.

start their engagement process by writing a letter to all the companies impacted by a certain ESG issue

C.

focus their engagement on companies identified as underperformers or ones that trigger other financial or ESG metrics

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Question # 77

Which of the following parties is most likely to help investors identify the extent and depth to which investment funds integrate ESG?

A.

Fund labellers

B.

Investment platforms

C.

Investment consultants

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Question # 78

The United Nations Framework Convention on Climate Change (UNFCCC) aims to:

A.

operationalize the Paris Agreement for the business world

B.

promote material climate change disclosures in mainstream reporting

C.

stabilize greenhouse gas (GHG) emissions to limit man-made climate change

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Question # 79

Using the “shades of green" methodology developed by the Center for International Climate Research (CICERO), a project that does not explicitly contribute to the transition to a low carbon and climate resilient future is given the shading of:

A.

red

B.

yellow

C.

light green

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Question # 80

ESG integration is most likely enforced by regulating:

A.

Stewardship

B.

Asset owners

C.

Corporate disclosure

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Question # 81

As policies on ESG issues and financial regulation across countries reach maturity, which of the following is least likely to occur?

A.

Changing from voluntary to mandatory disclosures

B.

Moving from policy to implementation and reporting

C.

Moving away from “comply and explain” regulation to “comply or explain” regulation

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Question # 82

The Cadbury Committee was created because of perceived problems in:

A.

Employment rights

B.

Climate change and transition risks

C.

Accounting and corporate governance

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Question # 83

In ESG integration, which of the following best describes a data-informed analytical opinion designed to support investment decision-making?

A.

ESG screening

B.

Integrated research

C.

Voting and governance advice

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Question # 84

Which of the following best describes a mature ESG regulatory framework? A government putting forward:

A.

A "comply or explain" ESG regulation

B.

Voluntary ESG corporate disclosures

C.

ESG implementation and reporting guidelines

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Question # 85

Globalization has led to a reduction in:

A.

regulation

B.

market efficiency

C.

social structural inequality

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Question # 86

Which of the following statements regarding ESG ratings in the credit area is most accurate?

A.

Rating providers tend to overcomplicate industry weighting and company alignment

B.

There is a geographical bias towards companies in regions with high reporting standards

C.

Smaller companies may obtain higher ratings because of their willingness to dedicate more resources to non-financial disclosures

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Question # 87

Which of the following statements about proxy voting is most accurate? The majority of asset owners:

A.

retain direct control of voting

B.

delegate voting rights to fund managers so long as those managers reflect the asset owner's voting policies

C.

leave voting decisions to their fund managers after having assessed the alignment between the fund manager’s voting policies and their own

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Question # 88

Interest by retail investors in responsible investing has:

A.

been declining over time

B.

remained stable over time

C.

been growing over time

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Question # 89

According to the Stockholm Resilience Centre, which of the following planetary boundaries have already been crossed as a result of human activity?

A.

Climate change only

B.

Loss of biosphere integrity only

C.

Both climate change and loss of biosphere integrity

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Question # 90

Which of the following scenarios best illustrates the concept of a ‘just’ transition?

A.

A region transitioning to solar power subsidizes businesses to install solar arrays

B.

A region transitioning to a smaller public sector workforce funds outplacement programs for displaced office workers

C.

A region transitioning away from iron ore mining helps displaced miners to work in the safe decommission of abandoned mines

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Question # 91

Which of the following is the most important type of diversity in a boardroom?

A.

Diversity of skill

B.

Diversity of gender

C.

Diversity of thought

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Question # 92

Analyzing a portfolio's social impact exposure is best achieved by first understanding material social topics at:

A.

the company and country levels, then the sector level

B.

the country and sector levels, then the company level

C.

the company and sector levels, then the country level

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Question # 93

In Japan, additional statutory auditors are individually appointed by the:

A.

Shareholders

B.

Risk committee

C.

Regulatory body

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Question # 94

ESG engagement is a two-way dialogue to share perspectives between:

A.

investors and investees

B.

asset owners and fund managers

C.

senior executives and board of directors

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Question # 95

Which of the following is a form of individual engagement?

A.

Follow-on dialogue

B.

Informal discussions

C.

Active public engagement

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Question # 96

Which of the following principles of the UK Stewardship Code could be considered controversial?

A.

Proxy voting

B.

Collective engagement

C.

Monitoring of investee companies

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Question # 97

A bond that funds offshore wind projects is most likely a:

A.

Blue bond

B.

Green bond

C.

Transition bond

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Question # 98

From a company investment perspective, which of the following is the most significant social impact from climate change transition risks?

A.

Stakeholder opposition

B.

A lack of skilled workers

C.

The need to restructure the business

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Question # 99

Compared to developed markets, ESG investing in emerging markets is most likely characterized by:

A.

more data and less variability between countries and companies

B.

lower transferability of approaches and principles methods from developed markets

C.

fewer opportunities for investors to engage with companies and improve ESG performance

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Question # 100

All else equal, a higher discount rate applied to a company’s discounted cash flow (DCF) analysis will lead to:

A.

a lower estimate of intrinsic value

B.

the same estimate of intrinsic value

C.

a higher estimate of intrinsic value

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Question # 101

As a result of an aging population, which of the following sectors is most likely to experience slower growth?

A.

Healthcare

B.

Consumer goods

C.

Wealth management

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Question # 102

Scopewashing is best described as a situation in which a company’s management:

A.

Uses hyperbole to highlight its sustainability-related skills and experience

B.

Emphasizes positive action in one ESG area while negatively contributing to another

C.

Keeps quiet about their environmental goals for fear of retribution or misinterpretation

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Question # 103

In an emissions trading system:

A.

Emissions caps are fixed over time

B.

Permits may be allocated free of charge

C.

Price signals cannot be created from the trading of permits

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Question # 104

An ESG scorecard is best categorized as:

A.

Purely qualitative analysis

B.

Purely quantitative analysis

C.

A hybrid of qualitative and quantitative analysis

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Question # 105

Excluding tobacco from the investment universe is an example of which of the following ESG screening approaches?

A.

Universal exclusion

B.

Idiosyncratic exclusion

C.

Conduct-related exclusion

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Question # 106

An advantage of the carbon footprinting approach to environmental risk analysis is that it allows for:

A.

comparisons to global benchmarks.

B.

measuring and valuing nature's role in decision-making.

C.

measuring potential investment risks related to the physical impacts of climate change.

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Question # 107

Which of the following challenges do asset managers face in integrating ESG issues?

A.

Decreasing amount of ESG regulation

B.

A lack of methodologies to integrate ESG considerations for non-corporate issuers

C.

Consultants and advisers base their advice for owners on a narrow interpretation of investment objectives

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Question # 108

Compared to other ESG strategies, fully integrated ESG strategies tend to feature:

A.

less concentrated positions.

B.

similarly concentrated positions.

C.

more concentrated positions.

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Question # 109

A small company based in Sweden operates in an industry that has good sustainability ratings. The company has a low ESG rating that an analyst believes to be biased. The bias would most likely result from the company's:

A.

industry.

B.

company size.

C.

geographical base of operations.

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Question # 110

The World Bank's World Governance Indicators dataset includes rankings on:

A.

rule of law.

B.

credit rating.

C.

the government debt to GDP ratio.

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Question # 111

One of the goals of climate change mitigation is to:

A.

protect energy and public infrastructure.

B.

increase resilience to expected climate events.

C.

enable economic development to proceed in a sustainable manner.

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Question # 112

Flooding, droughts, and storms are examples of severe weather events arising from:

A.

Physical risk only

B.

Transition risk only

C.

Both physical risk and transition risk

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Question # 113

Determining which ESG issues are material:

A.

involves judgment.

B.

excludes impacts on short-term financial performance.

C.

is a process that is independent of a company’s industry and business model.

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Question # 114

In governance analysis, a threshold assessment best describes a minimum:

A.

criterion before making an investment.

B.

level of confidence about future earnings.

C.

level of stewardship dialogue with the company.

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Question # 115

Tools that evaluate companies, countries, and bonds based on their exposure or involvement-specific factors, sectors, products, or services are referred to as:

A.

ESG data.

B.

ESG ratings.

C.

ESG screening.

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Question # 116

The size of the discount rate adjustment to account for ESG risks most likely depends on:

A.

Company-specific ESG risks.

B.

The magnitude of the company’s cash flows.

C.

The effectiveness of the company's ESG risk management.

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Question # 117

An organization conducts assessments that highlight events, behaviors, and practices that may lead to reputational and business risks and opportunities. This organization is best classified as a provider of:

A.

Advisory services

B.

Integrated research

C.

ESG news and alerts

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Question # 118

Alignment of an investment manager’s performance against a long-term ESG investor’s objectives is best achieved by which of the following?

A.

Benchmarking against the market

B.

Engaging in a monitoring dialogue frequently

C.

Early reporting of deviations from the expected investment process or style

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Question # 119

When an external auditor’s performance materiality level is 60% of its overall materiality threshold, the auditor most likely:

A.

Has a low level of confidence in the company's financial controls

B.

Will apply tailored audit procedures for the smallest 40% of the company's segments

C.

Uses a sample that covers 60% of the total number of the company's transactions during the financial year

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Question # 120

Which of the following is most likely associated with positive screening?

A.

Green investing

B.

Thematic investing

C.

Best-in-class investing

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Question # 121

Which of the following statements about the materiality of social factors is most accurate?

A.

Population aging is more important to emerging markets than developed markets

B.

The importance of a specific social issue depends on the regional or country context

C.

The difference between rural and urban areas is greater in the developed world than in emerging markets

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Question # 122

Which of the following statements about green bonds and sustainability-linked bonds (SLBs) is most accurate?

A.

A global consensus exists on the types of capital projects that fit in the scope of green bonds

B.

Green bonds allow issuers more flexibility in achieving sustainability targets compared to SLBs

C.

Issuers of SLBs agree to pay a higher coupon to investors if they fail to achieve a sustainability-linked target

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Question # 123

For private equity investments, an especially important ESG factor is:

A.

environmental.

B.

social.

C.

governance.

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Question # 124

The manager of a sovereign fund publishes a list of excluded companies with reasons for the divestments. This is most likely a form of:

A.

Escalation.

B.

Concert party.

C.

Collective engagement.

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Question # 125

The Sustainability Accounting Standards Board's (SASB) Materiality Map:

A.

Only covers equities as an asset class.

B.

Assesses portfolio-level exposure to sustainability risks.

C.

Identifies material issues and weights them for individual companies.

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Question # 126

The scorecard technique to assess ESG risks is dependent on:

A.

third-party scores.

B.

third-party research.

C.

company disclosures.

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Question # 127

For a pension plan, the primary driver of ESG investment is most likely:

A.

Fiduciary duty.

B.

Loss aversion.

C.

Personal ethics of its members.

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Question # 128

In contrast to engagement dialogues, monitoring dialogues most likely involve:

A.

a two-way sharing of perspectives.

B.

discussions intended to understand the company, its stakeholders and performance.

C.

conversations between investors and any level of the investee entity including non-executive directors.

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Question # 129

According to the Principles for Responsible Investment, which of the following engagement dynamics creates value?

A.

Political dynamics only

B.

Learning dynamics only

C.

Both political dynamics and learning dynamics

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Question # 130

Which of the following ESG investment approaches is most likely applicable when investing in sovereign debt?

A.

ESG tilting

B.

Collaborative engagement

C.

Active private engagement

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Question # 131

Using surface water in a business activity is best characterized as a:

A.

direct impact on biodiversity

B.

positive indirect impact on biodiversity

C.

negative indirect impact on biodiversity

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Question # 132

In Australia, a managing director of a company is the:

A.

executive chair.

B.

only executive director.

C.

former CEO of the company.

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Question # 133

Company reporting and transparency are led by the:

A.

board

B.

auditor

C.

management team

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Question # 134

When integrating ESG analysis into the investment process, deriving correlations on how ESG factors might impact financial performance over time is an example of a:

A.

passive approach.

B.

thematic approach.

C.

systematic approach.

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Question # 135

When tailoring an ESG investment approach to client needs, the primary driver of ESG investment for general insurers is most likely:

A.

fiduciary duty.

B.

reputational risk.

C.

awareness of financial impacts of climate change.

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Question # 136

According to market reviews conducted by the Global Sustainable Investment Alliance at the start of 2020, sustainable investing assets in the five major markets stood at approximately:

A.

USD 20 trillion.

B.

USD 35 trillion.

C.

USD 60 trillion.

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Question # 137

Which of the following is an example of the internalization of negative externalities?

A.

A car manufacturer receiving subsidies for electric car production

B.

A farmer paying taxes based on the level of soil degradation on its farmland

C.

An electronics manufacturer retaining more employees after improving working conditions

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Question # 138

Which of the following statements about integrating corporate governance into the investment decision-making process is most accurate?

A.

When talked about as the quality of management, corporate governance refers to a company's culture of not taking excessive risk

B.

As a risk assessment tool, analysis of corporate governance may represent the level of confidence about a company's future earnings

C.

When directly built into a valuation model, analysis of corporate governance improves the accuracy of the investment thesis but does not affect the discount rate applied

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Question # 139

According to the UK Pensions and Lifetime Savings Association Stewardship Checklist, during the RFP process pension fund trustees considering active fixed income managers should:

A.

Exclusively invest in green bonds

B.

Consider the potential for ESG risks to impact credit ratings

C.

Ensure that the managers engage with borrowers after issuance

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Question # 140

Index-based ESG strategies are typically optimized to:

A.

Minimize tracking error while keeping ESG improvement within an acceptable range

B.

Maximize ESG improvement while keeping tracking error within an acceptable range

C.

Maximize return while keeping both ESG improvement and tracking error within acceptable ranges

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Question # 141

In addition to reporting on sustainability matters that are financially material to a company's business value, double materiality also requires the company to report the impact of:

A.

ESG risks to the company

B.

Upcoming regulation on its industry

C.

The company on the environment and people

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Question # 142

An analyst evaluates the following statements about investor engagement:

Statement 1:Investor engagement focuses on preserving and enhancing short-term value on behalf of an asset owner.

Statement 2:Investor engagement can encompass lobbying as part of industry groups.

Which of the statements is accurate?

A.

Statement 1 only

B.

Statement 2 only

C.

Both Statement 1 and Statement 2

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Question # 143

The Kyoto Protocol established emissions targets that are:

A.

binding on all countries.

B.

voluntary for all countries.

C.

binding only on developed countries.

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Question # 144

In which of the following circumstances is Free, Prior, and Informed Consent (FPIC) most applicable?

A.

Members agreeing to a social media platform’s privacy policy

B.

Company constructing a fish farm next to a native waterfront community

C.

Governments passing international standards against forced labor practices

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Question # 145

An analyst would most likely increase a company’s discount rate if the company:

A.

Has strong ESG practices

B.

Faces significant environmental litigation

C.

Is well-positioned to benefit from ESG opportunities

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Question # 146

According to market reviews conducted by the Global Sustainable Investment Alliance at the start of 2020, the largest sustainable investment strategy in the United States is:

A.

ESG integration.

B.

exclusionary screening.

C.

corporate engagement and shareholder action.

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Question # 147

Which of the following best describes a challenge of ESG integration?

A.

The reliance solely on algorithms to forecast future ESG performance

B.

Overly detailed company-level ESG reporting that overwhelms investors

C.

Disagreements between investors and company management teams about materiality thresholds

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Question # 148

In a request for proposal from managers, for which of the following asset classes are voting policies least likely to be considered?

A.

Active equity

B.

Active fixed income

C.

Passive/index tracking

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Question # 149

Will including additional ESG constraints in a portfolio optimization model most likely affect tracking error?

A.

No

B.

Yes, it will reduce tracking error

C.

Yes, it will increase tracking error

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Question # 150

Jevon's paradox refers to a situation where improvements in efficiency are offset by increased:

A.

waste.

B.

consumption of the product.

C.

spending on sectors where emissions are harder to abate.

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Question # 151

Which of the following is a for-profit provider offering multiple ESG-related products and services?

A.

CDP

B.

UNEP

C.

FactSet

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Question # 152

Negative screening of tobacco-related companies is best grouped into which of the following basic categories?

A.

Universal exclusion

B.

Idiosyncratic exclusion

C.

Conduct-related exclusion

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Question # 153

A mature company has launched a product that reduces customers' electricity usage. This should be incorporated into the company’s discounted cash flow (DCF) analysis by increasing its:

A.

cost of capital.

B.

revenue projections.

C.

required rate of return.

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Question # 154

If a company faces significant environmental regulations, investors would most likely decrease the company’s:

A.

discount rate.

B.

terminal growth rate.

C.

cash flow projections.

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Question # 155

Advantages of investing in ESG indexes include:

A.

A standardized methodology for ESG performance.

B.

Identifying firms or countries that prioritize sustainability.

C.

High transparency and disclosure of precise methodologies.

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Question # 156

An organization conducts assessments that highlight events, behaviors, and practices that may lead to reputational and business risks and opportunities. This organization is best classified as a provider of:

A.

Advisory services

B.

Integrated research

C.

ESG news and controversy alerts

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Question # 157

Human rights violations are most likely to affect workers employed

A.

by first-tier suppliers to publicly traded companies

B.

by second-tier suppliers to publicly traded companies.

C.

deep within the supply chain of publicly traded companies.

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Question # 158

Which of the three ESG factors is most often taken into consideration by traditional investment analysts?

A.

Social

B.

Governance

C.

Environmental

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Question # 159

When searching for an asset manager with an ESG approach, in the request for proposal (RFP) an institutional asset owner would most appropriately ask:

A.

which broad market index the asset manager tracks

B.

detailed questions on specific portfolio holdings of the asset manager

C.

if the asset manager aims for positive, measurable ESG outcomes beyond financial returns

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Question # 160

Which of the following is a form of individual engagement?

A.

Generic letter

B.

Soliciting support

C.

Informal discussions

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Question # 161

For a board to be successful the most important type of diversity needed is:

A.

age

B.

gender

C.

thought

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Question # 162

A portfolio manager may need to adopt a more appropriate ESG benchmark rather than a broad market benchmark if the degree of exclusions results in:

A.

low active share and low tracking error

B.

low active share and high tracking error.

C.

high active share and high tracking error.

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Question # 163

ESG factors that relate to future growth opportunities are most relevant to:

A.

equity investors.

B.

sovereign debt investors.

C.

corporate bond investors.

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Question # 164

Which of the following is most likely an example of a negative externality?

A.

Impairment costs incurred by a company due to regulatory changes

B.

Direct costs incurred by a company in reducing environmental damages

C.

Indirect costs incurred by third parties due to environmental damages caused by a company

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Question # 165

Companies may be excluded from the UK Modern Slavery Act on the basis of:

A.

size only

B.

sector only.

C.

both size and sector

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Question # 166

Compared with younger people, older people are more likely to have:

A.

lower accumulated savings and spend less on consumer goods

B.

higher accumulated savings and spend less on consumer goods.

C.

higher accumulated savings and spend more on consumer goods

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Question # 167

According to the Taskforce on Nature-related Financial Disclosures (TNFD), the four realms of nature include

A.

land

B.

pollution.

C.

biodiversity

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Question # 168

Which of the following increases pressure on natural resources?

A.

Population growth

B.

Economic recession

C.

Declining life expectancy

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Question # 169

Which of the following would most likely be the initial step when drafting a client's investment mandate?

A.

Clarifying the client's ESG investment beliefs

B.

Defining how ESG performance will be measured

C.

Reflecting the client's investment beliefs operationally in the fund manager’s investment approach

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Question # 170

Negative screening of tobacco-related products is best grouped into which of the following basic categories?

A.

Universal exclusion

B.

Idiosyncratic exclusion

C.

Conduct-related exclusion

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Question # 171

Which of the following ESG risks is most likely to impact sovereign debt?

A.

Cybersecurity risks

B.

Political stability and governance risks

C.

Executive compensation structures

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Question # 172

Which of the following most likely protects minority shareholders?

A.

Dual-class shares

B.

Pre-emption rights

C.

Double voting rights

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Question # 173

According to a study by Berg, Koelbel, and Rigobon, the correlation of ESG ratings is:

A.

High, and this can be a source of insight for investors

B.

Low, and this poses a challenge for empirical research

C.

Low, and this motivates companies to improve their ESG performance

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Question # 174

Which of the following best describes an Earth system that will exhibit large-scale and long-term changes when reaching critical levels of global warming?

A.

Tipping elements

B.

Planetary boundaries

C.

Environmental externalities

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Question # 175

Which of the following best describes Weitzman's dismal theorem?

A.

Relative improvements in efficiency may be offset by increased consumption of a given product

B.

Economic asset value should be assigned to biodiversity to reverse its treatment as a free resource

C.

Standard cost-benefit analysis is insufficient to address the potential downside losses from climate change

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Question # 176

Which of the following social factors are most likely to impact external stakeholders?

A.

Labor rights

B.

Product liability

C.

Human capital development

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Question # 177

When aligning investments with client ESG beliefs, which of the following ESG considerations should be reflected in the investment mandate dimension of the investment process?

A.

Material ESG factors

B.

Rationale for ESG integration

C.

Consideration of ESG factors, including prioritization

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Question # 178

Which of the following is most likely a consequence of income inequality?

A.

An increase in social mobility

B.

A decrease in educational opportunities

C.

An increase in the number of companies adopting aggressive tax optimization strategies

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Question # 179

When constructing net zero portfolios, investors:

A.

Can follow a clearly accepted standard for netting exposures to carbon risk

B.

Typically agree on how to best account for the role that derivatives and shorts play

C.

Will tend to have overweight equity allocations in the technology sector if they exclude Scope 3 emissions

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Question # 180

Brown divestment:

A.

Screens out fossil fuels from portfolios

B.

Invests only in companies with a positive environmental impact

C.

Involves publicly traded firms exiting polluting businesses by sales to third parties

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Question # 181

Which of the following statements about externalities is most accurate?

A.

Externalities are reflected in the prices of commercial goods and services

B.

Private costs are higher than societal costs when externalities are negative

C.

Measures to internalize externalities can be taken by corporates or governments

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Question # 182

According to the fundamental conventions of the International Labour Organization (ILO), which of the following should not be supported as a labor right by companies?

A.

Forced labor

B.

Minimum age

C.

Freedom of association

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Question # 183

According to the Principles for Responsible Investment, which of the following isnotan ESG engagement dynamic creating value for investors and companies?

A.

Cultural dynamics

B.

Learning dynamics

C.

Communicative dynamics

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Question # 184

According to the Principles of Responsible Investment (PRI), which of the following is an example of a social issue?

A.

Lobbying

B.

Employee relations

C.

Bribery and corruption

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Question # 185

Compared to developed markets, a challenge of ESG investing in emerging markets is less:

A.

Data disclosure

B.

Data variability between countries

C.

Data variability between companies

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