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CFA Institute ESG-Investing Certificate in ESG Investing Exam Practice Test

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Total 618 questions

Certificate in ESG Investing Questions and Answers

Question 1

Which of the following tests defines the internal theoretical cost on carbon emissions to guide a company's decision-making process in energy-intensive sectors?

Options:

A.

Carbon taxation

B.

Shadow carbon pricing

C.

Emission trading system

Question 2

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

Options:

A.

rule of law.

B.

credit rating.

C.

the government debt to GDP ratio.

Question 3

With respect to ESG reporting:

Options:

A.

management has little discretion over ESG disclosures.

B.

larger companies face more resource constraints than smaller companies.

C.

business customers may receive ESG information that is not publicly available to investors.

Question 4

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

Options:

A.

fiduciary duty.

B.

reputational risk.

C.

awareness of financial impacts of climate change.

Question 5

The rules that can be used to construct ESG exchange-traded funds (ETFs) include:

Options:

A.

Thematic investing, only

B.

Tilting weightings based on ESG scores, only

C.

Both thematic investing and tilting weightings based on ESG scores

Question 6

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

Options:

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

Question 7

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

Options:

A.

Physical risk only

B.

Transition risk only

C.

Both physical risk and transition risk

Question 8

According to the consulting firm McKinsey & Company, which of the following is a dimension of sustainable investing applied by fund managers?

Options:

A.

Public reporting

B.

Security valuation

C.

Strategic asset allocation

Question 9

Which of the following countries have a joint audit requirement that all public interest entities must engage at least two independent accounting firms to perform an annual audit?

Options:

A.

France

B.

Germany

C.

United Kingdom

Question 10

According to the United Nations Principles for Responsible Investment (PRI), modern fiduciary duty would require investment managers to:

Options:

A.

Support the stability and resilience of the financial system

B.

Incorporate their own sustainability preferences into decision-making

C.

Encourage high standards of ESG performance across the entire investment universe

Question 11

Which of the following is best described as a form of engagement that requires institutions to have a formal agreement with concrete objectives and agreed steps?

Options:

A.

Concert party

B.

Soliciting support

C.

Collaborative campaigns

Question 12

In the revised 2020 version of the UK Stewardship Code, a significant change is that signatories are now required to:

Options:

A.

establish clear guidelines for escalating their activities.

B.

publicly disclose how stewardship is integrated into their investment process.

C.

report annually how stewardship activities have delivered practical results for clients.

Question 13

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

Options:

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

Question 14

Which of the following is a challenge of integrating ESG analysis into investment processes?

Options:

A.

Cultural challenges and biases within investment management firms

B.

Issuer disclosures are standardized across industries without issuer-specific adjustments

C.

ESG analysis is objective by nature, which makes it challenging to find investment opportunities

Question 15

A company's external auditor formally reports to the:

Options:

A.

audit committee.

B.

chair of the board of directors.

C.

shareholders at the annual general meeting.

Question 16

Which of the following ESG factors has the clearest link to corporate financial performance?

Options:

A.

Social

B.

Governance

C.

Environmental

Question 17

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

Options:

A.

Universal exclusion

B.

Idiosyncratic exclusion

C.

Conduct-related exclusion

Question 18

A portfolio manager of an ESG fund attempting to outperform the general market is most likely to:

Options:

A.

ignore non-financial risks.

B.

apply a lower discount rate to companies that poorly manage social factors.

C.

invest in companies that identify social trends early on and adapt their strategy.

Question 19

With respect to infrastructure assets, externalities are best described as issues that may be:

Options:

A.

caused by the asset itself and impact its profitability.

B.

originated outside the asset and impact its profitability.

C.

caused by the asset itself and impact its surrounding environment.

Question 20

The mechanism of dual-class shares most likely favors:

Options:

A.

Institutional investors

B.

Minority shareholders

C.

The founders of a company

Question 21

The LEAP assessment framework developed by the Taskforce on Nature-Related Financial Disclosure (TNFD) stands for:

Options:

A.

learn, engage, adapt, protect.

B.

locate, evaluate, assess, prepare.

C.

listen, estimate, advocate, preserve.

Question 22

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

Options:

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.

Question 23

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

Options:

A.

environmental.

B.

social.

C.

governance.

Question 24

A company’s exposure to social trends and factors:

Options:

A.

Tends to be similar across companies in the same sector

B.

Tends to be similar across companies in the same country

C.

Depends on its culture, systems, operations, and governance

Question 25

A common characteristic of the EU Paris-Aligned Benchmarks and the EU Climate Transition Benchmarks is that they both:

Options:

A.

permit only green investments.

B.

permit fossil fuel investments as part of a transition process.

C.

require a reduction in carbon emissions intensity in the starting year.

Question 26

The UK's Green Finance Strategy identifies the policy lever of greening finance as:

Options:

A.

strengthening the role of the UK financial sector in driving green finance.

B.

directing private sector financial flows to economic activities that support an environmentally sustainable and resilient growth.

C.

ensuring that the financial sector systematically considers environmental and climate factors in its lending and investment activities.

Question 27

Applying constraints in ESG portfolio optimization:

Options:

A.

Can be applied through exclusionary screening

B.

Is currently confined to carbon data due to data limitations

C.

Requires defining an upper and lower bound for a given variable

Question 28

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

Options:

A.

No

B.

Yes, it will reduce tracking error

C.

Yes, it will increase tracking error

Question 29

One of the goals of climate change mitigation is to:

Options:

A.

protect energy and public infrastructure.

B.

increase resilience to expected climate events.

C.

enable economic development to proceed in a sustainable manner.

Question 30

According to Greenhouse Gas (GHG) Protocol Standards, the emissions associated with suppliers and consumers are classified as:

Options:

A.

Scope 1 emissions

B.

Scope 2 emissions

C.

Scope 3 emissions

Question 31

Which of the following private equity investors is most susceptible to allegations of greenwashing? An investor that views ESG integration as a way of:

Options:

A.

Adding value

B.

Managing risk

C.

Attracting clients

Question 32

In which of the following countries does the governance code require at least two independent non-executive directors?

Options:

A.

Japan

B.

The UK

C.

South Africa

Question 33

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?

Options:

A.

Tipping elements

B.

Planetary boundaries

C.

Environmental externalities

Question 34

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

Options:

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

Question 35

When considering strategic asset allocation, would stranded asset risk most likely be a similar concern for fixed income and equity investors?

Options:

A.

No, it would most likely be a greater concern for equity investors

B.

No, it would most likely be a greater concern for fixed income investors

Question 36

A potential challenge for an asset owner implementing responsible investment is:

Options:

A.

A lack of suitable indices

B.

Consultants assessing too many products with ESG characteristics

C.

The inability of the asset owner to influence the way fund managers interpret fiduciary duty

Question 37

Which of the following social trends is more relevant to developed markets than emerging markets?

Options:

A.

Digital disruption

B.

Aging population

C.

Controversial sourcing

Question 38

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

Options:

A.

Data disclosure

B.

Data variability between countries

C.

Data variability between companies

Question 39

Which of the following statements is most accurate? Assessments of the level of ESG capabilities of different fund managers:

Options:

A.

Are comparable

B.

Only use data from audited data sources

C.

Are performed using different methodologies

Question 40

Elements of ESG integration include adjusting:

Options:

A.

Financial forecasts only

B.

Valuation multiples only

C.

Both financial forecasts and valuation multiples

Question 41

Which of the following statements is most accurate? The Kyoto Protocol was created to:

Options:

A.

Encourage companies to make climate-related disclosures

B.

Mobilize private sector finance for sustainable development

C.

Commit industrialized countries to limit and reduce greenhouse gas emissions

Question 42

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

Options:

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

Question 43

Index-based ESG strategies are typically optimized to:

Options:

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

Question 44

Which of the following data are most likely the easiest to optimize in a portfolio?

Options:

A.

Social

B.

Governance

C.

Environmental

Question 45

Which of the following ESG approaches is an investor in sovereign debt most likely to apply?

Options:

A.

Active engagement

B.

Exclusionary screening

C.

Stewardship interaction

Question 46

In the context of effective corporate governance, the use of alternative performance metrics (APMs) most directly raises questions about:

Options:

A.

Board structure

B.

Director independence

C.

Reporting and transparency

Question 47

According to the Taskforce on Nature-Related Financial Disclosures (TNFD), which of the following drivers of nature change can directly translate into a positive impact on circular economy principles?

Options:

A.

Pollution

B.

Resource use

C.

Climate change

Question 48

A company has an audit contract with one Big Four firm and non-audit contracts with two other Big Four firms. Which scenario is most likely to materialize when the company rotates its auditors?

Options:

A.

The new auditor will be eligible for new non-audit contracts

B.

There will be a sub-optimal level of competition for the audit

C.

The new auditor will miss material issues that the existing auditor would have identified

Question 49

Which of the following statements about social trends is most accurate?

Options:

A.

Social trends have similar impacts on different sectors

B.

The importance of a social trend for a country is independent of the level of its economic development

C.

The impact of a social trend on companies within the same sector may differ based on each company's culture

Question 50

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:

Options:

A.

ESG risks to the company

B.

Upcoming regulation on its industry

C.

The company on the environment and people

Question 51

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:

Options:

A.

Value creation

B.

Risk management

C.

Attracting ESG-conscious capital allocators

Question 52

Within fixed income, ESG integration is most developed in:

Options:

A.

Sovereign debt

B.

Corporate bonds

C.

Securitized bonds

Question 53

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

Options:

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

Question 54

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

Options:

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

Question 55

The European Union (EU)'s Carbon Border Adjustment Mechanism is best described as a(n):

Options:

A.

Revision of the EU's energy taxation directive with a focus on existing fossil fuel subsidies

B.

Tool to put a fair price on carbon emitted in the production of carbon-intensive goods entering the EU

C.

Action plan to encourage the development of a sustainable, resource-efficient, low-carbon economy in the EU

Question 56

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

Options:

A.

Screening

B.

Integration

C.

Stewardship/Engagement

Question 57

Compared to those of other countries, the UK corporate governance code has a more in-depth focus on:

Options:

A.

Board structure

B.

Voting procedures

C.

Board behaviors and corporate culture

Question 58

Offshoring is best categorized under which of the following social megatrends?

Options:

A.

Urbanization

B.

Globalization

C.

Changes to work, leisure time, and education

Question 59

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

Options:

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

Question 60

A company's reporting and transparency are initially led by its:

Options:

A.

Board

B.

Audit committee

C.

Management team

Question 61

Which of the following actors most likely engage with investee companies to improve their ESG performance?

Options:

A.

Fund labellers

B.

Asset managers

C.

Investment platforms

Question 62

Brown divestment:

Options:

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

Question 63

The offering of indexes and passive funds with ESG integration by asset managers

Options:

A.

preceded the offering of actively managed ESG funds

B.

occurred at the same time as the offering of actively managed ESG funds.

C.

followed the offering of actively managed ESG funds

Question 64

Which of the following asset classes has the lowest degree of ESG integration?

Options:

A.

Sovereign debt

B.

Investment grade corporate debt

C.

Emerging markets corporate debt

Question 65

According to Mercer Consulting, which of the following asset classes has the highest availability of sustainability-themed strategies compared to its asset-class universe?

Options:

A.

Real estate

B.

Private debt

C.

Infrastructure

Question 66

The United Nations Sustainable Development Goals (SDGs) are particularly aimed at

Options:

A.

investors

B.

corporations.

C.

governments

Question 67

Which of the following is most likely a reason for concern regarding the quality of a company's ESG disclosures?

Options:

A.

The inclusion of audited ESG data

B.

Competitors have stronger disclosure standards

C.

There is written commitment to improve future ESG disclosure

Question 68

low risk exposure to this factor in the short run

Options:

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.

Question 69

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

Options:

A.

ESG screening

B.

Integrated research

C.

Voting and governance advice

Question 70

The Cadbury Commission proposed that:

Options:

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

Question 71

Which of the following factors is most relevant to the performance outlook of a military equipment manufacturer?

Options:

A.

Offshoring

B.

Gender equality

C.

Artificial intelligence

Question 72

When assessing credit and ESG ratings, which of the following statements is most accurate?

Options:

A.

The correlation between country ESG risk and credit ratings is high

B.

The correlation between ESG ratings among rating providers is high

C.

The correlation between credit ratings among credit rating agencies (CRAs) is low

Question 73

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

Options:

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

Question 74

According to the Capitals Coalition, the stock of renewable and non-renewable natural resources that combine to yield a flow of benefits to people is best described as

Options:

A.

nature

B.

natural capital.

C.

ecosystem assets

Question 75

The investor initiative FAIRR focuses on screening out companies

Options:

A.

mining ancestral lands.

B.

using suppliers that do not pay a living wage.

C.

exhibiting poor antibiotic stewardship in animal farming

Question 76

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

Options:

A.

land

B.

pollution.

C.

biodiversity

Question 77

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

Options:

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

Question 78

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

Options:

A.

lower profitability

B.

lower stock return volatility.

C.

less investment in research and development.

Question 79

Which of the following is most likely the primary driver of ESG investment for a life insurer?

Options:

A.

Reputational risk

B.

Recognition of lengthy investment time horizons

C.

Awareness of financial impacts of climate change

Question 80

Which of the following increases pressure on natural resources?

Options:

A.

Population growth

B.

Economic recession

C.

Declining life expectancy

Question 81

Integrating the impact of material ESG factors into traditional financial analysis for a company with strong ESG practices most likely.

Options:

A.

leads to a lower estimate of intrinsic value

B.

has no impact on intrinsic value

C.

leads to a higher estimate of intrinsic value

Question 82

With respect to ESG engagement for a company that is a going concern, the interests of equity investors and debt investors are most likely.

Options:

A.

aligned

B.

opposed.

C.

independent

Question 83

Which of the following would credit rating agencies (CRAs) most likely focus on in order to test how ESG factors affect an issuer’s ability to convert assets into cash?

Options:

A.

Capital structure analysis

B.

Interest coverage ratio analysis

C.

Profitability and cash flow analysis

Question 84

According to the Active Ownership study, which of the following statements regarding ESG engagement is most accurate?

Options:

A.

Unsuccessful engagements often have adverse impacts on returns

B.

Success is typically achieved within 12 months of the initial engagement

C.

Successful engagement activity was followed by positive abnormal financial returns

Question 85

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:

Options:

A.

low active share and low tracking error

B.

low active share and high tracking error.

C.

high active share and high tracking error.

Question 86

Excluding investment in companies with a history of labor infractions is best categorized as a(n):

Options:

A.

universal exclusion.

B.

idiosyncratic exclusion.

C.

conduct-related exclusion

Question 87

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

Options:

A.

Urbanization

B.

Globalization

C.

Mass migration

Question 88

An ESG scorecard for sovereign debt issuers has the following information:

Country 1No carbon policy and high corruption risk

Country 2High-level carbon policy and low corruption risk

Country 3Detailed carbon policy and low corruption risk

Based only on this information, the country with the lowest ESG risk is:

Options:

A.

Country 1.

B.

Country 2

C.

Country 3

Question 89

In France, shareholders eligible for being awarded double voting rights are

Options:

A.

founding shareholders during an IPO

B.

long-standing shareholders of at least two years.

C.

minority shareholders that are employee representatives

Question 90

With respect to ESG integration, adjusting financial model inputs based on an evaluation of a company’s ESG risk factors is an example of a:

Options:

A.

hybrid approach

B.

qualitative approach.

C.

quantitative approach

Question 91

When incorporating ESG factors into valuation inputs, which of the following would most likely require the lowest discount rate?

Options:

A.

A company with strong ESG practices

B.

A high-growth technology company operating in emerging markets

C.

A company that is judged to have a negative environmental impact

Question 92

Which of the following has the long-term goal to keep the increase in global average temperature to well below 2°C (3.6°F) above pre-industnal levels?

Options:

A.

The Kyoto Protocol

B.

The Paris Agreement

C.

The UN Framework Convention on Climate Change

Question 93

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

Options:

A.

Nuclear fusion

B.

Next-generation battery storage

C.

The use of renewable energy to produce hydrogen

Question 94

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

Options:

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

Question 95

The Cadbury Committee was created because of perceived problems in:

Options:

A.

Employment rights

B.

Climate change and transition risks

C.

Accounting and corporate governance

Question 96

Which of the following statements about ESG integration in fixed income is most accurate?

Options:

A.

ESG factors cannot affect credit risk at geographic level

B.

Equity investors generally focus more on the risk of default than fixed-income investors

C.

Municipal bonds have ESG integration considerations similar to those of sovereign debt

Question 97

Best-in-class funds most likely:

Options:

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

Question 98

Which of the following statements regarding ESG considerations and sovereign debt is most accurate?

Options:

A.

There is little correlation between ESG risk and credit ratings

B.

ESG integration in sovereign debt is at similar levels to listed equities and corporate debt

C.

ESG ratings tend to be structurally lower for emerging countries relative to developed economies

Question 99

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

Options:

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

Question 100

Third-party assessments that highlight events, behaviors, and practices that may lead to reputational and business risks and opportunities are best classified as:

Options:

A.

advisory services

B.

integrated research

C.

ESG news and controversy alerts

Question 101

Which of the following best characterizes a climate mitigation strategy rather than a climate adaptation strategy?

Options:

A.

Developing drought-resilient crops

B.

Implementing carbon reduction policies

C.

Planning more efficiently for scarce water resources

Question 102

Which of the following is part of the ASEAN Taxonomy for an economic activity to be considered environmentally sustainable?

Options:

A.

Contributing substantially to at least one of the six environmental objectives

B.

Complying with minimum, ASEAN-specified social and governance safeguards

C.

A principles-based Foundation Framework, which is applicable to all ASEAN member states

Question 103

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

Options:

A.

a lower estimate of intrinsic value

B.

the same estimate of intrinsic value

C.

a higher estimate of intrinsic value

Question 104

Philanthropy is most likely associated with:

Options:

A.

impact investing

B.

shareholder engagement

C.

corporate social responsibility

Question 105

The European Union (EU) Ecolabel:

Options:

A.

is the official EU voluntary label for environmental excellence

B.

targets explicit claims made on a voluntary basis by businesses towards consumers

C.

flags products that have a guaranteed, independently verified, high environmental impact

Question 106

For investors in corporate fixed-income securities, engagement is most likely to be effective if conducted:

Options:

A.

Before the security is issued

B.

Through the divestment process

C.

At the annual general meeting via voting

Question 107

A challenge to ESG integration at the asset allocation level when using mean-variance optimization is that it:

Options:

A.

is highly sensitive to baseline assumptions

B.

requires specialist knowledge to make informed judgments about future risk

C.

could introduce an additional source of estimation errors due to the need for dynamic rebalancing

Question 108

With regards to the climate, financial materiality:

Options:

A.

only considers impacts of a company on the climate

B.

only considers climate-related impacts on a company

C.

considers both impacts of a company on the climate and climate-related impacts on a company

Question 109

A difficulty of integrating ESG into sovereign debt analysis is most likely the:

Options:

A.

shrinking pool of sovereign investment research available

B.

low correlation among credit ratings compared to ESG ratings

C.

smaller number of issuers compared to corporate debt or equities

Question 110

To reflect weak governance of a private equity holding, an analyst's model should most likely include a reduction in the holding's:

Options:

A.

Cost of capital

B.

Terminal value

C.

Bankruptcy risk

Question 111

According to the Global Sustainable Investment Alliance (GSIA), as of 2020, the largest sustainable investment strategy globally is:

Options:

A.

ESG integration

B.

exclusionary screening

C.

corporate engagement and shareholder action

Question 112

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

Options:

A.

A "comply or explain" ESG regulation

B.

Voluntary ESG corporate disclosures

C.

ESG implementation and reporting guidelines

Question 113

The perpetual compound annual rate that a company’s cash flow is assumed to change by after the discrete forecasting period is referred to as the:

Options:

A.

discount rate

B.

terminal growth rate

C.

required rate of return

Question 114

Which of the following ESG screening methodologies is most likely to result in a well-diversified portfolio? Screening on:

Options:

A.

a relative basis only

B.

an absolute basis only

C.

both a relative basis and an absolute basis

Question 115

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

Options:

A.

Shareholders

B.

Risk committee

C.

Regulatory body

Question 116

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

Options:

A.

Fund labellers

B.

Investment platforms

C.

Investment consultants

Question 117

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:

Options:

A.

low risk exposure to this factor in the short run

B.

medium risk exposure to this factor in the short run

C.

high risk exposure to this factor in the short run

Question 118

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

Options:

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

Question 119

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

Options:

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

Question 120

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

Options:

A.

None

B.

Some

C.

All

Question 121

Interest by retail investors in responsible investing has:

Options:

A.

been declining over time

B.

remained stable over time

C.

been growing over time

Question 122

Which of the following statements regarding ESG tools is most accurate?

Options:

A.

Most ESG tools are free to the general public

B.

The completeness of coverage is similar across ESG tools

C.

ESG rating providers evolve their rating processes on an ongoing basis

Question 123

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

Options:

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

Question 124

When employing an ESG integration strategy, asset managers are most likely to:

Options:

A.

corroborate ESG data with multiple sources

B.

include only verified ESG data that have been audited

C.

use a multi-decade time horizon to backtest ESG data

Question 125

Among ESG data and research providers, traditional providers tend to:

Options:

A.

Be highly automated.

B.

Focus on small and less-covered companies.

C.

Have a broader product offering and research focus.

Question 126

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:

Options:

A.

Advisory services

B.

Integrated research

C.

ESG news and controversy alerts

Question 127

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

Options:

A.

may invest in gambling companies.

B.

may own investments that pay interest.

C.

look to invest in line with Shariah principles.

Question 128

For consistency purposes, the International Sustainability Standards Board (ISSB) requires sustainability disclosures to be:

Options:

A.

Audited

B.

Published at the same time as financial statements

Question 129

For which of the following asset classes are investment managers most likely to use voting to exert influence on a company?

Options:

A.

Real estate

B.

Private debt

C.

Passive/index tracking

Question 130

Regulations relating to ESG investing generally involve which of the following themes?

Options:

A.

Stewardship

B.

Scenario analysis

C.

Green bond issuance

Question 131

The low correlation between the ratings from different ESG rating agencies:

Options:

A.

Makes it less difficult for companies to improve their ESG performance

B.

Has no effect on the ambition of companies to improve their ESG performance

C.

Makes it more difficult for companies to improve their ESG performance

Question 132

An ESG-contingent asset for a healthcare company may result from:

Options:

A.

Acting as custodians of its customers' medical details.

B.

Employee recruiting strategies that trail best practices.

C.

Its data analytics business allowing the company to create cheaper healthcare options for governments.

Question 133

A situation in which a company making good strides toward more sustainable practices but is unwilling to reveal as much for fear of retribution or misinterpretation is best described as:

Options:

A.

greenhushing.

B.

scopewashing.

C.

competence greenwashing.

Question 134

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

Options:

A.

Ocean acidification.

B.

Land-system change.

C.

Stratospheric ozone depletion.

Question 135

Which of the following are social megatrends?

Options:

A.

Changing demographics and mass migration.

B.

Changes to family structures and mass migration.

C.

Changes to family structures and changing demographics.

Question 136

ESG portfolio optimization most likely:

Options:

A.

Applies a fixed decision to specific securities.

B.

Accepts lower active risk when optimizing for multiple factors.

C.

Requires defining an upper and lower bound for a given variable.

Question 137

A disadvantage of the Global Real Estate Sustainability Benchmark (GRESB) framework is that it:

Options:

A.

does not provide peer group comparison.

B.

does not provide environmental impact reduction targets.

C.

is easily sidestepped by majority owners who control how it is applied.

Question 138

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

Options:

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

Question 139

Passive investors typically start engagement by:

Options:

A.

Identifying investment underperformers.

B.

Seeking a direct discussion with senior management.

C.

Identifying an issue impacting a specific economic sector.

Question 140

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

Options:

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.

Question 141

The carbon offset market:

Options:

A.

Is very transparent.

B.

Is based on a rigorous scientific process.

C.

Comprises both voluntary and regulated aspects.

Question 142

Which of the following statements regarding the impact of social issues on potential investment opportunities is most accurate?

Options:

A.

Social trends impact sectors differently.

B.

Companies within a sector are exposed to social factors in the same way.

C.

Analyzing which social topics are material from an investment point of view starts with understanding materiality at the company level.

Question 143

To address conflicts of interest and maintain the independence of audit firms, EU law requires firms to abide by:

Options:

A.

A list of allowable non-audit services only.

B.

A monetary limit on the overall value of non-audit services only.

C.

Both a list of allowable non-audit services and a monetary limit on the overall value of non-audit services.

Question 144

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

Options:

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.

Question 145

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

Options:

A.

Clean energies

B.

Clean transport

C.

Clean electricity

Question 146

A company's Scope 2 emissions are:

Options:

A.

emissions from purchased energy.

B.

direct emissions from core operations.

C.

emissions produced by suppliers and customers.

Question 147

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

Options:

A.

Audit committee

B.

Compensation committee

C.

Corporate governance committee

Question 148

A credit investor uses fundamental credit measures and sector-specific ESG indicators to evaluate a beverage company. Water is a key input for the ingredients used in the company's products. For the investor, the company's efforts to ensure a steady supply of water would most likely be considered:

Options:

A.

A credit strength only.

B.

An ESG strength only.

C.

Both a credit strength and an ESG strength.

Question 149

Green investment is a broad sub-category of:

Options:

A.

Philanthropy.

B.

Ethical investment.

C.

Thematic investment.

Question 150

Regarding ESG engagement, debt and equity investors' interests are most likely aligned when the investee:

Options:

A.

Faces insolvency risk.

B.

Is engaged in capital restructuring.

C.

Has a high investment-grade rating.

Question 151

ESG performance attribution:

Options:

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.

Question 152

A pension fund concerned about climate change will most likely:

Options:

A.

Accept long-term returns below the benchmark.

B.

Use screens to exclude fossil fuel investments.

C.

Increase investments in sovereign debt of countries where the physical impacts of climate change are likely to be most acute.

Question 153

An investment in a fund developing low-cost community housing is best categorized as:

Options:

A.

impact investing.

B.

positive alignment.

C.

thematic investing.

Question 154

According to the International Corporate Governance Network (ICGN) Model Mandate:

Options:

A.

Disclosure of voting activity is sufficient to satisfy the requirement of engagement disclosure.

B.

An investment manager should disclose an assessment of ESG risks that are embedded in the portfolio.

C.

An investment manager should disclose the long-term secular trends and themes that have influenced portfolio construction.

Question 155

Which of the following countries has a joint audit requirement that all public interest entities must engage at least two independent accounting firms to perform an annual audit?

Options:

A.

France

B.

Germany

C.

United Kingdom

Question 156

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

Options:

A.

executive chair.

B.

only executive director.

C.

former CEO of the company.

Question 157

When accounting for a critical weakness in a company's environmental management process, an analyst using a discounted cash flow (DCF) valuation model should:

Options:

A.

decrease the cost of capital.

B.

not change the cost of capital.

C.

increase the cost of capital.

Question 158

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

Options:

A.

Political dynamics only

B.

Learning dynamics only

C.

Both political dynamics and learning dynamics

Question 159

Working conditions on a tree plantation are most likely an example of a(n):

Options:

A.

social issue

B.

governance issue

C.

environmental issue

Question 160

Regime switching strategic asset allocation models are:

Options:

A.

typically based on historical data

B.

widely utilized by investment practitioners

C.

used to model abrupt changes in financial variables due to shifts in regulations and policies

Question 161

Which of the following is an example of collaborative engagement?

Options:

A.

Follow-on dialogue

B.

Active public engagement

C.

Housekeeping engagement

Question 162

New technologies have enabled workers to:

Options:

A.

improve their work-life balance only.

B.

adopt more flexible working patterns only.

C.

both improve their work-life balance and adopt more flexible working patterns.

Question 163

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

Options:

A.

Scope 3 emissions.

B.

science-based targets.

C.

financial modelling of material environmental factors.

Question 164

Information for use in ESG tools can be collected directly via:

Options:

A.

news articles.

B.

third-party reports.

C.

company communications.

Question 165

Credit-rating agencies are most likely classified as:

Options:

A.

algorithm-driven ESG research providers.

B.

traditional ESG data and research providers.

C.

“nontraditional" ESG data and research providers.

Question 166

Non-recyclable waste is eliminated in the:

Options:

A.

reuse economy

B.

linear economy

C.

circular economy

Question 167

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

Options:

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

Question 168

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

Options:

A.

Private equity

B.

Sovereign debt

C.

Infrastructure assets

Question 169

Which of the following statements is least accurate? Compared to social and environmental factors, governance has a:

Options:

A.

greater link to financial performance.

B.

greater consideration in traditional investment analysis.

C.

greater materiality for private companies than for public companies.

Question 170

A bond issued to finance construction of a solar farm is an example of a:

Options:

A.

blue bond

B.

green bond

C.

transition bond

Question 171

What type of provider of ESG-related products and services is CDP (formerly known as Carbon Disclosure Project)?

Options:

A.

nonprofit

B.

large for-profit

C.

boutique for-profit

Question 172

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

Options:

A.

Annual reports

B.

ESG rating reports

C.

Corporate sustainability reports

Question 173

Which of the following is the main driver of stewardship efforts?

Options:

A.

Creating long-term shareholder value

B.

Minimizing the ESG tilt in the investment process

C.

Providing investors and corporates with a comprehensive corporate reporting framework

Question 174

Applying ESG screens to quantitative strategies directs the portfolio on:

Options:

A.

an asset basis.

B.

a top-down basis.

C.

an individual issuer basis.

Question 175

The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both:

Options:

A.

prohibit investments in fossil fuels.

B.

impose green-to-brown ratios to restrict “brown" investments.

C.

use a relative approach by comparing a company’s performance to its sector average.

Question 176

Scorecards for ESG analysis are most likely:

Options:

A.

applicable to public companies but not private companies.

B.

used when third-party research or scores are not available.

C.

inappropriate for country-level assessments of sovereign bonds.

Question 177

Which of the following encourages institutional investors to work together on human rights and social issues?

Options:

A.

Human Rights 100+

B.

OECD Guidelines for Multinational Enterprises

C.

United Nations Guiding Principles on Business and Human Rights

Question 178

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

Options:

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

Question 179

Which of the following is one of the four phases of activities contained by the LEAP assessment framework developed by the Taskforce on Nature-related Financial Disclosures (TNFD)?

Options:

A.

Minimize their interface with nature

B.

Maximize their dependence and impact on nature

C.

Evaluate material risks and opportunities for their operations

Question 180

Corporate disclosures in line with the recommendations of the Corporate Sustainability Reporting Directive (CSRD) are a regulatory requirement for companies in:

Options:

A.

the EU only

B.

the UK only

C.

both the EU and the UK

Question 181

The challenge of ESG integration for an investor is most likely attributable to:

Options:

A.

a lack of third-party ESG data providers.

B.

ESG disclosure mandates by stock exchanges.

C.

the vast range of possible ESG data and the conflicting demands among investors and other stakeholders.

Question 182

Regrowing previously logged forests is most likely an example of climate:

Options:

A.

resilience.

B.

change mitigation.

C.

change adaptation.

Question 183

Avoiding long-term transition risk can most likely be achieved by:

Options:

A.

investing in companies with stranded assets.

B.

divesting highly carbon-intensive investments in the energy sector.

C.

reducing exposure to companies exposed to extreme weather events.

Question 184

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

Options:

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

Question 185

Which of the following social factor scenarios is most likely to affect revenue forecasting?

Options:

A.

Consumer boycotts related to controversial sourcing

B.

Fines related to occupational health and safety failures

C.

High employee turnover related to poor human capital management

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Total 618 questions