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CFA CERTIFICATE IN ESG INVESTING EXAM
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CFA CERTIFICATE IN ESG INVESTING EXAM
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CFA CERTIFICATE IN ESG INVESTING EXAMExternalities are costs that a business does not bear itself but instead imposes on
others. Which of the following is not an example of an externalised cost? - Answers-
Building on brownfield sites.
Explanation
Externalities are costs that a business does not bear itself (internalise) but instead
imposes on others (externalises). ESG analysis considers these externalised costs such
as climate change, greenhouse gas emissions, pollution, emissions, waste
management, resource depletion, water intensity or scarcity, supply chain impacts
including deforestation, etc. The cost of building on brownfield sites is not externalised.
What is the first sustainable development goal (SDG 1)? - Answers- To end poverty in
all its forms everywhere.
Explanation
SDG 1 is to end poverty in all its forms everywhere.
There are three key challenges of incorporating ESG in investment processes. Which of
the following is not one of those three key challenges? - Answers- High sustainability
companies significantly outperform their counterparts over the short-term.
Explanation
The three key time horizons challenges of incorporating ESG in investment processes
are: It is hard to predict the value of future losses (or gains); It is difficult to forecast
when those losses (or gains) might occur - it may well be long into the future; Fund
managers' performance is typically assessed using shorter time horizons than those
over which ESG factors might have a material impact.
ESG investment may be sub-categorized into: Responsible investment; Sustainable
investment; Impact investment; Socially responsible investment (SRI); Ethical
investment; and Thematic investment.
A company has scored well on ESG metrics relative to its competitors, which implies a
number of things. Which of the following is not one of the implications of this relative
ESG score? - Answers- They are more likely to grow rapidly and offer higher short term
returns.
Explanation
Companies that score well on ESG metrics are better able to anticipate ESG risks and
opportunities, enjoy valuation premiums due to changing investor concerns and
preferences, and are more disposed to longer term strategic thinking and planning.
What is sustainable development goal 13 (SDG 13)? - Answers- To take urgent action
to combat climate change and its impacts.
Explanation
SDG 13 is focused on climate change. SDG 13 underpins a recognition that economic
development and climate change are inextricably linked, especially where the effects of
global warming in particular can have a negative effect on growth and development.
,What is the concept of the triple bottom line (TBL) in the context of corporate
accounting? - Answers- TBL attempts to clearly communicate to investors and
stakeholders the value created by companies when social and environmental issues
were considered systematically in their business operations.
Explanation
TBL attempts to improve reporting practices and communicate more clearly to investors
and stakeholders the value created by companies when social and environmental
issues were considered systematically in their business operations.
Which of the following would not be considered a corporate governance issue? -
Answers- Working conditions.
Explanation
Working conditions is a social issue.
Institutional investors aim to integrate ESG factors into investment decisions. Which of
the following is not a typical method by which this may be achieved? - Answers- By
engaging in public policy consultations on ESG issues.
Explanation
Engaging in public policy consultations on ESG issues does not incorporate the factors
into the investment decision process.
The management of pollution and greenhouse gas emissions will be most material to
which of the following industries? - Answers- Electricity generation.
Explanation
One of the most active challenges within ESG investment is identifying those issues
which are genuinely material to a sector and company. The issues of pollution and
greenhouse gas emissions are most relevant in the electricity generation, transport and
industrial production.
Institutional investors typically reflect ESG considerations in three ways, which of the
following is not one of those ways? - Answers- Acting as a whistleblower in respective
corporate misdemeanours.
Explanation
Institutional investors typically reflect ESG considerations in three ways, namely by
integrating ESG into investment considerations, engaging actively with the boards and
management of investee companies, and by engaging in public policy consultations on
ESG issues.
Which of the following bodies has worked to develop a framework that identifies
material ESG issues by sector? - Answers- SASB.
Explanation
The Sustainability Accounting Standards Board (SASB) is the most focused body that
has worked to develop a framework that identifies material ESG issues by sector.
,There are a number of different ESG investment styles. Which of the following is not
one of these ESG investment styles? - Answers- Momentum investment.
Explanation
In understanding the range of ESG issues, which of the following is a social issue? -
Answers- Working conditions
Explanation
Supply chain impacts and water intensity are environmental issues. Board diversity is a
governance issue. Working conditions is a social issue.
ESG investing is based on economic, social and environmental trends and makes which
of the following assumptions? - Answers- That by managing the risks and opportunities
associated with long-term economic, social and environmental trends companies will
have the best chance to prosper, taking decisions well and incorporating the full range
of material risk factors into their decision-making.
Explanation
That by managing the risks and opportunities associated with long-term economic,
social and environmental trends companies will have the best chance to prosper, taking
decisions well and incorporating the full range of material risk factors into their decision-
making.
The integration of ESG is least likely to lead to: - Answers- Increased externalities
Explanation
ESG integration is thought to reduce (not increase) externalities.
Which of the following is not a form of ESG investment? - Answers- Valuation
investment
Explanation
Valuation investment is not a form of ESG investment.
What is the Corporate Reporting Dialogue? - Answers- A collective effort among
standard setters to try to establish a consistent approach/requirement in respect of
corporate reporting.
Explanation
The Corporate Reporting Dialogue is a collective effort among standard setters to try to
establish a consistent approach/requirement in respect of corporate reporting in order to
align metrics and frameworks for corporate reporting purposes to TCFD
recommendations.
With respect to global risks, which one of the following statements is correct? -
Answers- Climate change is seen as both a short-term and long-term risk
Explanation
The World Economic Forum 's 2020 Global Risk Report highlighted environmental risks
linked climate change as both short term and long term threats.
, How may the externalities of a highly polluting company affect a diversified investment
portfolio? - Answers- The profitability of other investments within the portfolio may be
reduced by the externalities of the polluting company.
Explanation
Externalities are costs that a business does not bear itself but instead imposes on
others (externalises), thus one company's externalities can damage the profitability of
other portfolio companies and overall market return.
Which one of the following is not one of the three P's under the triple-bottom line
accounting theory? - Answers- Processes
Explanation
The three bottom lines, often referred to as the three Ps are: 1. People; 2. Planet; and 3.
Profit.
What was the initial 2004 objective of the UN Global Compact? - Answers- An initiative
to find ways to integrate ESG into capital markets.
Explanation
The initial 2004 objective of the UN Global Compact was to find ways to integrate ESG
into capital markets.
Which of the following does not represent an example of a social factor? - Answers-
Pollution and resources
Explanation
Pollution and resources represents an environmental factor.
Signatories to the UN Global Compact (UNGC) agreed to adhere to 10 principles falling
within four broad categories. What are the four broad categories? - Answers- Human
rights, labour, environment, anti-corruption.
Explanation
The four broad groupings are: Human rights; Labour; Environment; and Anti-corruption.
Environmental costs are considered to be unavoidable for asset owners as they impact
the portfolio in a variety of ways. Which of the following would not be considered a way
in which a portfolio may be adversely impacted by environmental costs? - Answers- -
Insurance pay-outs.
Explanation
Environmental costs are unavoidable for asset owners since they impact the portfolio
via litigation costs, insurance premiums, tax charges, inflated input prices and the
physical costs associated with disasters. An insurance pay-out has no adverse impact.
Which initiative or body has the aim of trying to operationalise the Paris Agreement's 2
degree C (3.6 degree F) target? - Answers- TCFD
Explanation
The Task Force on Climate-related Financial Disclosure (TCFD) has the aim of trying to
operationalise the Paris Agreement's 2 degree C (3.6 degree F) target by urging
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