Latest CFA Certificate in ESG Investing Exam Questions With Complete Answers

Externalities are costs that a business does not bear itself but instead imposes on others. Which of the following is not an example of an externalized cost? - ANS Building on brownfield sites. Explanation Externalities are costs that a business does not bear itself (internalize) but instead imposes on others (externalizes). ESG analysis considers these externalized 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 externalized. What is the first sustainable development goal (SDG 1)? - ANS 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? - ANS 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. Institutional investors typically reflect ESG considerations in three ways, which of the following is not one of those ways? - ANS 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? - ANS 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? - ANS Momentum investment. Explanation 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? - ANS 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)? - ANS 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.