ESG Investing Exam Questions
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Article 173-VI in France focus on what? - ANS ✓Requires both fund
managers and asset owners to describe how they incorporate ESG factors
into their investment strategy across all asset classes. Largest firms must
also describe how their investments support energy transistion
EU'sHigh Level Expert Group on Sustainable Finance have 8
recommendations? - ANS ✓1. Introduce a common sustainable finance
taxonomy to ensure consitency and clarity, starting with climate change
2. Clarify investor duties to extend time horizon and bring greater
focus on ESG factors
3. Upgrade disclosure rules on climate change risk.
4. Investment advice, Ecolabel, SRI minimum standards.
5. Sustainable finance strandards on e.g. green bonds
6. Expand the universe of sustainable assets
7. Reform governance and leadership of companies
8. Enlarge role of three european supervisory authorities to promote
sustainable finance.
The walker review led to what? - ANS ✓A UK stewardship Code in 2010,
following the financial crisis.
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Describe the UK stewardship Code - ANS ✓It sets out stewardship
principles that investment insitutions are expected to comply with or be
able to explain any adherence failures. It has been adopted across the
world.
What is the Corporate Governance Code? and which 3
recommendations did it give? - ANS ✓From 1992. Code was based on the
Cadbury Report, in the wake of the BCCI and Maxwell Scandals.
1. The CEO and chairman of companies should be seperated
2. boards should have at least three non-executive directors, two of
whom should have no financial or personal ties to executive.
3. Each board should have an audit committee composed of non-
executive directors.
What are the 7. challenges to successful ESG investing? - ANS ✓1. The
availability of expertise
2. The quality of data, research and analysis
3. limited tools to assist with portfolio construction and management
4. difficulty of demonstrating the value-add from ESG
5. Confusion caused by different ESG approaches and the use of
different termonology
6. Clarity on client needs and expectation and delivering on them
7. The rapid development of new styles of ESG investing.
Deutsche Bank study, Sustainable iNvesting: Establishing Long-term
Value and peromance concluded what? - ANS ✓Companies with high
ratings for ESG factors had a lower cost of capital in terms of debt and
equity and market rated them as lower risk.
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Companies highly rated for ESG factors outperformed the market.
Fried Busch and Bassen: "ESG and financial performance: aggregated
evidence from more thatn 2000 emperical studies" - ANS ✓90% of
studies demonstrate a relationship between ESG and financial performance
that was not negative, with the large majority showing postitive correlation
between ESG and financial performance
Kolbel and Busch Link between ESG, alpha and the cost of capital - ANS
✓ESG performance lowers companies' cost of capital, but the effect on
alpha stays neutral.
Suggest to look for ESG momentum for finding alpha, or integrate ESG
in markets that are not yet efficient.
Global Reporting Initiative (GRI) - ANS ✓Seeks to develop some
alignment between different models for corporate reporting on ESG factors
and broader narrative reporting.
Corporate governance comes down to what two things? - ANS
✓Accountability and alignment
Why is it important to assess the effectiveness of the corporate
governance system? - ANS ✓It gives investors insight into the
accountability mechanisms and decision making processes that support all
critical decisions impacting the allocation of investors' capital
If the chair is not independent it can hamper the boards ability to
these five things: - ANS ✓1. exercise their oversight responsibilities
2. Challenge and debate performance and strategic plans
3. set the agenda
Alignment and the agency problem means? - ANS ✓Owners need to
ensure that there are alignmen between their goals and the agents goal.
Can be done through KPI's and executive pay with incentives.
Corporate failures and scandals have been a powerful driver for the
formalisation of corporate governance and the development codes.
Name two reports that are examples of that. - ANS ✓1. The Walker
Review (After Financial crisis)
2. Kingman and Brydon review (Carillions failure)
The Caparo and Polly peck scandals led to what? - ANS ✓The fist
Corporate Governance Code in the UK in 1992. Made by the Cadbury
Committee
The Cadbury committee recommended what two things among
others? - ANS ✓1. Every public company should have an audit committee
meeting at least twice a year. (it is common today)
2. Chairman and CEO should be seperated
Greenbury report led to what? - ANS ✓increasing visibility of
remuneration structures and transperency over the KPIs that drive
performance pay
Sarbanes-Oxley - ANS ✓Lifted expectations for greater integrity in
financial reporting and created the Public Company Accounting Oversight
Board (PCAOB) as the country's audit standard setter and inspector.
ESG Investing
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