[Sep-2024] Dumps Practice Exam Questions Study Guide for the ESG-Investing Exam [Q153-Q176]

NO.153 All else equal, which of the following companies would most likely have a lower price-to-earnings (P/E) ratio than industry average?

A company with lower employee turnover than industry average

A company with higher climate-related risk than industry average

A company with higher scores on independent surveys of employee satisfaction and engagement than industry average

NO.154 Which of the following is one of the six environmental factors in the “Materiality Map” by Sustainability Accounting Standards Board (SASB)?

Transition risk

Ecological impacts

Green infrastructure

NO.155 Which of the following ESG screening methodologies is most likely to result in a well-diversified portfolio?
Screening on:

a relative basis only

an absolute basis only

both a relative basis and an absolute basis

NO.156 Which of the following statements regarding ESG ratings in the credit area is most accurate?

Rating providers tend to overcomplicate industry weighting and company alignment

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

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

NO.157 Scorecards for ESG analysis are most likely:

applicable to public companies but not private companies.

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

inappropriate for country-level assessments of sovereign bonds.

NO.158 The United Nations Sustainable Development Goals (SDGs) are particularly aimed at

investors

corporations.

governments

NO.159 A materiality assessment to identify ESG issues impacting a company’s financial performance is most likely measured in terms of:

likelihood only.

magnitude of impact only.

both likelihood and magnitude of impact.

NO.160 Jurisdictions are most likely to impose extraterritorial laws in relation to:

bribery and corruption

paying suppliers appropriately and promptly.

upholding high standards in health and safety

NO.161 Based on the Sustainability Accounting Standards Board’s (SASB) materiality map, which of the following is a material ESG risk for healthcare companies?

Customer welfare

Competitive behavior

Greenhouse gas (GHG) emissions

NO.162 Which of the following is most likely an example of a negative externality?

Impairment costs incurred by a company due to regulatory changes

Direct costs incurred by a company in reducing environmental damages

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

NO.163 The offering of indexes and passive funds with ESG integration by asset managers

preceded the offering of actively managed ESG funds

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

followed the offering of actively managed ESG funds

NO.164 A company’s emission reduction commitments are best evaluated using:

Scope 3 emissions.

science-based targets.

financial modelling of material environmental factors.

Evaluating Emission Reduction Commitments:
A company’s emission reduction commitments can be evaluated using various methods, but science-based targets provide the most robust framework for assessing these commitments.
1. Scope 3 Emissions: Scope 3 emissions include all indirect emissions that occur in a company’s value chain, such as emissions from purchased goods and services, business travel, and waste disposal. While important, focusing solely on Scope 3 emissions does not provide a complete picture of a company’s overall emission reduction strategy.
2. Science-Based Targets: Science-based targets (SBTs) are emission reduction targets that are aligned with the level of decarbonization required to meet the goals of the Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels. SBTs provide a clear and scientifically validated pathway for companies to reduce their greenhouse gas emissions in line with global climate goals.
3. Financial Modelling of Material Environmental Factors: Financial modelling of material environmental factors can provide insights into the financial impacts of environmental risks and opportunities. However, it is not as directly linked to evaluating the specific commitments and pathways for emission reduction as science-based targets are.
References from CFA ESG Investing:
* Science-Based Targets: The CFA Institute highlights the importance of science-based targets in
* providing a credible and transparent framework for companies to set and achieve their emission reduction commitments. SBTs ensure that companies’ goals are aligned with global climate science and policy objectives.
* Emission Reduction Strategies: Understanding and evaluating emission reduction strategies through the lens of science-based targets allows investors to assess the credibility and effectiveness of a company’s commitments.
In conclusion, a company’s emission reduction commitments are best evaluated using science-based targets, making option B the verified answer.

NO.165 An unfavorable corporate governance assessment would most likely be incorporated in valuation through reduced:

discount rates.

risk premia in the cost of capital.

levels of confidence in the valuation range.

NO.166 Anti-corruption laws are a relevant governance factor for which of the following investments?

Private equity

Sovereign debt

Infrastructure assets

NO.167 Compared with younger people, older people are more likely to have:

lower accumulated savings and spend less on consumer goods.

higher accumulated savings and spend less on consumer goods.

higher accumulated savings and spend more on consumer goods.

NO.168 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)?

Minimize their interface with nature

Maximize their dependence and impact on nature

Evaluate material risks and opportunities for their operations

NO.169 What type of provider of ESG-related products and services is CDP (formerly known as Carbon Disclosure Project)?

Large for-profit

Boutique for-profit

Nonprofit

NO.170 Which of the following transition risks is most likely associated with increased environmental standards?

Legal risks

Policy risks

Technology risks

Policy risks are most likely associated with increased environmental standards. Here’s a detailed explanation:
* Definition of Transition Risks: Transition risks refer to the financial risks that result from the transition to a lower-carbon economy. These can arise from policy changes, legal actions, technology developments, and market shifts.
* Policy Risks and Environmental Standards: Policy risks specifically relate to changes in regulations and policies aimed at addressing climate change and environmental issues. Increased environmental standards often involve stricter regulations on emissions, waste management, resource use, and other environmental impacts.
* Impact of Policy Risks: Companies may face increased costs of compliance, the need for new investments to meet regulatory requirements, and potential fines or sanctions for non-compliance. These policy changes can significantly affect business operations and financial performance.
* Comparison with Other Risks:
* Legal Risks: Legal risks involve litigation and legal actions related to environmental damages or failure to comply with environmental laws. While related, they are distinct from policy risks, which are driven by regulatory changes.
* Technology Risks: Technology risks involve the adoption of new technologies and the potential for current technologies to become obsolete. While technology plays a role in meeting increased
* environmental standards, policy risks are more directly linked to regulatory changes.
* CFA ESG Investing References:
* The CFA Institute explains that policy risks are a significant component of transition risks, particularly when governments implement stricter environmental standards to combat climate change (CFA Institute, 2020).
* Increased environmental standards often lead to policy risks as companies must adapt to new regulatory landscapes, making it the most relevant type of transition risk in this context.
By understanding these risks and their implications, investors can better manage their portfolios in the face of evolving environmental standards and regulatory changes.

NO.171 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:

low risk exposure to this factor in the short run

medium risk exposure to this factor in the short run

high risk exposure to this factor in the short run

NO.172 In contrast to engagement dialogues, monitoring dialogues most likely involve:

a two-way sharing of perspectives

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

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

NO.173 Which of the following is one of the four realms of nature described by the Taskforce on Nature-related Financial Disclosures (TNFD)?

People

Oceans

Biodiversity

NO.174 Which of the following projects are most likely to be financed in the green bond market?

Real estate projects

Manufacturing projects

Communications technology projects

NO.175 In the ESG rating process, an assessment of risk, policies, and preparedness is best categorized as part of a(n):

operational assessment.

fundamental assessment.

disclosure-based assessment.

NO.176 According to the Active Ownership study, which of the following statements regarding ESG engagement is most accurate?

Unsuccessful engagements often have adverse impacts on returns

Success is typically achieved within 12 months of the initial engagement

Successful engagement activity was followed by positive abnormal financial returns

[Sep-2024] Dumps Practice Exam Questions Study Guide for the ESG-Investing Exam [Q153-Q176]

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