CFA Sustainable Investing Certificate(-SIC) Sustainable-Investing Dumps in PDF

Free CFA Sustainable-Investing Real Questions (page: 10)

For a board to be successful the most important type of diversity needed is:

  1. age
  2. gender
  3. thought

Answer(s): C

Explanation:

Diversity of thought is crucial for a board's success as it brings in varied perspectives, innovative ideas, and a holistic approach to problem-solving.
While age and gender diversity are important, diversity of thought ensures that the board benefits from a range of experiences and viewpoints, leading to better decision-making and governance.


Reference:

Emphasizing the importance of diverse perspectives in governance and decision-making is consistent with principles found in ESG and sustainable investing frameworks.



Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the:

  1. sector level
  2. country level.
  3. company level

Answer(s): B

Explanation:

Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the country level. This type of analysis involves evaluating the legal and regulatory frameworks of a specific country to determine how well they adhere to international labor standards.

National Legislation: Social analysis at the country level examines the extent to which a country's labor laws comply with ILO principles, such as freedom of association, the right to collective bargaining, and the elimination of forced labor, child labor, and discrimination in employment.

Regulatory Environment: Understanding the alignment of local labor laws with ILO standards helps assess the regulatory environment's effectiveness in protecting workers' rights and promoting fair labor practices.

Implications for Investment: For investors, this analysis provides insights into the social risks and opportunities associated with operating in or investing in a particular country. It helps identify potential compliance issues and social impacts that could affect investment decisions.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the importance of evaluating labor laws at the country level to understand social risks and regulatory compliance.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the role of country-level social analysis in assessing adherence to international labor standards and its impact on investment strategies.



An asset manager considering environmental risks would most likely use:

  1. qualitative analysis only
  2. quantitative analysis only
  3. both qualitative and quantitative analyses

Answer(s): C

Explanation:

An asset manager considering environmental risks would most likely use both qualitative and quantitative analyses. Combining these approaches provides a comprehensive understanding of the environmental risks associated with investments.

Qualitative Analysis: This involves evaluating non-numerical information, such as company policies, management practices, and environmental impact reports. It helps assess the company's approach to managing environmental risks and its commitment to sustainability.

Quantitative Analysis: This involves analyzing numerical data, such as carbon emissions, energy consumption, water usage, and waste generation. It provides measurable metrics that can be compared over time and against industry benchmarks.

Holistic Assessment: Using both qualitative and quantitative analyses allows asset managers to gain a complete picture of a company's environmental performance. It helps identify potential risks and opportunities, leading to more informed investment decisions.


Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the importance of integrating both qualitative and quantitative analyses in evaluating environmental risks.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the benefits of a holistic approach to environmental risk assessment using diverse analytical methods.



Jurisdictions are most likely to impose extraterritorial laws in relation to:

  1. bribery and corruption
  2. paying suppliers appropriately and promptly.
  3. upholding high standards in health and safety

Answer(s): A

Explanation:

Jurisdictions are most likely to impose extraterritorial laws in relation to bribery and corruption.

Extraterritorial laws are those that have legal force beyond the borders of the issuing country, and they are often applied to combat global issues such as corruption.

Global Standards: Countries impose extraterritorial laws to ensure that their nationals and corporations comply with anti-bribery and anti-corruption standards, regardless of where they operate. This helps maintain ethical business practices internationally.

Regulatory Frameworks: Prominent examples of extraterritorial laws include the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act, which apply to activities conducted abroad by U.S. and UK entities, respectively. These laws aim to prevent and penalize bribery and corruption on a global scale.

Enforcement and Compliance: By implementing extraterritorial anti-corruption laws, jurisdictions can enforce compliance and hold companies accountable for corrupt practices in foreign countries, promoting transparency and integrity in international business.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the role of extraterritorial laws in combating bribery and corruption and their impact on global business practices.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the significance of extraterritorial regulations in maintaining ethical standards and preventing corruption in international operations.



According to the framework of the Task Force on Climate-Related Financial Disclosures (TCFD): the formula for carbon intensity at the portfolio level weighs emissions based upon an issuer's:

  1. profit.
  2. revenue.
  3. net assets

Answer(s): B

Explanation:

The Task Force on Climate-Related Financial Disclosures (TCFD) framework uses the weighted average carbon intensity metric, which calculates carbon intensity based on an issuer's revenue. The formula is as follows: \text{Weighted Average Carbon Intensity} = \sum \left( \frac{\text{Current Value of Investment}}{\text{Current Portfolio Value}} \times \frac{\text{Issuer's Scope 1 and 2

Emissions}}{\text{Issuer's Revenue in US$m}} \right) This approach helps investors understand their portfolio's exposure to carbon-intensive companies based on financial performance metrics such as revenue.



According to a study of the Hermes UK Focus Fund: which of the following engagement objectives was most likely to be achieved through shareholder activism?

  1. Renumeration policy changes
  2. Improvements to investor relations
  3. Restructuring and financial policies

Answer(s): C

Explanation:

According to a study of the Hermes UK Focus Fund, engagement objectives most likely to be achieved through shareholder activism include restructuring and financial policies. The study found that the success rate for achieving objectives related to restructuring and financial policies was higher compared to other objectives such as remuneration policy changes and improvements to investor relations. This indicates that shareholder activism is more effective in driving changes in corporate structure and financial strategies.



Which of the following climate risks are systemic risks to the financial system?

  1. Policy and legal risks
  2. Technology and stability risks
  3. Physical and transitional risks

Answer(s): C

Explanation:

Systemic risks to the financial system from climate change include both physical and transitional risks. Physical risks refer to the direct impact of climate change, such as extreme weather events and gradual changes in climate. Transitional risks are associated with the shift to a lower-carboneconomy, including policy changes, technological advancements, and changing consumer preferences. These risks are interconnected and can significantly affect economic and financial stability.



Which of the following types of ESG bonds provide financing to issuers who commit to future improvements in sustainability outcomes?

  1. Green bonds
  2. Sustainability bonds
  3. Sustainability-linked bonds

Answer(s): C

Explanation:

Sustainability-linked bonds (SLBs) provide financing to issuers who commit to specific improvements in sustainability outcomes. Unlike green or sustainability bonds that fund specific projects, SLBs are tied to the issuer's overall sustainability performance and commitments to achieving predefined sustainability targets. These bonds incentivize issuers to enhance their ESG performance across various aspects, making them a flexible tool for promoting broader sustainability goals.

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