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Question # 4

A bond issued to fund projects that provide a clear benefit to the environment best describes a:

A.

green bond.

B.

transition bond.

C.

sustainability-linked bond.

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Question # 5

With respect to ESG integration, adjusting financial model inputs based on an evaluation of a company’s ESG risk factors is an example of a:

A.

hybrid approach

B.

qualitative approach.

C.

quantitative approach

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Question # 6

Uploading a portfolio to an external ESG data provider’s online platform

A.

safeguards portfolio holdings

B.

lowers overreliance on a single provider.

C.

shows a portfolio's environmental exposure.

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Question # 7

According to the Taskforce on Nature-related Financial Disclosures (TNFD), the four realms of nature include

A.

land

B.

pollution.

C.

biodiversity

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Question # 8

The UK’s Green Finance Strategy identifies the policy lever of financing green as

A.

strengthening the role of the UK financial sector in driving green finance

B.

directing private sector financial flows to economic activities that support an environmentally sustainable and resilient growth.

C.

ensuring that the financial sector systematically considers environmental and climate factors in its lending and investment activities.

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Question # 9

Performance materiality:

A.

is usually higher than overall materiality

B.

is set lower when financial controls are strong.

C.

can indicate the auditor's level of trust in a company’s financial systems.

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Question # 10

The offering of indexes and passive funds with ESG integration by asset managers

A.

preceded the offering of actively managed ESG funds

B.

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

C.

followed the offering of actively managed ESG funds

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Question # 11

With respect to ESG engagement for a company that is a going concern, the interests of equity investors and debt investors are most likely.

A.

aligned

B.

opposed.

C.

independent

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Question # 12

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

A.

age

B.

gender

C.

thought

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Question # 13

What is the underlying principle of the corporate governance code in most markets?

A.

If not, why not

B.

Apply or explain

C.

Comply or explain

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Question # 14

The concept of double-agency in society refers to the conflict of interest between

A.

corporate CEOs and shareholders

B.

money managers and asset owners.

C.

corporate CEOs and money managers

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Question # 15

When assessing credit and ESG ratings, which of the following statements is most accurate?

A.

The correlation between country ESG risk and credit ratings is high

B.

The correlation between ESG ratings among rating providers is high

C.

The correlation between credit ratings among credit rating agencies (CRAs) is low

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Question # 16

The adoption of ESG investing by retail investors has generally been:

A.

slower than its adoption by institutional investors.

B.

at the same pace as its adoption by institutional investors.

C.

faster than its adoption by institutional investors.

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Question # 17

The role of auditors is to assess the financial reports prepared by management and to provide assurance that:

A.

the numbers are correct

B.

there is no fraud within the business.

C.

the reports fairly represent the performance and position of the business

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Question # 18

Which of the following is most likely the primary driver of ESG investment for a life insurer?

A.

Reputational risk

B.

Recognition of lengthy investment time horizons

C.

Awareness of financial impacts of climate change

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Question # 19

A portfolio manager may need to adopt a more appropriate ESG benchmark rather than a broad market benchmark if the degree of exclusions results in:

A.

low active share and low tracking error

B.

low active share and high tracking error.

C.

high active share and high tracking error.

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Question # 20

Scores used to construct ESG index benchmarks can be

A.

data based, but not rating based

B.

rating based, but not data based.

C.

both data based and rating based

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Question # 21

In contrast to engagement dialogues, monitoring dialogues most likely involve:

A.

a two-way sharing of perspectives.

B.

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

C.

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

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Question # 22

A bond issued to finance construction of a solar farm is an example of a:

A.

blue bond

B.

green bond

C.

transition bond

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Question # 23

Which of the following best summarizes the studies on carbon risk?

A.

Companies with lower levels of CO2 emissions are associated with higher returns

B.

Companies with higher levels of CO2 emissions are associated with higher returns

C.

There is no conclusive evidence on the link between a company's level of CO2 emissions and returns

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Question # 24

The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both:

A.

prohibit investments in fossil fuels.

B.

impose green-to-brown ratios to restrict “brown" investments.

C.

use a relative approach by comparing a company’s performance to its sector average.

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Question # 25

A hurdle to adopting ESG investing is most likely a:

A.

lack of suitable benchmarks.

B.

focus on short-term performance.

C.

lack of options outside of equities.

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Question # 26

Institutional investors achieve their stewardship and engagement objectives in practice through which of the following?

A.

Engaging directly with companies only

B.

Utilizing proxy voting advisory firms only

C.

Both engaging directly with companies and utilizing proxy voting advisory firms

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Question # 27

According to an OECD Centre for Opportunity and Equality (COPE) 2015 report, the average income of the richest 10% of the population is about:

A.

4 times that of the poorest 10% across the OECD

B.

9 times that of the poorest 10% across the OECD

C.

14 times that of the poorest 10% across the OECD

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Question # 28

Which of the following is an advantage of using ESG index-based strategies?

A.

Slightly lower fee structures compared to other index-based strategies

B.

Lower costs compared to discretionary, actively managed ESG strategies

C.

More focused stewardship activities with companies compared to actively managed ESG strategies

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Question # 29

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:

A.

profit.

B.

revenue.

C.

net assets

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Question # 30

A company reduces water usage and increases usage of more expensive resources after regulations become more stringent. This most likely impacts:

A.

revenues

B.

provisions

C.

operating expenditure

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Question # 31

Which of the three ESG factors is most often taken into consideration by traditional investment analysts?

A.

Social

B.

Governance

C.

Environmental

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Question # 32

Under the disclosure guide for public equities published by the Pension and Lifetime Savings Association (PLSA). fund managers are expected to report on:

A.

ESG integration only.

B.

stewardship activities only.

C.

both ESG integration and stewardship activities

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Question # 33

Which of the following technologies is most likely to be viewed by investors as a strategic solution to the decarbonization of high-temperature processes?

A.

Nuclear fusion

B.

Next-generation battery storage

C.

The use of renewable energy to produce hydrogen

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Question # 34

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

A.

Policy and legal risks

B.

Technology and stability risks

C.

Physical and transitional risks

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Question # 35

Norms-based screening is the largest investment strategy in

A.

japan

B.

europe

C.

the united states

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Question # 36

Will including additional ESG constraints in a portfolio optimization model most likely affect tracking error?

A.

No

B.

Yes, it will reduce tracking error

C.

Yes, it will increase tracking error

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Question # 37

Compared to developed markets, ESG investing in emerging markets is most likely characterized by:

A.

less data and greater variability between countries and companies.

B.

easier portability of approaches and principles methods from developed markets.

C.

fewer opportunities for investors to engage with companies and improve ESG performance.

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Question # 38

Which of the following is a challenge in ESG integration?

A.

ESG disclosures that lack comparability across companies

B.

Excessive company-level ESG reporting that overwhelms investors

C.

Standardized disclosures in audited financial statements that hinder differentiated analysis

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Question # 39

The Taskforce on Nature-Related Financial Disclosure (TNFD) defines nature as:

A.

All environmental assets that relate to diverse ecosystems

B.

The natural world and its diversity of living organisms and their interactions

C.

The stock of renewable and non-renewable natural resources yielding a flow of benefits to people

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Question # 40

A common characteristic of the EU Paris-Aligned Benchmarks and the EU Climate Transition Benchmarks is that they both:

A.

permit only green investments.

B.

permit fossil fuel investments as part of a transition process.

C.

require a reduction in carbon emissions intensity in the starting year.

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Question # 41

The social factor most widely incorporated by institutional investors in their analysis is:

A.

executive pay.

B.

trade association.

C.

health and safety.

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Question # 42

Which of the following best describes a challenge of ESG integration?

A.

The reliance solely on algorithms to forecast future ESG performance

B.

Overly detailed company-level ESG reporting that overwhelms investors

C.

Disagreements between investors and company management teams about materiality thresholds

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Question # 43

Which of the following pension fund actors are most likely exposed to fiduciary legal risks from financial losses caused by climate change?

A.

Trustees

B.

Members

C.

Executives

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Question # 44

According to Greenhouse Gas (GHG) Protocol Standards, the emissions associated with suppliers and consumers are classified as:

A.

Scope 1 emissions

B.

Scope 2 emissions

C.

Scope 3 emissions

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Question # 45

Which of the following is a for-profit provider offering multiple ESG-related products and services?

A.

CDP

B.

UNEP

C.

FactSet

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Question # 46

Bonds that fund projects that provide access to essential services, infrastructure, and social programs to underserved people and communities are best described as:

A.

green bonds.

B.

social bonds.

C.

transition bonds.

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Question # 47

A social media company faces criticism from a consumer action group for selling user data to advertising clients. A potential lawsuit will have the greatest direct effect on the company’s:

A.

return on equity ratio.

B.

creditors turnover ratio.

C.

liabilities-to-assets ratio.

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Question # 48

An analyst reads the following statements about wastewater treatment plants:

Statement I: Wastewater treatment plants are capital intensive.

Statement II: Wastewater treatment plants are difficult to maintain.

Which of the following is correct?

A.

Statement I only

B.

Statement II only

C.

Both Statement I and Statement II

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Question # 49

According to the Principles of Responsible Investment (PRI), which of the following is an example of a social issue?

A.

Lobbying

B.

Employee relations

C.

Bribery and corruption

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Question # 50

Negative screening of tobacco-related products is best grouped into which of the following basic categories?

A.

Universal exclusion

B.

Idiosyncratic exclusion

C.

Conduct-related exclusion

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Question # 51

Which of the following statements is most accurate? The Kyoto Protocol was created to:

A.

Encourage companies to make climate-related disclosures

B.

Mobilize private sector finance for sustainable development

C.

Commit industrialized countries to limit and reduce greenhouse gas emissions

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Question # 52

A just transition in climate policy refers to:

A.

Ensuring that the shift to a low-carbon economy is socially inclusive and equitable

B.

Implementing carbon taxes to penalize polluting industries

C.

Divesting from all fossil fuel assets immediately

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Question # 53

A company has an audit contract with one Big Four firm and non-audit contracts with two other Big Four firms. Which scenario is most likely to materialize when the company rotates its auditors?

A.

The new auditor will be eligible for new non-audit contracts

B.

There will be a sub-optimal level of competition for the audit

C.

The new auditor will miss material issues that the existing auditor would have identified

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Question # 54

In the investment management industry, triple bottom line accounting theory:

A.

replaces a broader framework of sustainability.

B.

complements a broader framework of sustainability.

C.

has been replaced by a broader framework of sustainability.

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Question # 55

Credit-rating agencies are most likely classified as:

A.

algorithm-driven ESG research providers.

B.

traditional ESG data and research providers.

C.

“nontraditional" ESG data and research providers.

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Question # 56

With respect to exclusion policies, which of the following falls outside of the traditional spectrum of responsible investment?

A.

Indices

B.

Listed equities

C.

Corporate debt

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Question # 57

Natural language processing (NLP) is employed as a tool in ESG investing to:

A.

backtest short time series of ESG data.

B.

quantify online text relating to ESG risk areas.

C.

interpret satellite imagery to assess deforestation.

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Question # 58

For engagement strategies to deliver meaningful results in a cost-effective and time-effective manner, investors must:

A.

identify which company in their portfolio is most in need of engagement

B.

raise all possible concerns with the company which has the most risk in their portfolios

C.

frame the engagement topic into a broader discussion around strategy and avoid discussing long-term financial performance with a company's board

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Question # 59

Which of the following best describes an Earth system that will exhibit large-scale and long-term changes when reaching critical levels of global warming?

A.

Tipping elements

B.

Planetary boundaries

C.

Environmental externalities

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Question # 60

Using surface water in a business activity is best characterized as a:

A.

direct impact on biodiversity

B.

positive indirect impact on biodiversity

C.

negative indirect impact on biodiversity

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Question # 61

Which of the following organizations is not a provider of both ESG-related and non-ESG-related products and services?

A.

S&P

B.

Factset

C.

RepRisk

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Question # 62

During the decommissioning phase of a company’s mining project, the government tightens regulations on land restoration. Which of the following is most likely impacted?

A.

taxes

B.

revenue

C.

provision

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Question # 63

Working conditions on a tree plantation are most likely an example of a(n):

A.

social issue

B.

governance issue

C.

environmental issue

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Question # 64

Exclusionary screening:

A.

reduces portfolio tracking error and active share.

B.

is the oldest and simplest approach within responsible investment.

C.

employs a given ESG rating methodology to identify companies with better ESG performance relative to its industry peers.

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Question # 65

EU regulators manage the independence of audits for public companies by:

A.

requiring companies to rotate auditors after a maximum of ten years.

B.

setting a monetary limit on advisory services provided to companies.

C.

preventing audit partners from joining audit and risk committees as non-executive directors.

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Question # 66

Corporate engagement and shareholder action is the predominant investment strategy in:

A.

Japan

B.

Europe

C.

the United States

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Question # 67

Which of the following is one of the main principles of stewardship codes?

A.

Thoughtfully intelligent voting

B.

Avoid considering conflicts of interest regarding stewardship matters

C.

Escalation of stewardship activity must include a willingness to act independently of other investors

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Question # 68

According to the UK Pensions and Lifetime Savings Association Stewardship Checklist, during the RFP process pension fund trustees considering active fixed income managers should:

A.

Exclusively invest in green bonds

B.

Consider the potential for ESG risks to impact credit ratings

C.

Ensure that the managers engage with borrowers after issuance

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Question # 69

Which of the following is most likely an effect of an aging population?

A.

Reduced healthcare expenditures

B.

Increased business risk for the consumer goods sector

C.

Increased ratio between the active and inactive part of the workforce

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Question # 70

In which of the following fixed-income asset classes is ESG integration most developed?

A.

Agency bonds

B.

Corporate bonds

C.

Government bonds

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Question # 71

Which of the following countries has a joint audit requirement that all public interest entities must engage at least two independent accounting firms to perform an annual audit?

A.

France

B.

Germany

C.

United Kingdom

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Question # 72

The management gap best describes a risk that:

A.

Cannot be managed

B.

Part of a credit portfolio’s positions are unrated

C.

Can be managed, but is not yet being addressed

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Question # 73

When considering material ESG factors in real estate, which of the following is classified as an environmental factor?

A.

Local job creation

B.

Community engagement

C.

Use of renewable energy

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Question # 74

Which of the following private equity investors is most susceptible to allegations of greenwashing? An investor that views ESG integration as a way of:

A.

Adding value

B.

Managing risk

C.

Attracting clients

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Question # 75

Applying constraints in ESG portfolio optimization:

A.

Can be applied through exclusionary screening

B.

Is currently confined to carbon data due to data limitations

C.

Requires defining an upper and lower bound for a given variable

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Question # 76

Which of the following is an example of indirectly sourced primary ESG data?

A.

News articles

B.

Company reports

C.

Bloomberg ESG Disclosure scores

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Question # 77

Which of the following statements about the materiality of social factors is most accurate?

A.

Population aging is more important to emerging markets than developed markets

B.

The importance of a specific social issue depends on the regional or country context

C.

The difference between rural and urban areas is greater in the developed world than in emerging markets

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Question # 78

In order to safeguard the independence of the external auditor, European Union (EU) regulation:

A.

obliges public companies to tender the audit after five years.

B.

obliges public companies to change auditors after ten years at most.

C.

limits the scale and scope of non-audit services an audit firm may provide to clients.

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Question # 79

In comparison to institutional investors, the pace of adoption of ESG by retail investors has been:

A.

slower.

B.

the same.

C.

faster.

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Question # 80

Which of the following is best described as a form of engagement that requires institutions to have a formal agreement with concrete objectives and agreed steps?

A.

Concert party

B.

Soliciting support

C.

Collaborative campaigns

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Question # 81

A French company is most likely considered to have weak corporate governance practices if its board:

A.

has 40% female representation.

B.

is chaired by the company's CEO.

C.

has only three committees: nominations, audit, and risk.

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Question # 82

According to the United Nations Principles for Responsible Investment (PRI), modern fiduciary duty would require investment managers to:

A.

Support the stability and resilience of the financial system

B.

Incorporate their own sustainability preferences into decision-making

C.

Encourage high standards of ESG performance across the entire investment universe

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Question # 83

For investments in wastewater treatment plants, a significant obstacle is:

A.

lack of demand.

B.

high capital intensity.

C.

availability of unskilled labor.

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Question # 84

In governance analysis, a threshold assessment best describes a minimum:

A.

criterion before making an investment.

B.

level of confidence about future earnings.

C.

level of stewardship dialogue with the company.

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Question # 85

According to market reviews conducted by the Global Sustainable Investment Alliance at the start of 2020, sustainable investing assets in the five major markets stood at approximately:

A.

USD 20 trillion.

B.

USD 35 trillion.

C.

USD 60 trillion.

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Question # 86

A company’s exposure to social trends and factors:

A.

Tends to be similar across companies in the same sector

B.

Tends to be similar across companies in the same country

C.

Depends on its culture, systems, operations, and governance

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Question # 87

The mechanism of dual-class shares most likely favors:

A.

Institutional investors

B.

Minority shareholders

C.

The founders of a company

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Question # 88

A mature company has launched a product that reduces customers' electricity usage. This should be incorporated into the company’s discounted cash flow (DCF) analysis by increasing its:

A.

cost of capital.

B.

revenue projections.

C.

required rate of return.

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Question # 89

Which of the following is an example of a social factor affecting external stakeholders?

A.

Human rights

B.

Animal welfare

C.

Workers' health and safety

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Question # 90

Considering the climate-related impacts on a company's financials and the impacts of a company on the climate best describes:

A.

double materiality.

B.

financial materiality.

C.

dynamic materiality.

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Question # 91

The rules that can be used to construct ESG exchange-traded funds (ETFs) include:

A.

Thematic investing, only

B.

Tilting weightings based on ESG scores, only

C.

Both thematic investing and tilting weightings based on ESG scores

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Question # 92

Which of the following statements about green bonds and sustainability-linked bonds (SLBs) is most accurate?

A.

A global consensus exists on the types of capital projects that fit in the scope of green bonds

B.

Green bonds allow issuers more flexibility in achieving sustainability targets compared to SLBs

C.

Issuers of SLBs agree to pay a higher coupon to investors if they fail to achieve a sustainability-linked target

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Question # 93

Which of the following board committees aims to ensure that the board is balanced and effective?

A.

Audit committee

B.

Compensation committee

C.

Corporate governance committee

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Question # 94

Which of the following is most likely to cast doubt on a director’s independence?

A.

Holding cross-directorships

B.

Receipt of director's fees from the company

C.

Serving as a director for a relatively short period of time

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Question # 95

The potential impacts of climate risk on asset allocation strategies are:

A.

local but not systemic.

B.

systemic but not local.

C.

both local and systemic.

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Question # 96

For a board to be successful, the most important type of diversity relates to:

A.

Race.

B.

Gender.

C.

Thought.

Full Access
Question # 97

The low correlation between the ratings from different ESG rating agencies:

A.

Makes it less difficult for companies to improve their ESG performance

B.

Has no effect on the ambition of companies to improve their ESG performance

C.

Makes it more difficult for companies to improve their ESG performance

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Question # 98

Which of the following is a minimum requirement for Principles for Responsible Investment (PRI) membership?

A.

Participation in a shareholder engagement platform

B.

The establishment of accountability mechanisms for responsible investment implementation

C.

Implementation of Task Force on Climate-related Financial Disclosures (TCFD) recommendations

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Question # 99

ESG factors can affect credit risk at:

A.

Issuer level only.

B.

Industry level only.

C.

Both issuer level and industry level.

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Question # 100

An asset owner inquiring within a request for proposal (RFP) if the asset manager has an explicit objective to "generate a positive, measurable ESG outcome alongside a financial return" is most likely aligned with a(n):

A.

Impact investing approach.

B.

Best-in-class investing approach.

C.

ESG-related exclusions investing approach.

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Question # 101

Single-tier boards are typical in:

A.

China

B.

The UK

C.

Germany

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Question # 102

Companies may be excluded from the UK Modern Slavery Act on the basis of:

A.

size only

B.

sector only.

C.

both size and sector

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Question # 103

Which of the following statements regarding ESG screening is most accurate?

A.

There is limited availability of sustainability ratings for collective funds

B.

ESG screening does not consider stewardship and engagement activities

C.

Only collective funds with a high level of ESG integration have a high sustainability rating

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Question # 104

Which of the following is an example of a climate adaptation measure?

A.

Investment in wind energy

B.

Increased use of public transport

C.

Use of more drought-resistant crops

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Question # 105

ESG factors impacting balance sheet strength rather than growth opportunities are most material to:

A.

Equity investors

B.

Sovereign debt investors

C.

Corporate bond investors

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Question # 106

Which of the following statements about the effects of globalization are most likely correct?

Statement 1: Globalization has led to increased efficiency in markets, resulting in wider availability of products at lower costs.

Statement 2: Globalization has led to increased social well-being due to a reduction in social structural inequality.

A.

Statement 1 only

B.

Statement 2 only

C.

Both Statement 1 and Statement 2

Full Access
Question # 107

In Japan, additional statutory auditors are individually appointed by the:

A.

Shareholders

B.

Risk committee

C.

Regulatory body

Full Access
Question # 108

In ESG integration, which of the following best describes a data-informed analytical opinion designed to support investment decision-making?

A.

ESG screening

B.

Integrated research

C.

Voting and governance advice

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Question # 109

According to the Global Sustainable Investment Alliance (GSIA), as of 2020, the largest sustainable investment strategy globally is:

A.

ESG integration

B.

exclusionary screening

C.

corporate engagement and shareholder action

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Question # 110

Which of the following scenarios best illustrates the concept of a ‘just’ transition?

A.

A region transitioning to solar power subsidizes businesses to install solar arrays

B.

A region transitioning to a smaller public sector workforce funds outplacement programs for displaced office workers

C.

A region transitioning away from iron ore mining helps displaced miners to work in the safe decommission of abandoned mines

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Question # 111

For which of the following environmental megatrends are ordinary workers most likely to bear the cost?

A.

Pollution

B.

Water scarcity

C.

Climate change transition

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Question # 112

Elements of ESG integration include adjusting:

A.

Financial forecasts only

B.

Valuation multiples only

C.

Both financial forecasts and valuation multiples

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Question # 113

Compared to traditional index-based funds, ESG index-based funds typically have:

A.

A lower fee structure

B.

The same fee structure

C.

A higher fee structure

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Question # 114

When determining ESG investment mandates, an asset owner should consider:

A.

Its tactical asset allocation only

B.

Its strategic asset allocation only

C.

Both its tactical asset allocation and its strategic asset allocation

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Question # 115

Which of the following ESG risks is most likely to impact sovereign debt?

A.

Cybersecurity risks

B.

Political stability and governance risks

C.

Executive compensation structures

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Question # 116

Advantages of investing in ESG indexes include:

A.

A standardized methodology for ESG performance.

B.

Identifying firms or countries that prioritize sustainability.

C.

High transparency and disclosure of precise methodologies.

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Question # 117

Using the “shades of green" methodology developed by the Center for International Climate Research (CICERO), a project that does not explicitly contribute to the transition to a low carbon and climate resilient future is given the shading of:

A.

red

B.

yellow

C.

light green

Full Access
Question # 118

Which of the following is one of the six environmental factors in the “Materiality Map" by Sustainability Accounting Standards Board (SASB)?

A.

Transition risk

B.

Ecological impacts

C.

Green infrastructure

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Question # 119

A discount retailer facing a consumer boycott due to its poor working conditions will most likely face:

A.

significant liabilities

B.

greater operating costs

C.

an adverse impact on revenues

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Question # 120

The perpetual compound annual rate that a company’s cash flow is assumed to change by after the discrete forecasting period is referred to as the:

A.

discount rate

B.

terminal growth rate

C.

required rate of return

Full Access
Question # 121

In which country is the nominations committee drawn from shareholders rather than being a committee of the board?

A.

Italy

B.

Sweden

C.

The Netherlands

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Question # 122

Which of the following is part of the ASEAN Taxonomy for an economic activity to be considered environmentally sustainable?

A.

Contributing substantially to at least one of the six environmental objectives

B.

Complying with minimum, ASEAN-specified social and governance safeguards

C.

A principles-based Foundation Framework, which is applicable to all ASEAN member states

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Question # 123

Which of the following statements regarding ESG tools is most accurate?

A.

Most ESG tools are free to the general public

B.

The completeness of coverage is similar across ESG tools

C.

ESG rating providers evolve their rating processes on an ongoing basis

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Question # 124

With regards to the climate, financial materiality:

A.

only considers impacts of a company on the climate

B.

only considers climate-related impacts on a company

C.

considers both impacts of a company on the climate and climate-related impacts on a company

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Question # 125

According to the Stockholm Resilience Centre, which of the following planetary boundaries have already been crossed as a result of human activity?

A.

Climate change only

B.

Loss of biosphere integrity only

C.

Both climate change and loss of biosphere integrity

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Question # 126

Which of the following ESG investment approaches is most likely applicable when investing in sovereign debt?

A.

ESG tilting

B.

Collaborative engagement

C.

Active private engagement

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Question # 127

To be aligned with the EU Taxonomy for Sustainable Activities, economic activities should make a substantive contribution to:

A.

Each of the environmental objectives.

B.

At least one of the environmental objectives.

C.

One or more of the environmental objectives that outweighs any significant harm made to others.

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Question # 128

To address conflicts of interest and maintain the independence of audit firms, EU law requires firms to abide by:

A.

A list of allowable non-audit services only.

B.

A monetary limit on the overall value of non-audit services only.

C.

Both a list of allowable non-audit services and a monetary limit on the overall value of non-audit services.

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Question # 129

An investment in a fund developing low-cost community housing is best categorized as:

A.

impact investing.

B.

positive alignment.

C.

thematic investing.

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Question # 130

In the transition to a low-carbon economy, a coal-powered utility without a mitigation strategy will most likely pose the highest risk to its:

A.

Debtholders.

B.

Common shareholders.

C.

Preference shareholders.

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Question # 131

A fund focused on avoiding the worst ESG performers relative to industry peers is most likely engaged in:

A.

Negative screening only

B.

Norms-based screening only

C.

Both negative screening and norms-based screening

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Question # 132

With respect to ESG reporting by investment managers, the 2020 version of the UK Stewardship Code calls for more reporting on the:

A.

outcomes from ESG activity.

B.

policies and activities of signatories.

C.

assertions of investment managers on ESG themes.

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Question # 133

Concerns about the capital structure and financial viability of an investee company are most likely reflected in an active investor's voting decisions in relation to:

A.

Share issuance

B.

The auditor's compensation

C.

The reelection of non-executive board directors

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Question # 134

Exclusion-based screening approaches:

A.

Expand the investable universe

B.

Are the dominant sustainable investing strategy

C.

Continue to evolve in response to new information

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Question # 135

The investor initiative FAIRR focuses on screening out companies

A.

mining ancestral lands.

B.

using suppliers that do not pay a living wage.

C.

exhibiting poor antibiotic stewardship in animal farming

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Question # 136

According to the Principles for Responsible Investment (PRI), which of the following ESG engagement dynamics most likely create value?

A.

Social, political, and learning

B.

Communicative, political, and learning

C.

Governance, communicative, and political

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Question # 137

Which of the following statements about ESG integration in fixed income is most accurate?

A.

ESG factors cannot affect credit risk at geographic level

B.

Equity investors generally focus more on the risk of default than fixed-income investors

C.

Municipal bonds have ESG integration considerations similar to those of sovereign debt

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Question # 138

The debate around regulating the social media industry is based on risks associated with:

A.

big data

B.

digital disruption

C.

embedded systems

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Question # 139

The process of ESG portfolio optimization requires:

A.

targeting sustainability-aligned themes as means to construct a portfolio

B.

applying a fixed decision on specific securities based on the ESG variable chosen

C.

defining an upper and lower bound for a given ESG variable and applying it on an absolute or benchmark relative basis

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Question # 140

The Integrated Biodiversity Assessment Tool (IBAT) is best described as an interactive mapping tool allowing decision makers to:

A.

assess companies’ preparedness for biodiversity risk

B.

manage biodiversity and social risk in project finance

C.

identify biodiversity risks and opportunities within a project boundary

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Question # 141

An analyst gathers the following information about three investors' approaches to ESG integration:

The approach of which investor most likely raises the risk of greenwashing?

A.

Investor 1 uses ESG analysis to identify risks affecting revenue such as exposure to environmental regulation.

B.

Investor 2 implements ESG practices to create business value by boosting employee retention.

C.

Investor 3 includes ESG factors prominently in reporting to appeal to ESG-conscious capital allocators.

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Question # 142

The carbon offset market:

A.

Is very transparent.

B.

Is based on a rigorous scientific process.

C.

Comprises both voluntary and regulated aspects.

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Question # 143

Technology and finance sectors are most likely to be underweighted when portfolios are screened for:

A.

Scope 1 emissions.

B.

Scope 2 emissions.

C.

Scope 3 emissions.

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Question # 144

Which of the following is most likely the easiest to demonstrate in attributing returns to ESG-related actions?

A.

The value added by an engagement program

B.

The performance drag or enhancement from excluding an industrial sector

C.

The contribution of a particular ESG driver to the overall investment decision

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Question # 145

Insurers face risk from climate change impacting:

A.

Their assets only.

B.

Their liabilities only.

C.

Both their assets and their liabilities.

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Question # 146

According to the Brunel Asset Management Accord, which of the following is most likely a concern for the asset owner? A fund manager:

A.

having short-term investment underperformance

B.

taking lower risk compared to the investment mandate

C.

generating returns consistently above the industry average

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Question # 147

Which of the following is an example of secondary data?

A.

A news article

B.

A letter to shareholders

C.

A Bloomberg Disclosure score

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Question # 148

Which of the following governance initiatives was focused on increased oversight of banks?

A.

The Dodd-Frank Act

B.

The Greenbury Report

C.

The Sarbanes-Oxley Act

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Question # 149

The challenge of ESG integration for an investor is most likely attributable to:

A.

a lack of third-party ESG data providers.

B.

ESG disclosure mandates by stock exchanges.

C.

the vast range of possible ESG data and the conflicting demands among investors and other stakeholders.

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Question # 150

Which of the following is the main driver of stewardship efforts?

A.

Creating long-term shareholder value

B.

Minimizing the ESG tilt in the investment process

C.

Providing investors and corporates with a comprehensive corporate reporting framework

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Question # 151

All else equal, a higher discount rate applied to a company’s discounted cash flow (DCF) analysis will lead to:

A.

a lower estimate of intrinsic value

B.

the same estimate of intrinsic value

C.

a higher estimate of intrinsic value

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Question # 152

Fund labelers are most likely classified as:

A.

regulators

B.

fund promoters.

C.

financial advisers

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Question # 153

Integrating the impact of material ESG factors into traditional financial analysis for a company with strong ESG practices most likely.

A.

leads to a lower estimate of intrinsic value

B.

has no impact on intrinsic value

C.

leads to a higher estimate of intrinsic value

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Question # 154

In ESG integration, model adjustments are typically performed at the:

A.

research stage

B.

valuation stage.

C.

portfolio construction stage

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Question # 155

Compared to an optimal portfolio that does not have any ESG restrictions a portfolio that optimizes for multiple ESG factors will most likely experience

A.

lower active risk

B.

higher active risk.

C.

lower tracking error

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Question # 156

A fund focused on investing in the best ESG performers relative to industry peers across a range of different criteria is most likely engaged in:

A.

positive screening only.

B.

norms-based screening only.

C.

both positive screening and norms-based screening.

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Question # 157

Which of the following statements is aligned with the Pensions and Lifetime Savings Association (PLSA) Stewardship checklist?

Statement 1: Investors should seek to ensure that fund managers deliver effective separation of long-term ESG factors from their investment approach.

Statement 2: Investors should work with their advisers to consider the level of resource available for stewardship activities.

A.

Statement 1 only

B.

Statement 2 only

C.

Both Statement 1 and Statement 2

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Question # 158

Which of the following statements regarding engagement and stewardship is most accurate?

A.

Smaller asset owners seek to carry out stewardship activities directly themselves.

B.

Engagement focuses on preserving and enhancing long-term value of the investee company.

C.

Investor engagement in response to a share price fall is more likely to be effective than long-standing messaging.

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Question # 159

The first step in the effective design of a client ESG investment mandate is to:

A.

Tailor the ESG investment approach to client expectations

B.

Clarify client needs and set them out in a clear statement of ESG investment beliefs

C.

Ensure client ESG investment beliefs are reflected in the fund manager’s investment approach

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Question # 160

Globalization has led to a reduction in:

A.

regulation

B.

market efficiency

C.

social structural inequality

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Question # 161

In contrast to active investors, passive investors are most likely to:

A.

seek a direct discussion with senior management and then the board

B.

start their engagement process by writing a letter to all the companies impacted by a certain ESG issue

C.

focus their engagement on companies identified as underperformers or ones that trigger other financial or ESG metrics

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Question # 162

Which of the following ESG megatrends relates to issues around human rights, including free speech, and tensions between big social media companies and sovereign nation-states that point in the direction of a possible new ordering of societal power?

A.

Technological innovation

B.

Emerging markets and urbanization

C.

Demographic changes and wealth inequality

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Question # 163

The European Union (EU) Ecolabel:

A.

is the official EU voluntary label for environmental excellence

B.

targets explicit claims made on a voluntary basis by businesses towards consumers

C.

flags products that have a guaranteed, independently verified, high environmental impact

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Question # 164

ESG integration is most likely enforced by regulating:

A.

Stewardship

B.

Asset owners

C.

Corporate disclosure

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Question # 165

To reflect weak governance of a private equity holding, an analyst's model should most likely include a reduction in the holding's:

A.

Cost of capital

B.

Terminal value

C.

Bankruptcy risk

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Question # 166

Which of the following best describes a mature ESG regulatory framework? A government putting forward:

A.

A "comply or explain" ESG regulation

B.

Voluntary ESG corporate disclosures

C.

ESG implementation and reporting guidelines

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Question # 167

With regards to environmental analysis in fixed income investing, a country-level analysis is relevant to:

A.

Corporate bonds only

B.

Government bonds only

C.

Both corporate bonds and government bonds

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Question # 168

Which of the following parties is most likely to help investors identify the extent and depth to which investment funds integrate ESG?

A.

Fund labellers

B.

Investment platforms

C.

Investment consultants

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Question # 169

Which of the following statements about ESG integration in credit ratings is most accurate?

A.

ESG factors do not affect an issuer's ability to convert assets into cash

B.

Rating providers tend to overcomplicate industry weighting and company alignment

C.

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

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Question # 170

When considering strategic asset allocation, would stranded asset risk most likely be a similar concern for fixed income and equity investors?

A.

No, it would most likely be a greater concern for equity investors

B.

No, it would most likely be a greater concern for fixed income investors

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Question # 171

Which of the following events typically increases the discount rate in an investor's discounted cash flow (DCF) model? The investee company:

A.

Launches a new product to reduce customers' electricity usage

B.

Is subject to a newly established carbon tax applied sector-wide

C.

Faces an environmental litigation cost related to a specific project

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Question # 172

Which of the following is an example of a stranded asset?

A.

A coal power plant forced to close due to new carbon regulations

B.

A technology company that loses market share to a competitor

C.

A stock that experiences a short-term price decline

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Question # 173

The European Union (EU) Ecolabel:

A.

Is a mandatory label for companies that apply sustainability labels on their products

B.

Certifies products that have a guaranteed, independently verified, low environmental impact

C.

Contains a list of six key principles designed to prevent businesses from making misleading environmental claims

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Question # 174

The primarily used ESG indices:

A.

Use similar criteria and weightings

B.

Are available for both equity and fixed-income asset classes

C.

Provide data to backtest performance across multiple market cycles

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Question # 175

The Global Real Estate Sustainability Benchmark (GRESB) full benchmark report provides a GRESB score. The GRESB score includes and weights which of the following considerations?

    Management, policy, and disclosure

    Overall portfolio key performance indicator (KPI) performance

A.

I, but not II

B.

II, but not I

C.

Both I and II

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Question # 176

ESG indices that exclude economically meaningful sectors will most likely:

A.

Have a lower cost structure than conventional index-based strategies

B.

Generate a higher tracking error than conventional index-based strategies

C.

Have stronger stewardship activities than actively managed ESG strategies

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Question # 177

In ESG ratings, there is a size bias in favor of:

A.

Small companies

B.

Mid-sized companies

C.

Large companies

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Question # 178

According to the fundamental conventions of the International Labour Organization (ILO), which of the following should not be supported as a labor right by companies?

A.

Forced labor

B.

Minimum age

C.

Freedom of association

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Question # 179

In addition to reporting on sustainability matters that are financially material to a company's business value, double materiality also requires the company to report the impact of:

A.

ESG risks to the company

B.

Upcoming regulation on its industry

C.

The company on the environment and people

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Question # 180

According to a study by Berg, Koelbel, and Rigobon, the correlation of ESG ratings is:

A.

High, and this can be a source of insight for investors

B.

Low, and this poses a challenge for empirical research

C.

Low, and this motivates companies to improve their ESG performance

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Question # 181

According to market reviews conducted by the Global Sustainable Investment Alliance at the start of 2022, the smallest sustainable investment strategy globally (in terms of assets) is:

A.

Impact investing.

B.

Best-in-class investing.

C.

Norms-based screening.

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Question # 182

Regarding ESG engagement, debt and equity investors' interests are most likely aligned when the investee:

A.

Faces insolvency risk.

B.

Is engaged in capital restructuring.

C.

Has a high investment-grade rating.

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Question # 183

Which of the following is most likely a success factor characteristic of the engagement approach? Investors pursuing the engagement should have:

A.

Meaningful assets under management.

B.

A prior relationship with the target company.

C.

An objective that is specific and targeted to enable clarity around delivery.

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Question # 184

A pension fund concerned about climate change will most likely:

A.

Accept long-term returns below the benchmark.

B.

Use screens to exclude fossil fuel investments.

C.

Increase investments in sovereign debt of countries where the physical impacts of climate change are likely to be most acute.

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Question # 185

Externalities for an infrastructure asset are issues:

A.

Caused by the asset itself that impact the asset's surrounding environment.

B.

Caused by the asset itself that impact the asset's technical ability to operate.

C.

Originating outside the asset that impact the asset's technical ability to operate.

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