FSA ACTUAL EXAM PAPER 2026 QUESTIONS
WITH ANSWERS GRADED A+
◉ Social License to Operate (industry characteristic). Answer: The
ongoing approval and acceptance of a company's activities by society,
especially among local communities and civil society
In exchange for license, company expected to fulfill certain social goals
(or otherwise have restrictions)
- License can be extensive or special treatment
- Failure can result in regulations or suspension of activities (affecting
revenue, cost of goods sold, compliance cost, cost of capital due to
higher risk)
[Types of industries]
- quasi-public services (utilities, student loan providers, transport
authorities, mortgage)
- extensive use of public good
- intellectual property protection (biotech, tech, media)
- fiduciary duties beyond stakeholders (finance)
,[Example]
Telecom company has monopoly in exchange for universal access
◉ Use of Common Capitals (industry characteristic). Answer: Non-
financial capitals available as source of value creation but not controlled
by company
[Types]
- Natural capital (water, mineral deposits, forests)
- Public infrastructure (roads, wastewater systems)
- Human capital
[Examples]
- Electricity company uses a lot of water for cooling (may be required to
manage water sustainably)
- Technology company that relies on highly skilled labor (strong talent
retention efforts)
◉ Costs to Society or Environmental Externalities (industry
characteristic). Answer: A diverse range of impacts that result from a
company's operations
[Types]
- Effluents and emissions that affect public health (pollution)
,- Outsourcing and offshoring (degradation of ecosystems, loss of
biodiversity)
- Significant GHG emissions
- High incidence of corruption
- Although these impacts may not currently affect company
performance, they tend to be internalized over time (e.g. through fines,
lawsuits, additional regulations, depletion of key resources, consumer
demand, brand value)
- These externalities can be positive (e.g. pharma producing imp.
vaccines for public health -> vaccines often subsidized by governments
to increase consumption)
◉ How climate change affects sectors differently:
- O&G
- Auto Parts
- Processed Foods
- Health Care
- Banks. Answer: O&G
- regulations (to limit rise of 2C, 60-80% of coil, O&G reserves are
unburnable
, - result equity valuation reductions by 40% (higher cost of capital, rating
downgrades, difficulties repaying debt)
HEALTH CARE
- event readiness for climate-related weather events - affects
infrastructure and demand
- leads to cost to repair physical assets and lost revenue from customers
PROCESSED FOODS
- environmental impacts of their ingredient supply chains
- price volatility, consumer trends, lack of market share
AUTOMOBILES
- downstream (use-phase emissions)
- Regulations and consumer attention
BANKS
- "financed emissions" -> pressure from investors and regulations to
focus
- indirect exposure through portfolio can diminish returns and reduce
shareholder value
WITH ANSWERS GRADED A+
◉ Social License to Operate (industry characteristic). Answer: The
ongoing approval and acceptance of a company's activities by society,
especially among local communities and civil society
In exchange for license, company expected to fulfill certain social goals
(or otherwise have restrictions)
- License can be extensive or special treatment
- Failure can result in regulations or suspension of activities (affecting
revenue, cost of goods sold, compliance cost, cost of capital due to
higher risk)
[Types of industries]
- quasi-public services (utilities, student loan providers, transport
authorities, mortgage)
- extensive use of public good
- intellectual property protection (biotech, tech, media)
- fiduciary duties beyond stakeholders (finance)
,[Example]
Telecom company has monopoly in exchange for universal access
◉ Use of Common Capitals (industry characteristic). Answer: Non-
financial capitals available as source of value creation but not controlled
by company
[Types]
- Natural capital (water, mineral deposits, forests)
- Public infrastructure (roads, wastewater systems)
- Human capital
[Examples]
- Electricity company uses a lot of water for cooling (may be required to
manage water sustainably)
- Technology company that relies on highly skilled labor (strong talent
retention efforts)
◉ Costs to Society or Environmental Externalities (industry
characteristic). Answer: A diverse range of impacts that result from a
company's operations
[Types]
- Effluents and emissions that affect public health (pollution)
,- Outsourcing and offshoring (degradation of ecosystems, loss of
biodiversity)
- Significant GHG emissions
- High incidence of corruption
- Although these impacts may not currently affect company
performance, they tend to be internalized over time (e.g. through fines,
lawsuits, additional regulations, depletion of key resources, consumer
demand, brand value)
- These externalities can be positive (e.g. pharma producing imp.
vaccines for public health -> vaccines often subsidized by governments
to increase consumption)
◉ How climate change affects sectors differently:
- O&G
- Auto Parts
- Processed Foods
- Health Care
- Banks. Answer: O&G
- regulations (to limit rise of 2C, 60-80% of coil, O&G reserves are
unburnable
, - result equity valuation reductions by 40% (higher cost of capital, rating
downgrades, difficulties repaying debt)
HEALTH CARE
- event readiness for climate-related weather events - affects
infrastructure and demand
- leads to cost to repair physical assets and lost revenue from customers
PROCESSED FOODS
- environmental impacts of their ingredient supply chains
- price volatility, consumer trends, lack of market share
AUTOMOBILES
- downstream (use-phase emissions)
- Regulations and consumer attention
BANKS
- "financed emissions" -> pressure from investors and regulations to
focus
- indirect exposure through portfolio can diminish returns and reduce
shareholder value
