CFA ESG Chapter 8 - ESG Integrated Portfolio Construction Exam Questions & Answers Solved 100%

CFA Definition - Answer Explicit & systematic inclusion of ESG factors into investment analysis and decisions 3 Components to Integration - Answer 1) Research 2) Analysis 3) Decision Making Research Stage - Answer 1) Gather information (Financial & ESG) 2) Analyse to identify material financial / ESG factors impacting company / sector / country and discuss with company / issuer and monitor outcome Analyse Stage - Answer Assess impact of financial / ESG factors of corporate / financial performance Adjust forecasts, models, multiples, ratios, credit worthiness and / or portfolio weights Decide Stage - Answer Buy / increase, hold / maintain or sell / decrease Impact on Universe - Answer ESG integration does not reduce universe! Screening does ESG impact - Answer Enhances return and / or lowers risk Step 1 of Portfolio Management Process: Investment Policy Statement - Answer Not impacted. Client needs and situation, and objectives and constraints Step 1 of Portfolio Construction, Strategic Asset Allocation - Answer Not impacted. typically equity / fixed income splits Security Selection & ESG - Answer where the heavy lifting is done Passive & ESG - Answer do not underestimate impact. If 5% of universe is screened out, reallocating while maintaining tracking error is tough