Official CFA ESG Practice Questions &
Answers
Does conventional financial investing focus on enhancing the long-term value of an
investment portfolio? - ANSWER No, conventional financial investing is ST. Only ESG
investing focusses on the LT.
What are the "core planetary boundaries" identified by the Stockholm Resilience
Centre? - ANSWER Biosphere integrity and climate change
ESG integration can have a material financial impact on a company, resulting in what? -
ANSWER ESG investing can reduce risk and enhance returns
The ESG reporting framework used by the United Nations Global Compact signatories
is published by whom? - ANSWER Global Reporting Initiative (GRI).
What situation does a 'negative externality' describe? - ANSWER Situations where the
production or consumption of a product or service's private price equilibrium cannot
reflect the true costs of that product or service for society as a whole
Is engaging in public policy debates on ESG issues a typical method by which ESG
factors are reflected in investment approaches? - ANSWER Yes it is
Would disclosing the investor's corporate social responsibility activities be a typical
method by which ESG factors are reflected in investment approaches? - ANSWER No it
would not
What are the four broad groupings of issues covered by the UN Global Compact? -
ANSWER Human rights, labor, environment, and anti-corruption
What was the Shareholder Rights Directive (SRD) role? - ANSWER The SRD was
issued by the EU and requires investors to be active owners and to act with a more
long-term focus.
Which two reports formed the backbone for the launch of the Principles for Responsible
Investment (PRI) in 2006? - ANSWER Freshfields Report and 'Who Cares Wins' report
Which regions manage the highest proportion of sustainable and responsible
investment assets? - ANSWER Canada and Europe
Why are investment mandates important for ESG investing? - ANSWER They are
contracts that define the requirements of the asset manager with regard to ESG issues.
, What is the main challenge with policies that are "comply or explain" regarding ESG
issues? - ANSWER It leads to investors challenging the assertion that ESG integration
is a requirement.
Which matters do the EU Taxonomy address? - ANSWER Green bonds and low-carbon
benchmarks
What would an impact of a consumer boycott be on revenues? - ANSWER Reduce
revenues
What is a safety incident most likely to result in? - ANSWER Increased costs and
liabilities for fines, lawsuits and equipment with better safety features
What is meant by the concept of a just transition? - ANSWER A transition that shares
the financial and social burden in a fair way
What is the FAIRR initiative? - ANSWER It is an initiative that focuses on the increased
prevalence of antimicrobial resistance.
What kinds of cases require Free Prior Informed Consent (FPIC)? - ANSWER
Developments on ancestral land or the use of resources of a territory owned by
indigenous people
What does the Access to Medicine Index analyze? - ANSWER How pharmaceutical
companies are addressing access to medicine in low- to middle-income countries
What are the OECD Guidelines for Multinational Enterprises? - ANSWER A
comprehensive set of government-backed recommendations on responsible business
conduct.
What does compliance with the EU Taxonomy typically look like? - ANSWER
Substantially contribute to one objective while doing no significant harm to others
Within the transport sector, advances in AI are most likely to threaten which groups'
jobs? - ANSWER Taxi drivers
A Portfolio Analyst is modelling the potential impact of a safety incident (with multiple
fatalities) on its minor sector holdings. What will most likely happen? - ANSWER
Increased costs and liabilities for fines, lawsuits and equipment with better safety
features
Is a 'social opportunity' an internal or external factor? - ANSWER External
What kinds of cases require Free Prior Informed Consent (FPIC)? - ANSWER
Developments on ancestral land or the use of resources of a territory owned by
indigenous people
Answers
Does conventional financial investing focus on enhancing the long-term value of an
investment portfolio? - ANSWER No, conventional financial investing is ST. Only ESG
investing focusses on the LT.
What are the "core planetary boundaries" identified by the Stockholm Resilience
Centre? - ANSWER Biosphere integrity and climate change
ESG integration can have a material financial impact on a company, resulting in what? -
ANSWER ESG investing can reduce risk and enhance returns
The ESG reporting framework used by the United Nations Global Compact signatories
is published by whom? - ANSWER Global Reporting Initiative (GRI).
What situation does a 'negative externality' describe? - ANSWER Situations where the
production or consumption of a product or service's private price equilibrium cannot
reflect the true costs of that product or service for society as a whole
Is engaging in public policy debates on ESG issues a typical method by which ESG
factors are reflected in investment approaches? - ANSWER Yes it is
Would disclosing the investor's corporate social responsibility activities be a typical
method by which ESG factors are reflected in investment approaches? - ANSWER No it
would not
What are the four broad groupings of issues covered by the UN Global Compact? -
ANSWER Human rights, labor, environment, and anti-corruption
What was the Shareholder Rights Directive (SRD) role? - ANSWER The SRD was
issued by the EU and requires investors to be active owners and to act with a more
long-term focus.
Which two reports formed the backbone for the launch of the Principles for Responsible
Investment (PRI) in 2006? - ANSWER Freshfields Report and 'Who Cares Wins' report
Which regions manage the highest proportion of sustainable and responsible
investment assets? - ANSWER Canada and Europe
Why are investment mandates important for ESG investing? - ANSWER They are
contracts that define the requirements of the asset manager with regard to ESG issues.
, What is the main challenge with policies that are "comply or explain" regarding ESG
issues? - ANSWER It leads to investors challenging the assertion that ESG integration
is a requirement.
Which matters do the EU Taxonomy address? - ANSWER Green bonds and low-carbon
benchmarks
What would an impact of a consumer boycott be on revenues? - ANSWER Reduce
revenues
What is a safety incident most likely to result in? - ANSWER Increased costs and
liabilities for fines, lawsuits and equipment with better safety features
What is meant by the concept of a just transition? - ANSWER A transition that shares
the financial and social burden in a fair way
What is the FAIRR initiative? - ANSWER It is an initiative that focuses on the increased
prevalence of antimicrobial resistance.
What kinds of cases require Free Prior Informed Consent (FPIC)? - ANSWER
Developments on ancestral land or the use of resources of a territory owned by
indigenous people
What does the Access to Medicine Index analyze? - ANSWER How pharmaceutical
companies are addressing access to medicine in low- to middle-income countries
What are the OECD Guidelines for Multinational Enterprises? - ANSWER A
comprehensive set of government-backed recommendations on responsible business
conduct.
What does compliance with the EU Taxonomy typically look like? - ANSWER
Substantially contribute to one objective while doing no significant harm to others
Within the transport sector, advances in AI are most likely to threaten which groups'
jobs? - ANSWER Taxi drivers
A Portfolio Analyst is modelling the potential impact of a safety incident (with multiple
fatalities) on its minor sector holdings. What will most likely happen? - ANSWER
Increased costs and liabilities for fines, lawsuits and equipment with better safety
features
Is a 'social opportunity' an internal or external factor? - ANSWER External
What kinds of cases require Free Prior Informed Consent (FPIC)? - ANSWER
Developments on ancestral land or the use of resources of a territory owned by
indigenous people
