CFA ESG EXAM QUESTIOS WITH ALL
CORRECT ANSWERS
What are the disadvantages of climate change models? - Answer-· Under standard
practice of discounting, cash flows far into the future have little present value, which
may underrepresent impact of climate change. Standard cost-benefit analysis cannot
deal with climate change
· Moral considerations warrant use of low discount rate when assessing future climate
damages
· Many econ models do not account for tipping points
/.What is the Jevons paradox? - Answer-Relative improvements in efficiency may not
lead to decrease in consumption
/.What was the Dasgupta review? - Answer-Asset value should be assigned to natural
capital as well as human and produced
/.What was the Kigali amendment to the Montreal protocol? - Answer-Agreement to
phase-out use of hydrofluorocarbons
/.IMO 2020 Reg? - Answer-Limit of sulfur content used in ships
/.Main ambitions of EU green deal? - Answer-· Reorient capital flows via taxonomy and
EU GBS
· Mainstream sustainability into risk management
· Foster transparency via CSRD
/.What are the EU climate benchmarks: - Answer-· Paris Aligned: 50% reduction in
emissions in first year, 4:1 green to brown investments, no fossil fuels
· Climate transition: 30% reduction in emissions in first year, 1:1 green to brown, fossil
fuels allowed
/.What were the amendments to the UK pensions scheme act? - Answer-· Pension
schemes must consider the steps that must be taking to achieve the Paris Agreement
· Pension schemes must set out policies on consideration of financially material ESG
factors and info on stewardship
/.What is the largest green bond market? - Answer-China
/.What is Network for greening the financial system? - Answer-· 70 CBs and financial
supervisors
· Enhance role of financial system to manage risks and mobilise capital for green and
low-carbon investments
,· Published technical guidance, eg. For scenario analysis
/.What are the Helsinki principles? - Answer-· Macroeconomic policy commitment to
take climate action
/.What two types of approaches do FIs need to combine to assess enviro risk? -
Answer-· Identify enviro factors that may impact financial assets and liabilities
· Translate into quant measures of financial risk that inform risk management and
investment decisions
/.What the ways investors assess enviro risks? - Answer-· Natural capital approach
· Carbon footprinting and other metrics
· Scenario analysis
/.According to the OECD, what are the three priority areas for the blue economy? -
Answer-· "win-win" outcomes
· Creation of ocean economy innovation networks
· Initiatives to improve measures of the ocean economy via satellite etc
/.What is the blue economy development network? - Answer-Helps coastal states
transition to sustainable economies and build resilience
/.What does blue economy development network aim to create a roadmap to assist
governments for? - Answer-· Preparing policy, fiscal and admin reforms
· Identifying value creation opportunities
· Identifying strategic financial instruments
/.What are the steps in designing an investment mandate? - Answer-· Clarify client
needs (defining investment stategy)
· Aligning investment with client beliefs
· Develop client relevant ESG aware investment mandates
· Tailor investment approach to client expectations (diff funds)
· Hold managers to account
/.What is the PLSA stewardship checklist? - Answer-Investors must do following for a
good stewardship strategy:
o Be clear about how stewardship fits into the investment strategy and how it helps
meet objectives
o Ensure fund managers and service providers deliver long-term ESG factors in
investment approach
o Work with advisors to consider level of resources required for stewardship activities
/.What 2 questions frame an investment mandate? - Answer-· Is ESG a risk
management tool or driver of value creation
· Which aspects of ESG matter most from the AO perspective
,/.What does a portfolio manager ESG strategy need to address? - Answer-· ESG issues
at portfolio reviews
· Establishes rationale and methodology for portfolio assessment
· Addresses exposure to ESG risk within risk management function
· Determines ESG impacts
· Responds to ESG implications in investment decision making
· Discloses ESG exposure to fund investors
/.What does the IGCN framework propose best practices for? - Answer-· Monitoring and
use of ESG factors
· Integration of ESG factors in investment decision making
· Adherence to good practice on stewardship
· Voting and reporting
/.According to PRI, what should mandates require managers to do? - Answer-·
Implement AO beliefs and investment policies
· Integrate ESG into research analysis and valuation
· Invest in manner consistent with AO time horizon
· Implement effective stewardship
· Engage with policymakers on RI and ESG
· Report on actions and outcomes
/.Two key questions on stewardship for asset managers? - Answer-· Who does the
work? (outsourced or internal)
· What are the resources assigned?
/.What are the issues that may give rise to concerns for an AO who employs an AM? -
Answer-· Failure to follow the Brunei investment principles
· Lack of understanding of reasons for underperformance
· Organisational instability
· Failure to follow investment restrictions or manage risk
· Changes in investment style
/.What does the IGCN model mandate require reporting on? - Answer-· Portfolio
turnover
· Manager financial accounts
· Changes in governance, ownership or structure of the manager
· Changes in conflict of interest policy
· Any additional conflicts of interest that may have arisen
· Regulatory investigation or legal proceedings
/.What is typically reported within an investment firm annual report? - Answer-· Themes
they have worked on
· Case studies on ESG analysis investing and stewardship
· Investment processes
, /.What does the PLSA disclosure require reporting on? - Answer-· Identification of ESG
risk
· Management and monitoring of ESG risks and opportunities
/.How can a manager demonstrate the identification of ESG risks and opportunities? -
Answer-· Examples of where the fund manager is prepared to take stock or sector ESG
risk
· Quant and Qual examples of identification of material ESG factors
· Identification of ESG secular trends and themes and how they influence portfolio
construction
/.IGCN recommends two areas of disclosure for managers on ESG, what are they? -
Answer-· Manager's assessment of ESG risk embedded in the portfolio
· Detailed disclosure of stewardship and voting
/.According the investor forum, what are the characteristics of high-quality delivery in
terms of engagement? - Answer-· Direct, consistent messages
· Recognises change is a process
· Involves reflection
· Framed by a good understanding of the business model
· Focus on long-term ownership
· Well resourced
· Efficiently resourced
/.What did the Walker report call for? - Answer-FRC to issue stewardship code which
would be backed by an FCA requirement for fund managers to make a statement
/.Changes to UK stewardship code in 2020? - Answer-No longer focus on statements,
instead annual reporting of activity and outcomes
/.What do most stewardship codes call for? - Answer-· Investors have a public policy
regarding stewardship
· Regular monitoring of investees
· Active ownership
· Thoughtful voting
· honest and open reporting of stewardship activities
/.Two principles sometimes, but not always included in stewardship codes? - Answer-·
Managing conflicts of interest
· Escalation including collective engagement
/.What are the requirements of ERISA? - Answer-· Advisors act as fiduciaries
· Vote at investee meetings and engage
/.How are stewardship teams split? - Answer-· Gov - country
· Env and Social - sector
CORRECT ANSWERS
What are the disadvantages of climate change models? - Answer-· Under standard
practice of discounting, cash flows far into the future have little present value, which
may underrepresent impact of climate change. Standard cost-benefit analysis cannot
deal with climate change
· Moral considerations warrant use of low discount rate when assessing future climate
damages
· Many econ models do not account for tipping points
/.What is the Jevons paradox? - Answer-Relative improvements in efficiency may not
lead to decrease in consumption
/.What was the Dasgupta review? - Answer-Asset value should be assigned to natural
capital as well as human and produced
/.What was the Kigali amendment to the Montreal protocol? - Answer-Agreement to
phase-out use of hydrofluorocarbons
/.IMO 2020 Reg? - Answer-Limit of sulfur content used in ships
/.Main ambitions of EU green deal? - Answer-· Reorient capital flows via taxonomy and
EU GBS
· Mainstream sustainability into risk management
· Foster transparency via CSRD
/.What are the EU climate benchmarks: - Answer-· Paris Aligned: 50% reduction in
emissions in first year, 4:1 green to brown investments, no fossil fuels
· Climate transition: 30% reduction in emissions in first year, 1:1 green to brown, fossil
fuels allowed
/.What were the amendments to the UK pensions scheme act? - Answer-· Pension
schemes must consider the steps that must be taking to achieve the Paris Agreement
· Pension schemes must set out policies on consideration of financially material ESG
factors and info on stewardship
/.What is the largest green bond market? - Answer-China
/.What is Network for greening the financial system? - Answer-· 70 CBs and financial
supervisors
· Enhance role of financial system to manage risks and mobilise capital for green and
low-carbon investments
,· Published technical guidance, eg. For scenario analysis
/.What are the Helsinki principles? - Answer-· Macroeconomic policy commitment to
take climate action
/.What two types of approaches do FIs need to combine to assess enviro risk? -
Answer-· Identify enviro factors that may impact financial assets and liabilities
· Translate into quant measures of financial risk that inform risk management and
investment decisions
/.What the ways investors assess enviro risks? - Answer-· Natural capital approach
· Carbon footprinting and other metrics
· Scenario analysis
/.According to the OECD, what are the three priority areas for the blue economy? -
Answer-· "win-win" outcomes
· Creation of ocean economy innovation networks
· Initiatives to improve measures of the ocean economy via satellite etc
/.What is the blue economy development network? - Answer-Helps coastal states
transition to sustainable economies and build resilience
/.What does blue economy development network aim to create a roadmap to assist
governments for? - Answer-· Preparing policy, fiscal and admin reforms
· Identifying value creation opportunities
· Identifying strategic financial instruments
/.What are the steps in designing an investment mandate? - Answer-· Clarify client
needs (defining investment stategy)
· Aligning investment with client beliefs
· Develop client relevant ESG aware investment mandates
· Tailor investment approach to client expectations (diff funds)
· Hold managers to account
/.What is the PLSA stewardship checklist? - Answer-Investors must do following for a
good stewardship strategy:
o Be clear about how stewardship fits into the investment strategy and how it helps
meet objectives
o Ensure fund managers and service providers deliver long-term ESG factors in
investment approach
o Work with advisors to consider level of resources required for stewardship activities
/.What 2 questions frame an investment mandate? - Answer-· Is ESG a risk
management tool or driver of value creation
· Which aspects of ESG matter most from the AO perspective
,/.What does a portfolio manager ESG strategy need to address? - Answer-· ESG issues
at portfolio reviews
· Establishes rationale and methodology for portfolio assessment
· Addresses exposure to ESG risk within risk management function
· Determines ESG impacts
· Responds to ESG implications in investment decision making
· Discloses ESG exposure to fund investors
/.What does the IGCN framework propose best practices for? - Answer-· Monitoring and
use of ESG factors
· Integration of ESG factors in investment decision making
· Adherence to good practice on stewardship
· Voting and reporting
/.According to PRI, what should mandates require managers to do? - Answer-·
Implement AO beliefs and investment policies
· Integrate ESG into research analysis and valuation
· Invest in manner consistent with AO time horizon
· Implement effective stewardship
· Engage with policymakers on RI and ESG
· Report on actions and outcomes
/.Two key questions on stewardship for asset managers? - Answer-· Who does the
work? (outsourced or internal)
· What are the resources assigned?
/.What are the issues that may give rise to concerns for an AO who employs an AM? -
Answer-· Failure to follow the Brunei investment principles
· Lack of understanding of reasons for underperformance
· Organisational instability
· Failure to follow investment restrictions or manage risk
· Changes in investment style
/.What does the IGCN model mandate require reporting on? - Answer-· Portfolio
turnover
· Manager financial accounts
· Changes in governance, ownership or structure of the manager
· Changes in conflict of interest policy
· Any additional conflicts of interest that may have arisen
· Regulatory investigation or legal proceedings
/.What is typically reported within an investment firm annual report? - Answer-· Themes
they have worked on
· Case studies on ESG analysis investing and stewardship
· Investment processes
, /.What does the PLSA disclosure require reporting on? - Answer-· Identification of ESG
risk
· Management and monitoring of ESG risks and opportunities
/.How can a manager demonstrate the identification of ESG risks and opportunities? -
Answer-· Examples of where the fund manager is prepared to take stock or sector ESG
risk
· Quant and Qual examples of identification of material ESG factors
· Identification of ESG secular trends and themes and how they influence portfolio
construction
/.IGCN recommends two areas of disclosure for managers on ESG, what are they? -
Answer-· Manager's assessment of ESG risk embedded in the portfolio
· Detailed disclosure of stewardship and voting
/.According the investor forum, what are the characteristics of high-quality delivery in
terms of engagement? - Answer-· Direct, consistent messages
· Recognises change is a process
· Involves reflection
· Framed by a good understanding of the business model
· Focus on long-term ownership
· Well resourced
· Efficiently resourced
/.What did the Walker report call for? - Answer-FRC to issue stewardship code which
would be backed by an FCA requirement for fund managers to make a statement
/.Changes to UK stewardship code in 2020? - Answer-No longer focus on statements,
instead annual reporting of activity and outcomes
/.What do most stewardship codes call for? - Answer-· Investors have a public policy
regarding stewardship
· Regular monitoring of investees
· Active ownership
· Thoughtful voting
· honest and open reporting of stewardship activities
/.Two principles sometimes, but not always included in stewardship codes? - Answer-·
Managing conflicts of interest
· Escalation including collective engagement
/.What are the requirements of ERISA? - Answer-· Advisors act as fiduciaries
· Vote at investee meetings and engage
/.How are stewardship teams split? - Answer-· Gov - country
· Env and Social - sector
