CFA ESG Certification - Chapter 1 Exam Questions With Correct Answers

Chapter 1 Structure (update) - Answer What is ESG Types of Responsible Investment - SRI - Best-in-class - Sustainable investment - Thematic investment - Green investment - Social investment - impact investment - ethical investment Why integrate ESG Macro Debate: Risk Perspective - Fiduciary Responsibility Perspective - Economics Perspective - Impact and Ethics Perspective - Client Demand Perspective - Regulatory Perspective Financial Materiality - Efficiency and productivity - Reduced risk of fines and intervention - Reduced negative Externalities - Improved ability to benefit from sustainable megatrends Challenges Financial Performance Putting ESG into practice Key initiatives ESG Investing - Answer An approach to managing assets where investors explicitly incorporate environmental, social, and governance factors in their investment decisions with the long-term return of an investment portfolio in mind (E) Environmental - Answer Factors pertaining to the natural world. Including the use of and interacting with, renewable and non-renewable resources (S) Social - Answer Factors that affect the lives of humans. The category includes the management of human capital, non-human animals, local communities. (G) Governance - Answer Factors that involve issues tied to countries and or jurisdictions, or are common practice in an industry, as well as the interest of broader stakeholder groups Stakeholder - Answer Members of groups without whose support an organization would cease to exist, as well as communities impacted by companies and regulators Triple Bottom Line (TBL) - Answer Coined by John Elkington. States that the generation of long-term sustainable returns is dependent on stable, well-functioning, and well-governed social and economic systems. Was later recalled Also became an accounting framework known as the 'Three Ps' People Planet Profit Corporate Social Responsibility - Answer Broad business concept that describes a company's commitment to conducting its business in an ethical way. Commonly achieved through philanthropy Corporate Sustainability - Answer An approach aiming to create long-term stakeholder value through the implementation of a business strategy that focuses on the ethical, social, environmental, and cultural dimensions of doing business Responsible investment - Answer A strategy and practice to incorporate ESG factors into investment decisions and active ownership Used as an umbrella term for some/all investment approached below Socially Responsible investment (SRI) - Answer Refers to approaches that apply social and environmental criteria in evaluating companies. Hurdle = established for a qualification within investment universe. Based either on the full universe or sector by sector. The first screen for SRI qualified companies Best-in-class Investment - Answer Involves selecting only the companies that overcome a defined ranking hurdle, established using ESG criteria within each sector or industry. Sustainable investment - Answer Refers to the selection of assets that contribute in some way to a sustainable economy, ie. an asset that minimizes natural and social resource depletion Thematic Investment - Answer Refers to selecting companies that fall under a sustainability-related theme, such as clean-tech, sustainable ag, healthcare or climate change mitigation