CFA ESG Certificate - Chapter 7 - ESG Valuation, Analysis and Integration Exam Questions With Correct Answers

Why investors integrate ESG - Answer - meeting requirments under fiduciry duty or regulation - meeting client and beneficiary demands - lowering investment risk - increasing return - giving investment professionals more tools and techniques to use in analysis - lowering reputational risk at a firm and investment level Fiduciary duty and ESG - Answer As a fiduciary investors should be required to... - incorporate ESG issues into investment analysis and decision making consistent with their time horizon - encourage high ESG standards in the companies they invest - Understand and incorporate beneficiaries sustainability related preference, regardless of if they are financially material These are three pillars from UN PRI and Freshfields report** Different approaches to integrating ESG within the investment process - Answer - qualitative vs. quantitative or some combo of both - fundamental - active/passive - beta tilting Qualitative ESG analysis - Answer - company specific, stock picking - investment team forms their opinion on ESG matters and ability to manager for them within holdings - combine opinion with financial analysis - integrate their opinions in quantified ways within financial modeling Quantitative ESG analysis - Answer - models to ID attractive investment opportunities, screens created to define investment universe - research usually started leveraging third party data sources - ESG factors usually integrated with other traditional factors like growth, value, momentum, quality - passive will usually use factor tilts to build indices to define universe - thematic funds will assess alignment with priority themes