CFA ESG Chapter 7 Exam Questions & Answers 100% Correct

An investment firm's aims and objectives for integrating ESG into an investment process - Answer ► meeting requirements under fiduciary duty or regulations, ► meeting client and beneficiary demands, ► lowering investment risk, ► increasing investment returns, ► giving investment professionals more tools and techniques to use in analysis, ► improving the quality of engagement and stewardship activities, and ► lowering reputational risk at a firm level and investment level. Qualitative ESG Analysis - Answer Qualitative ESG analysis is likely to be used in investment processes that are based on company-specific research, fundamental analysis, and stock picking. ► Investment teams analyze ESG data to form an opinion on a firm's ability to manage certain ESG issues. ► They combine this opinion with their financial analysis by linking specific aspects of the company's ESG risk-management strategy to different value drivers (e.g., costs, revenues, profits, and capital expenditure requirements). ► Analysts and portfolio managers then seek to integrate their opinion in a quantified way into their financial models by adjusting assumptions used in the model (e.g., growth, margins, or costs of capital). Quantitative ESG Analysis - Answer Quantitative ESG (QESG) analysis is likely to be used in investment processes that use quant models to identify attractive investment opportunities. In such cases, the ESG data are typically aggregated into an ESG factor (an ESG score), which is added to the quant models. This could be a screen that creates the investment universe or a quant model used to adjust valuations based on several factors (including ESG AI in ESG - Answer Some practitioners ► focus on using AI techniques to measure ESG performance tied to measures developed by the Sustainability Accounting Standards Board (SASB), ► attempt to provide immediate access to scores based on material ESG events as they occur, or ► focus on intangible ESG factors, such as corporate culture, that could drive company value. Investment strategies are typically classified as - Answer ► quantitative (systematic, algorithmic), ► fundamental, ► active, ► passive, or ► beta Tools of ESG ANALYSIS *** - Answer ► Red flag indicators ► Company questionnaires and management interviews ► Checks with outside experts ► Watch lists ►Internal ESG research ► External ESG research