CFA ESG Chapter 7 Exam Questions &
Answers 100% Correct!!
At the ESG research stage, the materiality assessment is considered important
because? - ANSWERSThere is evidence that non-material factors do not impact
financials, valuations or company business models.
According to the CFA institute global ESG survey in 2017, how many investors still
didn't integrate ESG into their analysis? - ANSWERS1. 24% of equity investors
2. 55% of fixed income investors
3. 79-92% of alternative asset investors
Do any regulations force investors to integrate ESG into their analysis? -
ANSWERSYes. The EU Shareholder Rights Directive, the UK Department of Work and
Pensions (DWP) regulations and the UK Stewardship Code.
Who commissioned the Freshfields Report? - ANSWERSFreshfields, The UN PRI and
the UNEP FI.
What was the Freshfields Report made for and what did it find? - ANSWERSIt was
conducted to see if ESG factors impacted long-term financial performance. It argued
that integrating ESG considerations into an investment analysis to better predict
financial performance was needed.
What has been shown to perform better, stocks with high ESG ratings or stocks with
improving ESG ratings? - ANSWERSStocks with improvingESG ratings
Talk through qualitative ESG analysis - ANSWERSAnalyse ESG data to form an
opinion on the ability of a firm to manage certain ESG criteria. Then combine opinion
with financial analysis by linking specific aspects of the company's ESG risk
management strategy to different value drivers. Then seek to integrate quantified
opinion into financial models by adjusting assumptions used in the models.
Talk through quantitative ESG analysis - ANSWERSLikely to be used in investment
process that uses quant models to identify attractive opportunities. Here, ESG data
typically aggregates into an ESG factor (an ESG score), which is added to the quant
models. This could be a screen, or a quant model used to adjust valuations. Essentially,
the difference here is you don't form an initial opinion.
Quantitative ESG analysis typically integrates ESG factors to one company at a time or
a few? Does it do this alongside anything else? - ANSWERSQuantitative analysis
usually looks at a large list of companies at once. It looks at these factors alongside
other factors such as value, size, momentum, growth.
, How does quantitative ESG analysis look at ESG factor correlation with financial
performance? What about with third-party scores and proprietary scores? -
ANSWERSESG factors are assessed using data to try and understand their correlations
with financial performance and increase/decrease weights to specific factors
accordingly. Third party scores and own proprietary scores are also compared.
How do passive and index vehicles usually integrate ESG factors? -
ANSWERSThrough tilts towards chosen factors.
How is AI and machine learning helping investors integrate ESG into their investment
processes? - ANSWERSMuch ESG data available on companies is unstructured. AI
and machine learning algorithms attempt to bring structure and numerical value to part
of that unstructured dataset.
Whose methods for analysing ESG data have been tied to AI techniques? -
ANSWERSThe Sustainable Accounting Standards Board (SASB).
How are some companies using AI and machine learning to enhance their offerings on
ESG? - ANSWERSThey are attempting to provide immediate access to scores based
on material ESG events as they occur. Some focus on intangible ESG factors, such as
corporate culture, that may drive company value.
What is 'Natural Language Processing' (NLP)? - ANSWERSThe automatic manipulation
of natural language, like speech and text, by software. Basically, training a computer to
read and understand language in context.
What is a red flag indicator? - ANSWERSUsed in ESG analysis, red flag indicators
highlight securities with high ESG risk to be further investigated or excluded.
In collaboration with index providers, what has the Japanese Government Pension
Investment Fund (GPIF) created? - ANSWERSGender tilted rules-based indices to
invest in.
What is the difference between company or business analysis and security analysis? -
ANSWERSBusiness or company analysis focuses on the company itself, the other
looks at how stocks and bonds can have different properties to a business, such as
stock volatility.
Do analysts integrate ESG at a particular stage of their analysis? What are the different
stages? - ANSWERSNo, analysts can integrate ESG at any point of their analysis, be it
at one point or at all points. The three points are at the research stage, valuation stage,
and portfolio construction stage.
At what stage is the materiality assessment usually considered and what is it? Why is
this assessment important? - ANSWERSMateriality assessment is usually considered at
Answers 100% Correct!!
At the ESG research stage, the materiality assessment is considered important
because? - ANSWERSThere is evidence that non-material factors do not impact
financials, valuations or company business models.
According to the CFA institute global ESG survey in 2017, how many investors still
didn't integrate ESG into their analysis? - ANSWERS1. 24% of equity investors
2. 55% of fixed income investors
3. 79-92% of alternative asset investors
Do any regulations force investors to integrate ESG into their analysis? -
ANSWERSYes. The EU Shareholder Rights Directive, the UK Department of Work and
Pensions (DWP) regulations and the UK Stewardship Code.
Who commissioned the Freshfields Report? - ANSWERSFreshfields, The UN PRI and
the UNEP FI.
What was the Freshfields Report made for and what did it find? - ANSWERSIt was
conducted to see if ESG factors impacted long-term financial performance. It argued
that integrating ESG considerations into an investment analysis to better predict
financial performance was needed.
What has been shown to perform better, stocks with high ESG ratings or stocks with
improving ESG ratings? - ANSWERSStocks with improvingESG ratings
Talk through qualitative ESG analysis - ANSWERSAnalyse ESG data to form an
opinion on the ability of a firm to manage certain ESG criteria. Then combine opinion
with financial analysis by linking specific aspects of the company's ESG risk
management strategy to different value drivers. Then seek to integrate quantified
opinion into financial models by adjusting assumptions used in the models.
Talk through quantitative ESG analysis - ANSWERSLikely to be used in investment
process that uses quant models to identify attractive opportunities. Here, ESG data
typically aggregates into an ESG factor (an ESG score), which is added to the quant
models. This could be a screen, or a quant model used to adjust valuations. Essentially,
the difference here is you don't form an initial opinion.
Quantitative ESG analysis typically integrates ESG factors to one company at a time or
a few? Does it do this alongside anything else? - ANSWERSQuantitative analysis
usually looks at a large list of companies at once. It looks at these factors alongside
other factors such as value, size, momentum, growth.
, How does quantitative ESG analysis look at ESG factor correlation with financial
performance? What about with third-party scores and proprietary scores? -
ANSWERSESG factors are assessed using data to try and understand their correlations
with financial performance and increase/decrease weights to specific factors
accordingly. Third party scores and own proprietary scores are also compared.
How do passive and index vehicles usually integrate ESG factors? -
ANSWERSThrough tilts towards chosen factors.
How is AI and machine learning helping investors integrate ESG into their investment
processes? - ANSWERSMuch ESG data available on companies is unstructured. AI
and machine learning algorithms attempt to bring structure and numerical value to part
of that unstructured dataset.
Whose methods for analysing ESG data have been tied to AI techniques? -
ANSWERSThe Sustainable Accounting Standards Board (SASB).
How are some companies using AI and machine learning to enhance their offerings on
ESG? - ANSWERSThey are attempting to provide immediate access to scores based
on material ESG events as they occur. Some focus on intangible ESG factors, such as
corporate culture, that may drive company value.
What is 'Natural Language Processing' (NLP)? - ANSWERSThe automatic manipulation
of natural language, like speech and text, by software. Basically, training a computer to
read and understand language in context.
What is a red flag indicator? - ANSWERSUsed in ESG analysis, red flag indicators
highlight securities with high ESG risk to be further investigated or excluded.
In collaboration with index providers, what has the Japanese Government Pension
Investment Fund (GPIF) created? - ANSWERSGender tilted rules-based indices to
invest in.
What is the difference between company or business analysis and security analysis? -
ANSWERSBusiness or company analysis focuses on the company itself, the other
looks at how stocks and bonds can have different properties to a business, such as
stock volatility.
Do analysts integrate ESG at a particular stage of their analysis? What are the different
stages? - ANSWERSNo, analysts can integrate ESG at any point of their analysis, be it
at one point or at all points. The three points are at the research stage, valuation stage,
and portfolio construction stage.
At what stage is the materiality assessment usually considered and what is it? Why is
this assessment important? - ANSWERSMateriality assessment is usually considered at
