CFA ESG QUESTIONS WITH CORRECT
ANSWERS
Which of the following scenarios best illustrates the concept of a 'just' transition?
A. A region transitioning to renewable power prioritizes equipment installations in historically
underserved areas.
B. A government pledges a multibillion-dollar fund to employ displaced oil industry workers in
safely decommissioning abandoned drill sites.
C. A logistics company builds a new warehouse on the ancestral land of indigenous people and
commits to employing a minimum number of indigenous workers. ✔️✔️B. A government
pledges a multibillion-dollar fund to employ displaced oil industry workers in safely
decommissioning abandoned drill sites.
B is correct. A 'just' transition is one that avoids burdening ordinary workers with
unemployment, poverty, and exclusion as part of the transition to a low carbon economy. The
government's pledge to employ displaced oil industry workers provides transitional employment
to workers in a vulnerable sector (oil industry) and thus best illustrates a 'just' transition.
An increasing focus is most likely placed on which of the following company health and safety
performance indicators? Programmes that:
A. assist employees with personal financial issues, like budgeting.
B. limit employee exposure to conditions that lead to occupational diseases.
C. support employee mental health by providing free, confidential counselling. ✔️✔️C.
support employee mental health by providing free, confidential counseling.
C is correct. Health and safety has evolved a broader concept of working conditions. The focus is
increasingly on mental health and other employee benefits to promote their well-being outside of
the workplace. Occupational health practices, such as limiting workforce exposures to harmful
,conditions, are well established and widely accepted as fundamental health and safety measures.
"Financial wellness" is a fairly well-established term among US employers and HR departments.
In which area of a food processing company's business is forced labour most likely to be found?
A. Producers of the raw agricultural ingredients processed by the company
B. Casual labourers who work for the company only during busy seasons
C. Purchasing agents that source the raw agricultural ingredients ✔️✔️A. Producers of the raw
agricultural ingredients processed by the company
A is correct. Egregious labour rights violations, such as the use of forced labor, are often hidden
deep within supply chains in the second tier and beyond. Of the options, producers of raw
agricultural ingredients are deepest within the food processor's supply chain and thus the most
likely to employ forced labor.
Which of the following social issues is likely to be most relevant to low-to-middle income
countries?
B. Access to medicines
C. Anti-microbial resistance ✔️✔️B. Access to medicines
B is correct. Lack of social opportunities, including lack of access to medicines, is identified
under the UN's Sustainable Development Goals as an issue in developing or low-to-middle
income countries. Aging populations are more closely associated with developed countries, and
anti-microbial resistance is not specifically linked to either developed or developing countries.
An investment fund scores its potential investments on a scale of one to ten based on the
contributions they make to the environmental objectives under the EU taxonomy for sustainable
activities. The following table shows how each company's score has changed over the past year.
Which company most likely complies with the EU taxonomy for sustainable activities?
,A. Company 1
B. Company 2
C. Company 3 ✔️✔️B. Company 2
B is correct. Company 2 best fulfills the requirements to substantially contribute to one objective
(climate change adaptation at +3 points) while doing no significant harm to the others.
Within the transportation sector, advances in artificial intelligence are most likely to result in
fewer employment opportunities for:
A. mechanics.
B. taxi drivers.
C. bulldozer operators. ✔️✔️B. taxi drivers.
B is correct. Artificial intelligence is suited to structured and repetitive tasks that can be carried
out with minimal human assistance. The development of self-driving cars suggests that taxi
drivers are most at risk of being displaced because of advances in artificial intelligence. Less
routine work, such as troubleshooting mechanical problems and operating bulldozers in varied
physical environments, is subject to lower displacement risk.
An investment fund requires that its analysts consider an extensive list of potential social factors
and trends that could affect the performance of individual investments. Which of the following
steps should its analysts take first when evaluating the social suitability of a potential
acquisition?
A. Carry out a materiality assessment
B. Assess the quality of investee companies' management
C. Model potential impacts of the social factors on key ratios ✔️✔️A. Carry out a materiality
assessment
, A is correct. Carrying out a materiality assessment, or determining which of the social factors
and trends is likely to have a significant impact on the performance of the investments, is the
next logical step. Once the materiality assessment is complete, the potential impacts can be
modelled and the quality of the investee companies' management can be assessed.
An appliance retailer is facing a consumer boycott due to reports of forced labour in its supply
chain. The ratio most likely to be affected by the consumer action is the:
A. liabilities-to-assets ratio
B. asset turnover.
C. current ratio. ✔️✔️B. asset turnover
B is correct. Consumer boycotts are most likely to result in lower revenues. The ratio that will be
most directly affected by lower revenues is the asset turnover ratio, defined as revenues/assets.
A portfolio analyst is modelling the potential impact of a safety incident with multiple fatalities
on its mining sector holdings. Which of the following ratios is most likely to be affected as a
result?
A. Asset turnover
B. Days of receivables
C. Liabilities-to-assets ratio ✔️✔️C. Liabilities-to-assets ratio
C is correct. A safety incident is most likely to result in increased costs and liabilities for fines,
lawsuits, and equipment with better safety features. The liabilities-to-assets ratio will be most
directly affected by the increased liabilities. Asset turnover and days of receivables are not
directly affected by either expenses or liabilities.
In 2019, the first lithium-ion battery cell gigafactory project was initiated in the European Union
to reduce dependency on imports from other countries. To which social megatrend is this
gigafactory best related?
ANSWERS
Which of the following scenarios best illustrates the concept of a 'just' transition?
A. A region transitioning to renewable power prioritizes equipment installations in historically
underserved areas.
B. A government pledges a multibillion-dollar fund to employ displaced oil industry workers in
safely decommissioning abandoned drill sites.
C. A logistics company builds a new warehouse on the ancestral land of indigenous people and
commits to employing a minimum number of indigenous workers. ✔️✔️B. A government
pledges a multibillion-dollar fund to employ displaced oil industry workers in safely
decommissioning abandoned drill sites.
B is correct. A 'just' transition is one that avoids burdening ordinary workers with
unemployment, poverty, and exclusion as part of the transition to a low carbon economy. The
government's pledge to employ displaced oil industry workers provides transitional employment
to workers in a vulnerable sector (oil industry) and thus best illustrates a 'just' transition.
An increasing focus is most likely placed on which of the following company health and safety
performance indicators? Programmes that:
A. assist employees with personal financial issues, like budgeting.
B. limit employee exposure to conditions that lead to occupational diseases.
C. support employee mental health by providing free, confidential counselling. ✔️✔️C.
support employee mental health by providing free, confidential counseling.
C is correct. Health and safety has evolved a broader concept of working conditions. The focus is
increasingly on mental health and other employee benefits to promote their well-being outside of
the workplace. Occupational health practices, such as limiting workforce exposures to harmful
,conditions, are well established and widely accepted as fundamental health and safety measures.
"Financial wellness" is a fairly well-established term among US employers and HR departments.
In which area of a food processing company's business is forced labour most likely to be found?
A. Producers of the raw agricultural ingredients processed by the company
B. Casual labourers who work for the company only during busy seasons
C. Purchasing agents that source the raw agricultural ingredients ✔️✔️A. Producers of the raw
agricultural ingredients processed by the company
A is correct. Egregious labour rights violations, such as the use of forced labor, are often hidden
deep within supply chains in the second tier and beyond. Of the options, producers of raw
agricultural ingredients are deepest within the food processor's supply chain and thus the most
likely to employ forced labor.
Which of the following social issues is likely to be most relevant to low-to-middle income
countries?
B. Access to medicines
C. Anti-microbial resistance ✔️✔️B. Access to medicines
B is correct. Lack of social opportunities, including lack of access to medicines, is identified
under the UN's Sustainable Development Goals as an issue in developing or low-to-middle
income countries. Aging populations are more closely associated with developed countries, and
anti-microbial resistance is not specifically linked to either developed or developing countries.
An investment fund scores its potential investments on a scale of one to ten based on the
contributions they make to the environmental objectives under the EU taxonomy for sustainable
activities. The following table shows how each company's score has changed over the past year.
Which company most likely complies with the EU taxonomy for sustainable activities?
,A. Company 1
B. Company 2
C. Company 3 ✔️✔️B. Company 2
B is correct. Company 2 best fulfills the requirements to substantially contribute to one objective
(climate change adaptation at +3 points) while doing no significant harm to the others.
Within the transportation sector, advances in artificial intelligence are most likely to result in
fewer employment opportunities for:
A. mechanics.
B. taxi drivers.
C. bulldozer operators. ✔️✔️B. taxi drivers.
B is correct. Artificial intelligence is suited to structured and repetitive tasks that can be carried
out with minimal human assistance. The development of self-driving cars suggests that taxi
drivers are most at risk of being displaced because of advances in artificial intelligence. Less
routine work, such as troubleshooting mechanical problems and operating bulldozers in varied
physical environments, is subject to lower displacement risk.
An investment fund requires that its analysts consider an extensive list of potential social factors
and trends that could affect the performance of individual investments. Which of the following
steps should its analysts take first when evaluating the social suitability of a potential
acquisition?
A. Carry out a materiality assessment
B. Assess the quality of investee companies' management
C. Model potential impacts of the social factors on key ratios ✔️✔️A. Carry out a materiality
assessment
, A is correct. Carrying out a materiality assessment, or determining which of the social factors
and trends is likely to have a significant impact on the performance of the investments, is the
next logical step. Once the materiality assessment is complete, the potential impacts can be
modelled and the quality of the investee companies' management can be assessed.
An appliance retailer is facing a consumer boycott due to reports of forced labour in its supply
chain. The ratio most likely to be affected by the consumer action is the:
A. liabilities-to-assets ratio
B. asset turnover.
C. current ratio. ✔️✔️B. asset turnover
B is correct. Consumer boycotts are most likely to result in lower revenues. The ratio that will be
most directly affected by lower revenues is the asset turnover ratio, defined as revenues/assets.
A portfolio analyst is modelling the potential impact of a safety incident with multiple fatalities
on its mining sector holdings. Which of the following ratios is most likely to be affected as a
result?
A. Asset turnover
B. Days of receivables
C. Liabilities-to-assets ratio ✔️✔️C. Liabilities-to-assets ratio
C is correct. A safety incident is most likely to result in increased costs and liabilities for fines,
lawsuits, and equipment with better safety features. The liabilities-to-assets ratio will be most
directly affected by the increased liabilities. Asset turnover and days of receivables are not
directly affected by either expenses or liabilities.
In 2019, the first lithium-ion battery cell gigafactory project was initiated in the European Union
to reduce dependency on imports from other countries. To which social megatrend is this
gigafactory best related?
