CFA ESG Exam With 100% Correct
Answers
ESG investing - Answer-an approach to managing assets where investors explicitly
incorporate ESG factors into their investment decisions with the long-term return of an
investment portfolio in mind
aims to correctly identify, evaluate, and price social, environmental and economic risks
and opportunities
/.SDG goals - Answer-1 - no poverty
2 - zero hunger
3- good health and well being
4- education
5- gender equality
6 - clean water and sanitation
7 - affordable and clean energy
8- decent work and economic growth
9- industry, innovation and infrastructure
10-reduced inequalities
11- sustainable cities and communities
12-responsible consumption and production
13-climate action
14-life below water
15-life on land
16-peace, justice and strong institutions
17- partnerships for the goals
1-5: social
6-15: environmental
16-17: macro, governments
/.environmental factors - Answer-factors pertaining to the natural world. use of and
interaction with renewable and non-renewable resources (e.g. water, minerals,
ecosystems, biodiversity)
/.social factors - Answer-factors that affect the lives of humans. the category includes
measurement of human capital, non-human animals, local communities and clients
/.governance factors - Answer-factors that involve issues tied to countries and/or
jurisdictions or are common practice in an industry, as well as the inherent interest of
broad stakeholder groups
,/.stakeholders - 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 - Answer-the generation of long-term sustainable returns is
dependent on stable, well functioning, and well-governed social, environmental, and
economic systems
/.corporate social responsibility - Answer-corporate sustainability is an approach to
create long-term stakeholder value through the implementation of a business strategy
that focuses on ethical, social, environmental, cultural and economic dimensions of
doing business
/.TBL accounting theory - Answer-expands the traditional accounting framework
focused only on profit to include two other performance areas: the social and
environmental impacts of a company
the three bottom lines are referred to as the three Ps
- people
- planet
- profit
effective management of a company's sustainability can:
- reaffirm the company's license to operate in the eyes of government and civil society
- increase efficiency
- attend to increasing regulatory requirements
- reduce of the probability of fines
- improve employee satisfaction and profitability
- drive innovation and introduce new product lines
/.responsible investment - Answer-an umbrella term for the various ways in which
investors can consider ESG within security selection and portfolio construction
- may combine financial with non-financial outcomes and complements traditional
financial analysis and portfolio construction techniques
- all forms of responsible investment, except for engagement, are ultimately related to
portfolio construction
consists of mitigating risky ESG practices in order to protect value. considers how ESG
might influence the risk-adjusted return of an asset and the stability of the economy, as
well as how investment in, and engagement with, assets and invests can impact society
and the environment
/.engagement - Answer-concerns whether and how an investor tries to encourage and
influence an issuer's behavior on ESG matters
reflects active ownership in which the investor seeks to influence a corporation's
decisions on matters of ESG, either through dialogue with corporate officers or votes at
a shareholder assembly (for equity)
,efficacy usually depends on:
- the scale of ownership (individual investor or collective initiative)
- the quality of engagement dialogue and methods used
- whether the company has been informed by the investor that divestment is a possible
sanction
/.traditional philanthropy - Answer-address societal challenges through the provision of
grants, social return only
/.venture philanthropy - Answer-address societal challenges with venture investment
approaches, social return focused
/.social investing - Answer-investment with a focus on social and/or environmental
outcome and some expected financial return; social return and sub-market financial
return
/.impact investment - Answer-investment with an intent to have a measurable
environmental and/or social return; social return and adequate financial market rate
/.esg investing - Answer-enhance long-term value by using esg factors to mitigate risks
and identify growth opportunities; financial market return focused on long-term value
/.fully commercial investment - Answer-limited or no regard for ESG practices; financial
market return only
/.socially responsible investment - Answer-refers to approaches that apply social and
environmental criteria in evaluating companies
investors implementing SRI generally score companies using a chosen set of criteria,
usually in conjunction with a sector specific weighting
- a hurdle is established for qualification within the investment universe, based either the
full universe or sector by sector
/.best in class investment - Answer-involves only selecting companies that overcome a
defined ranking hurdle, established using ESG criteria within each sector and industry
- companies are scored on a variety of factors that are weighted according to the sector
- the portfolio is assembled from a list of qualified companies
best in class investment is commonly used in investment strategies that try to maintain
certain characteristics of an index
- security selection seeks to maintain regional and sectoral diversification along with a
similar profile to the parent market cap index while targeting companies with higher
ESG ratings
/.sustainable investment - Answer-refers to the selection of assets that contribute in
some way to a sustainable economy
, - may include best in class or esg integration, which considers how ESG issues impact
a security's risk-return profile
/.thematic investment - Answer-refers to selecting companies that fall under a
sustainability related theme, such as clean tech, sustainable agriculture, healthcare or
climate change mitigation
- pick companies within various sectors that are relevant to the theme
not all thematic funds are considered to be responsible investments or best in class,
depends on the theme of the fund and the ESG characteristics of investee companies
/.green investment - Answer-refers to allocating capital to assets that mitigate:
- climate change
- biodiversity loss
- resource inefficiency
- other environmental challenges (e.g., recycling, low carbon power generation,
pollution, waste management, etc.)
- can be considered a sub category of thematic investing and/or impact investing
- green bonds are a type of fixed income instrument earmarked to raise money for
climate and environmental practices
/.social investment - Answer-allocating capital to assets that address social changes.
products that address the bottom of the pyramid
/.bottom of the pyramid - Answer-the poorest two thirds of the economic human
pyramid, a group of more than 4 bn people living in poverty
- market based model of economic development that seeks to alleviate poverty while
providing growth and profits for businesses serving these communities
examples include:
- micro finance and micro insurance
- access to telecommunication
- access to improved nutrition, healthcare
- access to clean energy
social impact bonds are a mechanism to contract with the public sector, the sector pays
for better social outcomes and passes on part of the savings to investors
/.impact investing - Answer-refers to investments made with the specific intent of
generating positive measurable, social and/or environmental impact alongside a
financial return
usually associated with direct investments, such as private debt, private equity and real
estate
can be made in both EM and DM markets. provide capital to address the world's most
pressing challenges by investing in companies and projects that may:
- offer access to basic services, such as housing, healthcare, education
- promote availability of low carbon energy
Answers
ESG investing - Answer-an approach to managing assets where investors explicitly
incorporate ESG factors into their investment decisions with the long-term return of an
investment portfolio in mind
aims to correctly identify, evaluate, and price social, environmental and economic risks
and opportunities
/.SDG goals - Answer-1 - no poverty
2 - zero hunger
3- good health and well being
4- education
5- gender equality
6 - clean water and sanitation
7 - affordable and clean energy
8- decent work and economic growth
9- industry, innovation and infrastructure
10-reduced inequalities
11- sustainable cities and communities
12-responsible consumption and production
13-climate action
14-life below water
15-life on land
16-peace, justice and strong institutions
17- partnerships for the goals
1-5: social
6-15: environmental
16-17: macro, governments
/.environmental factors - Answer-factors pertaining to the natural world. use of and
interaction with renewable and non-renewable resources (e.g. water, minerals,
ecosystems, biodiversity)
/.social factors - Answer-factors that affect the lives of humans. the category includes
measurement of human capital, non-human animals, local communities and clients
/.governance factors - Answer-factors that involve issues tied to countries and/or
jurisdictions or are common practice in an industry, as well as the inherent interest of
broad stakeholder groups
,/.stakeholders - 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 - Answer-the generation of long-term sustainable returns is
dependent on stable, well functioning, and well-governed social, environmental, and
economic systems
/.corporate social responsibility - Answer-corporate sustainability is an approach to
create long-term stakeholder value through the implementation of a business strategy
that focuses on ethical, social, environmental, cultural and economic dimensions of
doing business
/.TBL accounting theory - Answer-expands the traditional accounting framework
focused only on profit to include two other performance areas: the social and
environmental impacts of a company
the three bottom lines are referred to as the three Ps
- people
- planet
- profit
effective management of a company's sustainability can:
- reaffirm the company's license to operate in the eyes of government and civil society
- increase efficiency
- attend to increasing regulatory requirements
- reduce of the probability of fines
- improve employee satisfaction and profitability
- drive innovation and introduce new product lines
/.responsible investment - Answer-an umbrella term for the various ways in which
investors can consider ESG within security selection and portfolio construction
- may combine financial with non-financial outcomes and complements traditional
financial analysis and portfolio construction techniques
- all forms of responsible investment, except for engagement, are ultimately related to
portfolio construction
consists of mitigating risky ESG practices in order to protect value. considers how ESG
might influence the risk-adjusted return of an asset and the stability of the economy, as
well as how investment in, and engagement with, assets and invests can impact society
and the environment
/.engagement - Answer-concerns whether and how an investor tries to encourage and
influence an issuer's behavior on ESG matters
reflects active ownership in which the investor seeks to influence a corporation's
decisions on matters of ESG, either through dialogue with corporate officers or votes at
a shareholder assembly (for equity)
,efficacy usually depends on:
- the scale of ownership (individual investor or collective initiative)
- the quality of engagement dialogue and methods used
- whether the company has been informed by the investor that divestment is a possible
sanction
/.traditional philanthropy - Answer-address societal challenges through the provision of
grants, social return only
/.venture philanthropy - Answer-address societal challenges with venture investment
approaches, social return focused
/.social investing - Answer-investment with a focus on social and/or environmental
outcome and some expected financial return; social return and sub-market financial
return
/.impact investment - Answer-investment with an intent to have a measurable
environmental and/or social return; social return and adequate financial market rate
/.esg investing - Answer-enhance long-term value by using esg factors to mitigate risks
and identify growth opportunities; financial market return focused on long-term value
/.fully commercial investment - Answer-limited or no regard for ESG practices; financial
market return only
/.socially responsible investment - Answer-refers to approaches that apply social and
environmental criteria in evaluating companies
investors implementing SRI generally score companies using a chosen set of criteria,
usually in conjunction with a sector specific weighting
- a hurdle is established for qualification within the investment universe, based either the
full universe or sector by sector
/.best in class investment - Answer-involves only selecting companies that overcome a
defined ranking hurdle, established using ESG criteria within each sector and industry
- companies are scored on a variety of factors that are weighted according to the sector
- the portfolio is assembled from a list of qualified companies
best in class investment is commonly used in investment strategies that try to maintain
certain characteristics of an index
- security selection seeks to maintain regional and sectoral diversification along with a
similar profile to the parent market cap index while targeting companies with higher
ESG ratings
/.sustainable investment - Answer-refers to the selection of assets that contribute in
some way to a sustainable economy
, - may include best in class or esg integration, which considers how ESG issues impact
a security's risk-return profile
/.thematic investment - Answer-refers to selecting companies that fall under a
sustainability related theme, such as clean tech, sustainable agriculture, healthcare or
climate change mitigation
- pick companies within various sectors that are relevant to the theme
not all thematic funds are considered to be responsible investments or best in class,
depends on the theme of the fund and the ESG characteristics of investee companies
/.green investment - Answer-refers to allocating capital to assets that mitigate:
- climate change
- biodiversity loss
- resource inefficiency
- other environmental challenges (e.g., recycling, low carbon power generation,
pollution, waste management, etc.)
- can be considered a sub category of thematic investing and/or impact investing
- green bonds are a type of fixed income instrument earmarked to raise money for
climate and environmental practices
/.social investment - Answer-allocating capital to assets that address social changes.
products that address the bottom of the pyramid
/.bottom of the pyramid - Answer-the poorest two thirds of the economic human
pyramid, a group of more than 4 bn people living in poverty
- market based model of economic development that seeks to alleviate poverty while
providing growth and profits for businesses serving these communities
examples include:
- micro finance and micro insurance
- access to telecommunication
- access to improved nutrition, healthcare
- access to clean energy
social impact bonds are a mechanism to contract with the public sector, the sector pays
for better social outcomes and passes on part of the savings to investors
/.impact investing - Answer-refers to investments made with the specific intent of
generating positive measurable, social and/or environmental impact alongside a
financial return
usually associated with direct investments, such as private debt, private equity and real
estate
can be made in both EM and DM markets. provide capital to address the world's most
pressing challenges by investing in companies and projects that may:
- offer access to basic services, such as housing, healthcare, education
- promote availability of low carbon energy
