ESG TEST || ALL SOLUTIONS ARE ACCURATE.
A majority of the research papers on the topic find that companies with long standing good
practice in terms of sustainability tend to correct answers Outperform their peers in both
accounting performance and stock markets returns.
Justin runs an equity fund for a large insurance company which has signed on to the UN Global
Compact Principles and the Principles for Responsible Investment. His investment strategy will
need to
iii. incorporate ESG issues into the investment process correct answers iii
???.Under the fiduciary duty of pension funds in the USA, the Employment Retirement Income
Security Act (ERISA) expects that pensionfunds: correct answers Engage with companies and
vote at general meetings
????An ESG portfolio in government bonds could drive allocation towards correct answers Low
yielding, low volatility bonds.
????Which of the following types of fund managers are most likely to provide active stewardship
for investors correct answers Fundamental active equity fund managers
Which form of portfolio has the most active stewardship by an investment firm correct answers
Fundamental equity
Which UK body is responsible for issuing the Stewardship Code? correct answers The Financial
Reporting Council (FRC)
Adjusting the Discounted Cash Flow when integrating ESG into traditional financial analysis is:
correct answers valid at the level of company, sector or country
,A Sovereign Wealth Fund selecting an investment manager with an ESG strategy is likely to
focus more on the manager's approach to: correct answers ESG engagement and stewardship.
Which of these least reflects how qualitative ESG data is used in company analysis? correct
answers By determining the Value at Risk for the company.
Which action would be undertaken first by an investor wanting to follow an engagement strategy
with a company in a cost-effective way? correct answers Defining the scope of engagement and
prioritising engagement activities.
Which of the following ESG factor adjustments should increase an analyst's valuation of a
company relative to its peers? correct answers Higher staff satisfaction
A private wealth manager uses a data provider to screen out companies involved with tobacco
and finds that the process eliminates nearly all consumer companies. As consumer companies are
a large percentage of the benchmark index, the manager would prefer not to eliminate the whole
sector. What method would be the most precise to reduce the number of companies which are
screened out? correct answers Percentage of company revenue related to tobacco as agreed with
the client.
What is an indirect environmental impact of a paper company cutting trees and transporting them
to its production plant? correct answers A natural regulator of carbon dioxide is destroyed.
Which approach is most likely to result in an analyst aggregating data into an ESG score? correct
answers Quantitative modelling.
What impact will a high ESG rating have on a company's cost of capital? correct answers A
lower cost of capital.
Which of the following sectors have the greatest risk of increased insurance costs due to physical
climate change? correct answers Travel and leisure.
, ABC Investment Management owns a 2% stake in a large telecom company, which is in the
media, about a surge of employee suicides attributed to pressures in the workplace. Mary, a
senior analyst at ABC Investment Management, would like to engage with the company on the
issue and sees that a quarterly earnings conference call is coming up. What should Mary do
before the quarterly conference call? correct answers Establish clear objectives.
Which of the following statements is generally accepted as not true for companies which score
well on ESG metrics relative to companies scoring less well? correct answers They are more
likely to grow rapidly and offer higher short term returns.
Which of the following statements is generally accepted as true for companies which score well
on ESG metrics relative to companies scoring less well? correct answers A. They are better able
to anticipate environmental change risks and opportunities. B. They enjoy valuation premiums
due to changing investor concerns and preferences. C. They are more disposed to longer term
strategic thinking and planning.
What is the result of an analyst failing to correctly model the risks and opportunities associated
with ESG? correct answers Systematic underestimation of high ESG performers and
overestimation of ESG under performers.
Patrick is discussing CBT's financial model with his financial analyst. He asks the analyst to
consider how the model may take into account the KPIs for the CEO's variable remuneration
which are not disclosed. He is presented with 4 options. Which one is he most likely to select to
implement? correct answers increase the cost of capital from 4.6% to 4.8% to reflect the
increased risk stemmed from uncertainty around alignment of interest.
Patrick believes that the Chair cannot be considered as an independent member of the board. He
schedules an engagement meeting with the Chair to discuss the matter. What could be the most
favourable outcome from a governance perspective? correct answers The Chair steps down from
the Chair role, and a newly elected independent director is appointed Chair.
Which argument can Patrick use to best highlight the importance of appropriate governance to
enterprises? correct answers A meta study by Friede, Busch and Bassen has shown that the
A majority of the research papers on the topic find that companies with long standing good
practice in terms of sustainability tend to correct answers Outperform their peers in both
accounting performance and stock markets returns.
Justin runs an equity fund for a large insurance company which has signed on to the UN Global
Compact Principles and the Principles for Responsible Investment. His investment strategy will
need to
iii. incorporate ESG issues into the investment process correct answers iii
???.Under the fiduciary duty of pension funds in the USA, the Employment Retirement Income
Security Act (ERISA) expects that pensionfunds: correct answers Engage with companies and
vote at general meetings
????An ESG portfolio in government bonds could drive allocation towards correct answers Low
yielding, low volatility bonds.
????Which of the following types of fund managers are most likely to provide active stewardship
for investors correct answers Fundamental active equity fund managers
Which form of portfolio has the most active stewardship by an investment firm correct answers
Fundamental equity
Which UK body is responsible for issuing the Stewardship Code? correct answers The Financial
Reporting Council (FRC)
Adjusting the Discounted Cash Flow when integrating ESG into traditional financial analysis is:
correct answers valid at the level of company, sector or country
,A Sovereign Wealth Fund selecting an investment manager with an ESG strategy is likely to
focus more on the manager's approach to: correct answers ESG engagement and stewardship.
Which of these least reflects how qualitative ESG data is used in company analysis? correct
answers By determining the Value at Risk for the company.
Which action would be undertaken first by an investor wanting to follow an engagement strategy
with a company in a cost-effective way? correct answers Defining the scope of engagement and
prioritising engagement activities.
Which of the following ESG factor adjustments should increase an analyst's valuation of a
company relative to its peers? correct answers Higher staff satisfaction
A private wealth manager uses a data provider to screen out companies involved with tobacco
and finds that the process eliminates nearly all consumer companies. As consumer companies are
a large percentage of the benchmark index, the manager would prefer not to eliminate the whole
sector. What method would be the most precise to reduce the number of companies which are
screened out? correct answers Percentage of company revenue related to tobacco as agreed with
the client.
What is an indirect environmental impact of a paper company cutting trees and transporting them
to its production plant? correct answers A natural regulator of carbon dioxide is destroyed.
Which approach is most likely to result in an analyst aggregating data into an ESG score? correct
answers Quantitative modelling.
What impact will a high ESG rating have on a company's cost of capital? correct answers A
lower cost of capital.
Which of the following sectors have the greatest risk of increased insurance costs due to physical
climate change? correct answers Travel and leisure.
, ABC Investment Management owns a 2% stake in a large telecom company, which is in the
media, about a surge of employee suicides attributed to pressures in the workplace. Mary, a
senior analyst at ABC Investment Management, would like to engage with the company on the
issue and sees that a quarterly earnings conference call is coming up. What should Mary do
before the quarterly conference call? correct answers Establish clear objectives.
Which of the following statements is generally accepted as not true for companies which score
well on ESG metrics relative to companies scoring less well? correct answers They are more
likely to grow rapidly and offer higher short term returns.
Which of the following statements is generally accepted as true for companies which score well
on ESG metrics relative to companies scoring less well? correct answers A. They are better able
to anticipate environmental change risks and opportunities. B. They enjoy valuation premiums
due to changing investor concerns and preferences. C. They are more disposed to longer term
strategic thinking and planning.
What is the result of an analyst failing to correctly model the risks and opportunities associated
with ESG? correct answers Systematic underestimation of high ESG performers and
overestimation of ESG under performers.
Patrick is discussing CBT's financial model with his financial analyst. He asks the analyst to
consider how the model may take into account the KPIs for the CEO's variable remuneration
which are not disclosed. He is presented with 4 options. Which one is he most likely to select to
implement? correct answers increase the cost of capital from 4.6% to 4.8% to reflect the
increased risk stemmed from uncertainty around alignment of interest.
Patrick believes that the Chair cannot be considered as an independent member of the board. He
schedules an engagement meeting with the Chair to discuss the matter. What could be the most
favourable outcome from a governance perspective? correct answers The Chair steps down from
the Chair role, and a newly elected independent director is appointed Chair.
Which argument can Patrick use to best highlight the importance of appropriate governance to
enterprises? correct answers A meta study by Friede, Busch and Bassen has shown that the
