Both the EU Paris-Aligned Benchmarks and the EU Climate Transition Benchmarks allow for limited investment in fossil fuels. However, these benchmarks include strict criteria to ensure that such investments contribute to the transition to a low-carbon economy and are aligned with long-term decarbonization goals. ESG Reference: Chapter 8, Page 406 - ESG Integrated Portfolio Construction & Management in the ESG textbook. Scope 3 carbon emissions, which include indirect emissions throughout the value chain (e.g., suppliers and consumers), are accounted for under both the UK Task Force on Climate-related Financial Disclosures (TCFD) and the European Union's Sustainable Finance Disclosure Regulation (SFDR). These frameworks encourage comprehensive reporting of all emissions sources.ESG Reference: Chapter 3, Page 133 - Environmental Factors in the ESG textbook. Reporting in the ESG textbook.
Question 57
When searching for an asset manager with an ESG approach, in the request for proposal (RFP) an institutional asset owner would most appropriately ask:
Correct Answer: C
When searching for an asset manager with an ESG approach, it is essential for an institutional asset owner to understand whether the asset manager's strategy aligns with their sustainability objectives. The most appropriate question to ask in the RFP is whether the asset manager aims for positive,measurable ESG outcomes beyond financial returns. This question assesses the commitment to achieving concrete ESG results, which is a critical factor in evaluating the manager's integration of ESG factors into their investment process. Detailed questions about portfolio holdings or which broad market index the manager tracks are less relevant to assessing the ESG integration.
Question 58
Scorecards for ESG analysis are most likely:
Correct Answer: B
ESG Analysis Scorecards: Scorecards for ESG analysis are tools used by investors to evaluate and compare the ESG performance of companies, particularly when third-party research or scores are not available. 1. Applicability: Scorecards can be used for both public and private companies. They provide a structured framework for assessing ESG factors and can be tailored to the specific context and data availability of the companies being evaluated. Thus, they are not limited to public companies alone. 2. Purpose and Use: Scorecards are particularly useful when third-party ESG research or scores are unavailable. They enable investors to conduct their own ESG assessments based on the criteria and metrics they deem important. This is often the case for smaller companies, private companies, or in markets where ESG data coverage is limited. 3. Country-Level Assessments: Scorecards can also be adapted for country-level assessments of sovereign bonds, although this is less common. They can include criteria relevant to the ESG performance of countries, such as governance quality, environmental policies, and social indicators. Reference from CFA ESG Investing: ESG Scorecards: The CFA Institute highlights the use of ESG scorecards as a practical tool for investors to conduct their own assessments when external ESG ratings or research are not available. This enables a more tailored and flexible approach to ESG integration. Applicability and Flexibility: The CFA curriculum discusses the versatility of scorecards in evaluating both corporate and sovereign issuers, underscoring their utility in various contexts. In conclusion, scorecards for ESG analysis are most likely used when third-party research or scores are not available, making option B the verified answer.
Question 59
Which of the following statements regarding the impact of social issues on potential investment opportunities is most accurate?
Correct Answer: A
Social issues impact different sectors uniquely, affecting investment risks and opportunities. Why A is correct: Examples of sector-specific social risks: Retail & Apparel # Supply chain labor conditions, human rights. Tech Industry # Data privacy, employee diversity. Healthcare # Access to medicine, ethical drug pricing. Why not B? B is incorrect because not all companies in a sector face the same social risks-for example, some may have stronger supply chain policies than others. Why not C? C is incorrect because social materiality often starts at an industry level first, then narrows down to the company level. References: SASB (Sustainability Accounting Standards Board) Materiality Framework World Economic Forum: Social Risks in Sustainable Investing (2022)
Question 60
According to the Stockholm Resilience Centre, which of the following planetary boundaries have already been crossed as a result of human activity?
Correct Answer: C
According to the Stockholm Resilience Centre, both climate change and loss of biosphere integrity are planetary boundaries that have already been crossed as a result of human activity. * Planetary Boundaries Framework: The Stockholm Resilience Centre's planetary boundaries framework identifies critical thresholds in Earth system processes that should not be crossed to avoid catastrophic environmental changes. * Crossed Boundaries: Both climate change and loss of biosphere integrity (biodiversity loss) are identified as boundaries that have already been transgressed due to human activities, leading to significant environmental and ecological disruptions. CFA ESG Investing References: The CFA Institute's discussions on environmental risks highlight the importance of understanding planetary boundaries in assessing long-term sustainability risks and integrating these considerations into investment decisions.