Asset owners can reflect ESG considerations through corporate engagement by:
Correct Answer: A
Asset owners can reflect ESG considerations through corporate engagement by discussing ESG issues with an investee company's board. This direct engagement allows asset owners to influence corporate behavior, encourage better ESG practices, and address specific ESG concerns that may impact long-term value creation. This approach is integral to active ownership and stewardship strategies.
Question 112
Which of the following statements about integrating corporate governance into the investment decision- making process is most accurate?
Correct Answer: B
Corporate governance analysisserves as arisk assessment tool, helping investors gauge a company'slong-term stability and earnings reliability. Companies withstrong governance (e.g., transparent reporting, independent oversight, ethical management)tend to havemore predictable earningsand lower financial risk. Poor governance, by contrast,increases earnings volatilityand raises concerns aboutfraud or mismanagement, making future earningsless predictableandriskier. References: * CFA Institute Guide to Corporate Governance Integration * MSCI Corporate Governance Risk Ratings * OECD Principles of Corporate Governance ========
Question 113
A company's exposure to social trends and factors:
Correct Answer: C
A company's exposure to social trends and factors depends largely on its culture, systems, operations, and governance. While certain trends may affect entire sectors or countries, the way a company is structured and governed will determine how it responds to and is impacted by these trends.ESG Reference: Chapter 4, Page 206 - Social Factors in the ESG textbook.
Question 114
Human rights violations are most likely to affect workers employed
Correct Answer: C
Human rights violations are most likely to occur deep within the supply chain of publicly traded companies. Here's why: First-tier Suppliers: First-tier suppliers are those that directly supply products or services to a company. These suppliers are often under greater scrutiny from the company and external stakeholders, including auditors and regulatory bodies. Publicly traded companies typically enforce stricter compliance and monitoring mechanisms at this level. Second-tier Suppliers: Second-tier suppliers supply products or services to the first-tier suppliers. While there is still some level of oversight, the scrutiny diminishes as the layers in the supply chain increase. Human rights violations can occur here, but they are less frequent compared to deeper levels in the supply chain. Deep within the Supply Chain: Suppliers deeper within the supply chain, such as third-tier and beyond, are the least visible and have the least amount of oversight. These suppliers often operate in regions with weaker regulatory frameworks and less stringent enforcement of labor laws. Consequently, they are more prone to human rights violations, including poor working conditions, forced labor, and child labor. Companies may not have direct business relationships with these deeper-tier suppliers, making it challenging to enforce ethical practices and human rights standards. CFA ESG Investing Reference: The CFA Institute's ESG curriculum highlights the importance of supply chain transparency and the risks associated with human rights violations at different levels of the supply chain. The curriculum emphasizes that deeper tiers within the supply chain are often where the most significant human rights risks are found, and it encourages investors to assess and address these risks in their ESG evaluations.
Question 115
In the revised 2020 version of the UK Stewardship Code, a significant change is that signatories are now required to:
Correct Answer: C
The 2020 revision of the UK Stewardship Code requires signatories to annually report on how their stewardship activities have produced tangible outcomes that benefit their clients. (ESGTextBook[PallasCatFin], Chapter 6, Page 280)