CFA textbook qs Flashcards
Which of following best describes net zero targets?
Absorbing GHG emissions from the atmosphere equivalent to annual emissions to achieve a zero net
balance each year
To limit global warming to 1.5°C, the real economy needs to reach net zero by:
2050.
Under the current trajectory, what is the estimated impact of rising temperatures on gross domestic
product (GDP) by 2050?
Global GDP could reduce by more than 10%
Incentivising the use of electric bikes to commute is best described as:
a mitigation action only.
Which of the following is a reason for using scenario analysis to study climate change?
Climate change interacts with many other issues and it is difficult to isolate cause and effect.
(II) Historical data is insufficient as humans have not experienced such carbon dioxide (CO2)
concentrations in the atmosphere before
Which of the following is most likely the primary driver for climate-aware investing for a defined
benefit fund?
Long-term investment horizon of the fund.
Which of the following is most likely the primary driver for climate-aware investing for retail
investors?
Personal values and beliefs.
When did the Earth last have a carbon dioxide (CO2) concentration as high as now?
4 million years ago.
The report, Indicators of Global Climate Change 2022, estimated that for a 67% chance of avoiding
global warming beyond 1.5°C, the world has a remaining carbon budget of
150bn tCO2.
Which of the following is a non-renewable source of natural capital?
Minerals. (not biodiversity, water or air)
Which of these descriptions of nationally determined contributions (NDCs) is most accurate?
Non-binding, self-determined plans set by countries to reduce GHG emissions.
A country has just imposed a carbon tax but does not plan to issue free allowances to high-emitting
industries. The introduction of which of the following measures would be most likely to reduce the
risk of carbon leakage?
A global carbon price floor
What is the primary purpose or focus of the Dasgupta Review, commissioned by the UK government
in 2020 as a part of the Net Zero Strategy?
Evaluating the economic impact of biodiversity conservation.
In the European Union, economic activities are classified as environmentally sustainable by the:
Non-Financial Reporting Directive (NFRD)
What are the principles outlined in the Paris Agreement for cooperation involving Internationally
Transferred Mitigation Outcomes (ITMO)?
Environmental integrity, transparency and robust accounting.
How does the CDP expect organisations to report their GHG emissions?
The CDP asks for Scope 1, 2 and 3 GHG reporting on a voluntary basis
The CSRD increases the scope of mandatory disclosures to include:
large listed & UNLISTED companies with more than 250 employees.
Which of the following best describes the Sustainable Stock Exchange Initiative (SSE)?
A UN initiative encouraging stock exchanges and securities regulators to make a voluntary public
commitment to promote improved environmental, social and governance (ESG) disclosure among
listed companies
According to the Partnership for Carbon Accounting Financials, the purpose of the physical emissions
intensity metric is to understand the:
efficiency of a portfolio in terms of total GHG emissions per unit of a common output.
Which of the following is most accurate regarding blue hydrogen?
It is produced using carbon capture technologies
An assessment of materiality in the context of adaptation and resilience investment can include the
quantification of all the following, except:
reduction in the vulnerable asset’s level and scope of insurance cover
Which type of physical climate change risk is most suitable for risk transfer using insurance products
and why is it most suitable?
)Acute risk because of the long-tail nature of risk.
Which of the following is not a challenge with using bioenergy with carbon capture and storage
(BECCS) as a mitigation strategy?
Waste management and recycling
- Which of the following adaptation solutions can be used to reduce saltwater intrusion in domestic,
commercial and industrial water?
Geosynthetics
What is the sensitivity of assets to physical climate risk and their ability to cope with it defined as?
Vulnerability
A helicopter manufacturing company reports their GHG emissions using the GHG Protocol. If the
helicopters are fully manufactured at a factory owned by the company, which of the following GHG
emissions should be reported as Scope 2 emissions?
GHG emissions arising from the generation of supplied electricity.
What are the two main organisational boundary approaches for emissions accounting under the
GHG Protocol?
Equity share and control
For a company setting a science-based target based on the Science Based Target initiative (SBTi)
standards, which of the following is correct?
At least one target year must fall between 5 and 10 years from the target-setting date
Which Shared Socioeconomic Pathway (SSP), as used by climate change models, has a narrative
describing a world of increased nationalism, where regional security is prioritised over
environmental concerns, population growth is low in developed countries but high in developing
countries and consumption is material intensive?
SSP3.
What does Portfolio Warming Potential (PWP) methodology primarily focus on?
Calculating emissions impact on global warming directly, based on climate sensitivity
What is used to represent risk in carbon value at risk (VaR)?
Carbon tax
Which of these statements accurately describes the Network for Greening the Financial System
(NGFS) ‘disorderly’ climate scenario for central banks and supervisors?
Climate policies are not introduced until 2030 and transition risk is higher than for an orderly transition
Which of the following stewardship codes or principles specifically mentions climate change
considerations?
UK Stewardship Code
Disclosures by asset managers and asset owners about their voting records are weakest in which areas?
Voting outcomes and voting rationales
Which initiative partnered with CA100+ to create the Net Zero Company Benchmark?
Transition Pathway Initiative (TPI).
Which of the following is not an example of a way that a company can directly influence climate
policy?
Encouraging investee companies to align business strategies to climate goals
Which of the following is an advantage of using absolute contraction of emissions as a method for
assessing corporate alignment to the Paris Agreement goal of keeping global warming well below 2°C?
It provides a clear reference to assessing corporate alignment and target applicability
Which of the following correctly reflects one of the five Climate Bonds Initiative’s transition principles?
Technological viability taken into account but not economic competitiveness
All of the following have exhibited a strong correlation in relation to equity valuations, except for:
climate temperature scenario alignment and returns
Which of the following is not an indicator used in the Climate Action 100+ (CA100+) Net Zero
Company Benchmark framework for assessing corporate climate policies and actions?
renewable energy investment
Which of the following sectors accounted for the greatest use of GREEN BOND PROCEEDS in 2022?
Energy.
Which of the following typically describes the seniority of labelled bonds relative to conventional
bonds?
EQUAL
What is a structural weakness in sustainability-linked bonds?
Investors stand to gain when a company misses on key performance indicator (KPI) targets.
Which of these is not a key component of a Green Bond Framework following the International
Capital Market Association’s (ICMA) Green Bond Principles (GBP) recommendations?
Verification against technical criteria and indicators
If a transmission utility is exposed to wildfires across their network, which of the following would not
be expected in the fixed income valuation?
Upward pressure on credit ratings
An instrument pays out if there is insufficient wind to generate power, which ensures the wind farm
can fund its debt service. The instrument is most likely:
a weather derivative.
Which of the following describes a cat bond trigger type that uses actual reported physical event
parameters (e.g. wind speed) to determine loss?
parametric
Which of the following is an industry-level value driver specific to private equity that an investor
should consider when assessing climate change risk impacts?
Growth in investment market, enabling attractive exits.
Which of the following does the Principles for Responsible Investment (PRI) recommend when
implementing climate change risk management in a private equity/venture capital investment
process?
Scenario analysis should be undertaken in the post-acquisition phase.
What is the primary purpose of sustainability-linked derivatives (SLDs)?
Achieving pre-agreed sustainability key performance indicators (KPIs).
Which of the following is not one of the four core transparency recommendations of the Green Loan Principles?
Annual information on the use of proceeds should be disclosed publicly
During a client meeting, a climate risk analyst is asked to share an example of integration of climate
change risk in private equity. Which of the following examples should they share?
A GP decided not to invest in a company supplying agriculture inputs because of unusually long
droughts in its region.
With respect to climate risk analysis, investors in private debt, compared to investors in public debt,
generally need to do:
MORE due diligence and typically have more time to decide on the investment.
A key difference between an emissions trading scheme and a carbon tax is that a carbon tax:
is easier to implement across the economy.
Which of the following is not a major source of demand for carbon offsets?
Net-zero investment frameworks.
With respect to carbon offset projects, concerns regarding subjectivity in quantification are most
relevant to projects pertaining to:
renewable energy that avoids fossil fuel-powered energy generation
Which of the following is an example of a derivative with a climate change mitigation feature?
A retailer buys a coffee future, which commits the provider to reinvest the premium in a reforestation
project
Which of the following best describes the Carbon Risk Real Estate Monitor (CRREM) methodology?
CRREM is a dynamic tool for estimating the COST of stranding
Which of the following is correct regarding green infrastructure?
Green infrastructure includes hybrid adaptation solutions.
For a building with poor climate credentials, which of the following is least likely to be impacted by
increasing climate-related regulation?
Physical risk.
Which of the following statements explains infrastructure investment categories appropriately in
terms of climate risk?
US municipal bonds can finance brownfield infrastructure investments
. Which of these statements is not characteristic of private equity infrastructure investments?
Financial investors can easily seek repayment of debts due to longer economic lives of assets
Asset stranding occurs from the point when an asset’s greenhouse gas (GHG) emissions intensity:
surpasses the CRREM pathway level
Which of the following is not a challenge when designing investment products that have a positive
real world climate-change impact?
Aligning the investment product to climate change mitigation.
Which of the following is best described as “investing in companies expected to benefit from
decarbonisation”?
Thematic investing.
Which of the following statements is correct regarding the EU Paris-aligned Benchmark (EU PAB) and
EU Climate Transition Benchmark (EU CTB)?
Year-on-year self-decarbonisation of the benchmark should be at least 7% on average for both
Large-scale decarbonisation and an ambitious schedule will likely lead to a tracking error that is:
higher
Which of the following factors might be used in the best-in-class investment strategy for climate
management?
Proportion of research and development spent on climate transition.
