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CFA ESG > Exam Questions > Flashcards

Exam Questions Flashcards

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CFA flashcards
1
Q

A majority of the research papers on the topic find that companies with long standing good practice in terms of sustainability tend to…?

A

Outperform in accounting and market returns.

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2
Q

Are human rights principles reflected as part of the UN Global Compact or PRI? What is the UN GC?

A

NO!
Non-binding pact to encourage businesses and firms worldwide to adopt sustainable and socially responsible policies

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3
Q

Which UK body is responsible for issuing the Stewardship Code

A

FRC - Financial Reporting Council

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4
Q

Can qualitative ESG Data be used for the VaR of a company?

A

Value at risk (VaR) is a statistic that quantifies the extent of possible financial losses within a firm, portfolio, or position over a specific time frame so no it is not.

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5
Q

Which two sectors have the greatest risk of increased insurance costs due to physical climate change?

A

Travel & Leisure

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6
Q

What is the result of an analyst failing to correctly model the risks and opportunities
associated with ESG?

A

Systematic underestimation of high ESG performers and overestimation of ESG under performers.

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7
Q

Which argument can be used to best highlight the importance of appropriate
governance to enterprises?

A

A meta study by Friede, Busch and Bassen has shown that the majority of studies showed a positive correlation between governance and corporate financial performance.

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8
Q
  1. Exclusionary screening is historically most common in which region?
A

Europe!

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9
Q

The Bangladesh Investor Initiative is intended to address which social factor?

A

Health and Safety stemming from Rana Plaza Disaster

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10
Q

Which form of risk will not be lowered by the integration of ESG into a firm’s investment process?

A

Market Risk

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11
Q

What should be included in the process for directors to be made accountable to
shareholders?

A

Review of the accounts by the Board at the Annual General Meeting (AGM)

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12
Q

Scores from an ESG factor scorecard will always be more qualitative or quantitative?

A

Quantitative

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13
Q

Given that an analyst is able to judge the materiality of an ESG factor, will they be able to determine financial performance impact?

A

Not for certain

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14
Q

What are COP meetings, who hosts them and what ar the two biggest ones?

A

The UNFCCC hosts annual Conferences of the Parties (COP) meetings, which seek to advance members states voluntary agreements on limiting climate change.
1) Kyoto Protocol in 1997, members committed to reducing GHG emissions
2) 2015 Paris agreeement which lead to a commitment by industrialized and developing economies to keep global warming below 2 degrees C above industrialized levels

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15
Q

Name 3 requirments to be PRI member?

A

1)Investment policy focused on responsible investment approach covering >50% of assets
2) Internal or external staff for responsible investment integration
3) Senior level commitment for RI implementation

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16
Q

When was Kyoto Protocol signed and what does it mandate?

A

Signed in Kyoto Japan in 1997 during COP3 meeting and commits industrialized nations to reduce GHG emmissions

17
Q

Did the UNEP FI Freshfields report call to integrate ESG into capital markets?

A

NO- but it did show that ESG issues are relative to financial valuation and fiduciary duty. Also lead to the creation of the PRI

18
Q

Who created the EU Taxonomy?

A

EU Technical Expert Group

19
Q

EU Shareholder Rights Directive came into effect when and mandates what and reports how often?

A

2019 and mandates that investors have an engagement policy and report annually

20
Q

Within MSCI ACWI, which sectors generate the most carbon emissions?

A

Utilities 1st, then Materials, then Energy

21
Q

How do sustainability linked loans work under the SLLP? Are they required to have a clear sustainability purpose?

A

Borrower is incentivized to drive ESG or SGD improvement through a margin ratchet linked to KPI’s.. No they do not

22
Q

5 Global risks identified by WEF?

A
  1. Extreme weather events
  2. Failure of climate-change mitigation and adaptation by government and business.
  3. Major biodiversity loss and ecosystem collapse
  4. Major natural disasters .
  5. Human-made environmental damage and disasters, including environmental crime, such as oil spills and radioactive contamination.
23
Q

What is the Kigali Agreeement of 2016?

A

Global agreement to phase out the manufacturing of ozone depleting hydroflurocarbon substances

24
Q

What are the OECD Guidelines for MultiNational Enterprises?

A

Comprehensive set of government backed recommendations on responsible business conduct

25
Q

Which type of committee is NOT required by the UK Corp Governance Code?

A

Risk Committee

26
Q

What did the Brydon review introduce?

A

Enhanced auditor reports: Assess,Assure and Inform

27
Q

What country is historically accepting of cross-shareholding even though this is discouraged by Corp Gov codes??

A

Japan

28
Q

After how many years must a Euro company tender for an auditor?

A

10 years with a mandatory rotation every 20 years

29
Q

If you are an asset manager complying with the UK Stewardship code 2020 what are you required to do?

A

Report on the outcomes of your stewardship activities

30
Q

What is not always declared in Stewardship codes? What usually is?

A

Conflicts of Interest is not.
Stewardship Policy, activities and intellgent voting.

31
Q

What are the major differences between engagement on G vs engagement on E&S?

A

Governance engagement varies by country and is top down (starting with chair of the board). E&S engagement varies by sector and starts with IR or bottom-up

32
Q

What does the UK Governance code require of their board members and encourage for committees?

A

Mandated that a majority to be independent,
number of women is not. Risk committee is recommended but not required.

33
Q

What are some potential financial risks to high carbon emissions?

A

Increased risk of carbon taxes, change in debt rating, and reputational risk`

34
Q

What constitutes a high conviction strategy for a fund manager?

A

Characterized by fundamental analysis and active engagement. Classic example is an equity fund

35
Q

Which asset class/manager has the lowest ESG intergration?

A

Hedge Funds!

36
Q

Typical timeframe within which typical objectives of engagement can be expected to met?

A

3 years

CFA ESG (11 decks)

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