Presidential Address: Sustainable Finance and ESG Issues—Value versus Values Flashcards
What is the main distinction between “value” and “values” in the context of ESG investing?
a) “Value” focuses on maximizing ethical returns, while “values” centers on personal financial profits.
b) “Value” refers to financial returns, while “values” pertains to personal, ethical, or societal motivations.
c) “Value” and “values” are interchangeable concepts in sustainable finance.
d) “Value” emphasizes short-term performance, while “values” targets long-term financial gains.
B
What is the primary strategy used by socially responsible investors (SRI)?
Negative screening, excluding objectionable industries
How do impact investors differ from socially responsible investors (SRI)?
a) Impact investors prioritize measurable social and environmental outcomes alongside financial returns, while SRI investors focus on financial returns alone.
b) Impact investors focus on positive screening, while SRI investors rely on negative screening to exclude objectionable industries.
c) Impact investors aim for financial returns only, while SRI investors emphasize ethical considerations.
d) Impact investors prioritize short-term gains, while SRI investors target long-term impact.
Impact investors focus on positive screening, while SRI investors rely on negative screening to exclude objectionable industries.
According to Starks (2023), why do ESG practices differ significantly across countries?
a) Variations in legal origin and cultural norms strongly influence ESG adoption and performance.
b) ESG practices are primarily shaped by global regulations rather than domestic factors.
c) Countries with lower GDP per capita tend to outperform high-GDP countries in ESG metrics.
d) Differences in asset pricing models across countries dictate ESG priorities.
A
How does negative screening potentially impact portfolio performance?
a) Negative screening enhances portfolio performance by eliminating underperforming firms.
b) Negative screening reduces investment opportunities, potentially leading to constrained portfolio optimization.
c) Negative screening has no measurable impact on portfolio performance.
d) Negative screening guarantees outperformance of ESG portfolios over conventional portfolios.
B
How do “values” investors typically respond to companies contributing to social harm or climate change?
They divest from such companies, increasing their cost of capital.
Why might anti-ESG views hinder risk assessment for value-oriented investors?
a) Anti-ESG advocates prevent the adoption of negative screening strategies.
b) Anti-ESG views block the use of ESG data to assess financial risks, limiting fiduciaries’ ability to fulfill their duties.
c) Anti-ESG proponents require investors to prioritize personal ethics over financial performance.
d) Anti-ESG positions force investors to invest in low-performing ESG firms.
B
Why is there no clear consensus on the meaning of ESG, SRI, and CSR?
The lack of clarity arises from differences in whether motivation comes from value (financial returns) or values (ethical considerations).
How do cultural norms influence the ESG fund industry of a country?
a) Countries with strong cultural norms always prioritize financial returns over ESG metrics.
b) Cultural norms determine the size and types of ESG investments preferred in a country.
c) Cultural norms have no measurable impact on ESG fund growth or preferences.
d) Cultural norms encourage divestment from ESG funds in favor of conventional funds.
B
What are the implications of divestment for companies with poor ESG practices?
a) Divestment has no material impact on a company’s cost of capital.
b) Divestment increases the company’s cost of capital by reducing demand for its securities.
c) Divestment decreases regulatory scrutiny, allowing companies to maintain poor ESG practices.
d) Divestment guarantees improved ESG performance for the divested company.
B
Strongest predictor of firm’s CSR adoption?
country’s legal origin
Which of the following best represents the primary categories of motivation for ESG investing according to Starks (2023)?
A) Seeking financial returns and managing investment risks effectively.
B) Addressing ethical concerns and aiming to have a positive social impact.
C) Ensuring legal compliance and managing the reputation of the investment firm.
D) Focusing on environmental protection and promoting sustainability.
E) All of the above.
E
How does Starks (2023) describe the influence of cultural norms and country-specific characteristics on ESG investment preferences?
A) Cultural norms and country characteristics are deemed insignificant in shaping ESG investment preferences.
B) These factors are considered to primarily influence the investment decisions of value investors.
C) The influence of cultural norms and country characteristics is regarded as less impactful than the characteristics of individual firms.
D) Cultural norms and country-specific traits are seen as crucial in determining the size and nature of a country’s ESG fund industry and the types of ESG investments preferred.
E) It is argued that these factors solely influence governmental policies and regulations related to ESG, not the investment preferences of individuals or institutions.
D
What does Starks (2023) suggest regarding the relationship between different ESG investment strategies and expected financial returns?
The paper indicates that there is a range of expectations; some investors are willing to accept lower returns for ESG investments, while others anticipate returns comparable to traditional market investments.
How do Socially Responsible Investors (SRI) make investment decisions?
By avoiding companies that conflict with their ethical or societal principles.
