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Reliable CFA Institute Sustainable-Investing Study Guide & Reliable Sustainable-Investing Test Pattern

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Quiz Sustainable-Investing - Sustainable Investing Certificate(CFA-SIC) Exam Accurate Reliable Study Guide

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CFA Institute Sustainable-Investing Exam Syllabus Topics:

Topic
Details

Topic 1

Engagement and Stewardship: Designed for Asset Managers and Stewardship Professionals, this domain covers investor engagement strategies and stewardship principles. It highlights the purpose, importance, key principles, and practical application of engagement tactics within responsible investing frameworks.

Topic 2

The ESG Market: This domain targets Financial Analysts and Institutional Investors, examining the size, scope, relevance, and key drivers of the ESG market. It also discusses risks and opportunities within the ESG investment landscape, helping candidates understand market dynamics and trends.

Topic 3

ESG Analysis, Valuation, and Integration: This domain measures the capabilities of Portfolio Managers and Equity Analysts to integrate ESG factors into investment decision-making. It addresses challenges of integration, the impact on industry and company performance, security valuation, and approaches to ESG data analysis across asset classes.

Topic 4

Social Factors:Focused on Social Analysts and Corporate Social Responsibility (CSR) Professionals, this domain reviews social factors impacting investments. It includes systemic relationships and material impacts related to labor practices, diversity, equity, inclusion, and social opportunities at multiple levels.

Topic 5

Integrated Portfolio Construction and Management: Targeting Portfolio Managers and Investment Strategists, this section discusses ESG integration into portfolio construction. It covers ESG screening approaches, benchmarking, the effect on risk-return profiles, and managing ESG portfolios across various asset classes.

Topic 6

Governance: This section assesses skills of Governance Analysts and Compliance Officers concerning governance structures. It covers key characteristics and models of governance, material impacts, diversity, equity, and inclusion considerations, and shareholder rights.

CFA Institute Sustainable Investing Certificate(CFA-SIC) Exam Sample Questions (Q51-Q56):

NEW QUESTION # 51
Using surface water in a business activity is best characterized as a:

A. direct impact on biodiversity
B. negative indirect impact on biodiversity
C. positive indirect impact on biodiversity

Answer: A

Explanation:
Surface Water Usage:
Using surface water in business activities directly affects the local ecosystem and biodiversity.
It can alter water levels, temperature, and flow patterns, impacting aquatic life and surrounding habitats.
Direct Impact Characteristics:
Direct impacts are those that occur as a direct result of the company's operations.
For example, drawing water from a river for industrial use can reduce water availability for fish and other aquatic organisms.
CFA ESG Investing Reference:
The Global Reporting Initiative (GRI) outlines that activities such as using surface water directly affect biodiversity, making it a direct impact.

NEW QUESTION # 52
Which of the following statements about materiality is most accurate?

A. Dynamic materiality means that investors must constantly review what is financially material for a company
B. Double materiality excludes impacts of a company on ESG factors
C. Financial materiality is an extension of the accounting concept of double materiality

Answer: A

Explanation:
Dynamic materiality refers to the concept that what is considered financially material for a company can change over time, necessitating continuous review by investors. Here's a detailed explanation:
Materiality in ESG: Materiality in ESG context refers to the relevance and importance of certain environmental, social, and governance factors in affecting a company's financial performance.
Dynamic Materiality: This concept recognizes that the significance of specific ESG factors can evolve due to changes in regulations, market conditions, societal expectations, and other external influences. Therefore, what might not be material today could become material in the future.
Continuous Review: Investors must constantly monitor and reassess ESG factors to ensure that their understanding of what is financially material remains current. This ongoing process helps investors to make informed decisions that reflect the latest material risks and opportunities.
Contrast with Static Materiality: Unlike static materiality, where material factors are considered fixed and unchanging, dynamic materiality acknowledges the fluid nature of ESG factors. This requires a more proactive and adaptive approach to ESG analysis and integration.
CFA ESG Investing References:
The CFA Institute explains that "dynamic materiality acknowledges the evolving nature of ESG issues and the need for investors to continually reassess what is material" (CFA Institute, 2020).
Dynamic materiality is highlighted as a key concept in modern ESG investing, emphasizing the importance of ongoing review and adjustment in investment strategies to account for changing material factors.
By understanding and applying the concept of dynamic materiality, investors can better navigate the complexities of ESG investing and align their portfolios with the most relevant and impactful factors over time.

NEW QUESTION # 53
Which of the following statements about the Green Claims Directive (GCD) is most accurate? The GCD:

A. applies to mandatory green claims made by businesses towards consumers
B. aims to make green claims reliable, comparable, and verifiable across the world.
C. requires verification by independent auditors before green claims can be made and marketed

Answer: B

Explanation:
The Green Claims Directive (GCD) aims to make green claims reliable, comparable, and verifiable across the world. This directive addresses the need for consistency and transparency in the way businesses communicate their environmental claims to consumers.
Reliability: The GCD ensures that green claims made by businesses are based on accurate and substantiated information, preventing misleading claims.
Comparability: By standardizing the criteria and methodologies for green claims, the GCD enables consumers to compare the environmental benefits of different products and services effectively.
Verifiability: The directive requires that green claims be verifiable, meaning that businesses must provide evidence and undergo scrutiny to support their claims, enhancing trust and accountability.
References:
MSCI ESG Ratings Methodology (2022) - Discusses the importance of reliability, comparability, and verifiability in ESG disclosures and claims.
ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the role of regulatory frameworks like the GCD in ensuring transparent and trustworthy green claims.

NEW QUESTION # 54
In contrast to active investors, passive investors are most likely to:

A. start their engagement process by writing a letter to all the companies impacted by a certain ESG issue
B. seek a direct discussion with senior management and then the board
C. focus their engagement on companies identified as underperformers or ones that trigger other financial or ESG metrics

Answer: A

Explanation:
In contrast to active investors, passive investors are most likely to start their engagement process by writing a letter to all the companies impacted by a certain ESG issue.
Passive Investment Approach: Passive investors, such as those managing index funds, typically hold a wide array of companies within their portfolios. Direct engagement with each company individually can be resource-intensive.
Broad Engagement Strategy: Writing a letter to all companies affected by a specific ESG issue allows passive investors to address concerns across their entire portfolio efficiently. This approach ensures that all relevant companies are informed of the investor's expectations and concerns regarding the ESG issue.
Active Investors: In contrast, active investors may prioritize direct discussions with senior management and the board (A) or focus on specific underperforming companies (C) for more targeted engagement.
CFA ESG Investing References:
The CFA Institute's resources on engagement strategies for investors distinguish between the broad, systematic engagement methods used by passive investors and the more targeted, intensive approaches favored by active investors. This helps ensure effective ESG integration across different investment styles.

NEW QUESTION # 55
Considering ESG integration, an advantage relevant to private real estate markets but not equities and fixed income is most likely:

A. majority ownership
B. adherence to the Global Real Estate Sustainability Benchmark (GRESB) rather than the Sustainability Accounting Standards Board (SASB) framework
C. coverage of assets by ESG rating agencies

Answer: B

Explanation:
In ESG integration, private real estate markets have specific characteristics that differ from equities and fixed income. One of the key distinctions is the framework used for sustainability assessment and reporting:
Majority ownership (A): Majority ownership is not unique to private real estate markets; it can also be relevant to equity markets, particularly in cases of private equity investments or controlling stakes in public companies.
Coverage of assets by ESG rating agencies (B): ESG rating agencies cover a wide range of asset classes, including equities, fixed income, and real estate. While the extent of coverage and focus may vary, it is not a distinctive advantage unique to private real estate markets.
Adherence to the Global Real Estate Sustainability Benchmark (GRESB) rather than the Sustainability Accounting Standards Board (SASB) framework (C): The GRESB is specifically designed for assessing the sustainability performance of real estate assets and portfolios. This benchmark provides a comprehensive framework tailored to the unique aspects of real estate, such as energy efficiency, water usage, and building certifications. In contrast, the SASB framework is more general and applies to a broad range of industries, including equities and fixed income. Therefore, the adherence to GRESB is an advantage particularly relevant to private real estate markets and not typically applicable to equities and fixed income.
References:
Global Real Estate Sustainability Benchmark (GRESB)
CFA ESG Investing Principles
Sustainability Accounting Standards Board (SASB)

NEW QUESTION # 56
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