HOT EXAMINATIONS ESG-INVESTING ACTUAL QUESTIONS | EFFICIENT ESG-INVESTING: CERTIFICATE IN ESG INVESTING 100% PASS

Hot Examinations ESG-Investing Actual Questions | Efficient ESG-Investing: Certificate in ESG Investing 100% Pass

Hot Examinations ESG-Investing Actual Questions | Efficient ESG-Investing: Certificate in ESG Investing 100% Pass

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CFA Institute Certificate in ESG Investing Sample Questions (Q280-Q285):

NEW QUESTION # 280
Which of the following is most likely categorized as an external social factor?

  • A. Human rights
  • B. Product liability
  • C. Working conditions

Answer: A

Explanation:
* Definition of External Social Factors:
* External social factors refer to social issues that affect or are affected by the company's interactions with the broader society and environment. These factors typically include human rights, community relations, and broader social impacts.
* According to the CFA Institute, external social factors encompass elements that are outside the direct control of the company but are influenced by or impact its operations.
* Human Rights:
* Human rights issues involve the company's responsibility to respect and protect the rights of individuals and communities affected by its operations. This includes avoiding complicity in human rights abuses and ensuring fair treatment of all stakeholders.
* The MSCI ESG Ratings Methodology emphasizes the importance of human rights as a critical external social factor, affecting a company's reputation and license to operate.
* Comparison with Other Options:
* Product Liability:This is typically considered a governance or internal risk factor, as it relates to the company's responsibility for the safety and reliability of its products.
* Working Conditions:This is usually categorized as an internal social factor, as it pertains to the treatment of employees within the company.
* Importance in ESG Integration:
* Addressing human rights issues is crucial for managing risks and enhancing corporate sustainability. Companies that fail to respect human rights can face significant reputational damage, legal liabilities, and operational disruptions.
* The CFA Institute notes that effective management of external social factors like human rights is essential for long-term value creation and risk mitigation.
References:
* CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals."
* MSCI ESG Ratings Methodology documents, which discuss the categorization and importance of human rights as an external social factor.


NEW QUESTION # 281
With respect to exclusion policies, which of the following falls outside of the traditional spectrum of responsible investment?

  • A. Indices
  • B. Listed equities
  • C. Corporate debt

Answer: A

Explanation:
Exclusion policies in responsible investment typically focus on specific asset classes, such as listed equities and corporate debt, where investors can directly apply ethical and ESG criteria to exclude certain companies or sectors from their portfolios. Indices, however, fall outside of this traditional spectrum as they represent broader market benchmarks.
* Exclusion Policies: These policies are applied to directly exclude investments in certain sectors or companies that do not meet the ethical or ESG criteria set by the investor. Common exclusions include tobacco, firearms, and fossil fuels.
* Indices: Indices are used to benchmark the performance of portfolios and are typically not subject to exclusion policies. They represent a broad market or sector and include a range of companies regardless of their ESG performance. While ESG indices do exist, traditional exclusion policies do not typically apply to standard market indices.


NEW QUESTION # 282
If a company's terminal growth rate assumption is adjusted lower due to material ESG factors, the valuation from the discounted cash flow model will be:

  • A. The same.
  • B. Higher.
  • C. Lower.

Answer: C

Explanation:
A lower terminal growth rate due to ESG risks (Option A) results in:
A lower valuation in a discounted cash flow (DCF) model.
Higher expected regulatory costs, operational risks, or reputational issues reducing future cash flows.
Option B (Same valuation) is incorrect because ESG risks impact long-term growth assumptions.
Option C (Higher valuation) is incorrect-ESG risks increase discount rates, lowering present value.
References:
MSCI ESG & Valuation Impact Study
CFA ESG Integration in Financial Modeling
PRI Guide to ESG Risk in Valuations


NEW QUESTION # 283
When accounting for a critical weakness in a company's environmental management process, an analyst using a discounted cash flow (DCF) valuation model should:

  • A. not change the cost of capital.
  • B. increase the cost of capital.
  • C. decrease the cost of capital.

Answer: B

Explanation:
When using a discounted cash flow (DCF) valuation model, analysts must consider various risk factors that can affect the valuation. A critical weakness in a company's environmental management process represents an increased risk, which can impact the cost of capital.
1. Cost of Capital: The cost of capital represents the rate of return required by investors to compensate for the risk of an investment. It includes the cost of equity and the cost of debt, weighted according to the company's capital structure.
2. Impact of Environmental Risks: A critical weakness in environmental management indicates potential risks, such as regulatory fines, cleanup costs, litigation, or damage to the company's reputation. These risks can increase the uncertainty and perceived risk of investing in the company, leading investors to demand a higher return to compensate for these risks.
3. Increasing the Cost of Capital: Given the increased risk associated with poor environmental management, the appropriate response is to increase the cost of capital in the DCF model. This adjustment reflects the higher risk premium required by investors due to the potential negative financial impacts of environmental issues.
Reference from CFA ESG Investing:
Cost of Capital and Risk: The CFA Institute explains that the cost of capital should reflect the risks associated with an investment. When a company faces significant environmental risks, analysts should adjust the cost of capital upwards to account for the increased uncertainty and potential financial impacts.
DCF Valuation Adjustments: The DCF valuation model requires careful consideration of all risk factors. Adjusting the cost of capital to reflect environmental risks ensures that the valuation accurately captures the potential impact on future cash flows and investor returns.
In conclusion, when accounting for a critical weakness in a company's environmental management process, an analyst should increase the cost of capital, making option C the verified answer.


NEW QUESTION # 284
Compared to developed markets, ESG investing in emerging markets is most likely characterized by:

  • A. easier portability of approaches and principles methods from developed markets.
  • B. fewer opportunities for investors to engage with companies and improve ESG performance.
  • C. less data and greater variability between countries and companies.

Answer: C

Explanation:
ESG investing in emerging markets is more challenging due to limited availability of data, variability in reporting standards, and differences in governance practices between countries and companies. (ESGTextBook[PallasCatFin], Chapter 2, Page 61)


NEW QUESTION # 285
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