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CFA Institute Sustainable Investing Certificate (CFA-SIC) Exam Sample Questions (Q146-Q151):
NEW QUESTION # 146
Best-in-class funds most likely:
- A. include only companies that are considered responsible investments
- B. target a higher ESG rating than that of a corresponding index
- C. score companies using a common set of ESG criteria and weightings across sectors
Answer: B
Explanation:
Best-in-class funds most likely target a higher ESG rating than that of a corresponding index.
Best-in-Class Approach: This strategy involves selecting companies that have the highest ESG ratings within their sectors or industries, compared to their peers. The goal is to outperform the average ESG performance of the corresponding index.
Higher ESG Standards: Best-in-class funds aim to include top performers in ESG criteria, thereby achieving a portfolio that scores better on ESG metrics than the broader market index.
Selective Inclusion: These funds do not necessarily include only companies considered responsible investments (B) or use a common set of ESG criteria across all sectors (C). Instead, they focus on relative performance within each sector to ensure high ESG standards.
CFA ESG Investing Reference:
The CFA Institute's guidance on ESG investment strategies discusses the best-in-class approach as one that aims to surpass the ESG performance of benchmark indices by selecting the top ESG performers within each sector.
NEW QUESTION # 147
Which of the following statements about quantitative ESG analysis is most accurate?
- A. The length of the timeseries for ESG data is shorter than for financial data
- B. Quantitative ESG analysis is only based on third-party data
- C. Application programming interfaces (APIs) are used to bring structure to the ESG dataset
Answer: A
Explanation:
The most accurate statement about quantitative ESG analysis is that the length of the timeseries for ESG data is shorter than for financial data. ESG data is relatively newer compared to traditional financial data, resulting in shorter historical datasets.
Historical Data: Financial data has been collected and reported for many decades, providing long timeseries that are essential for trend analysis and financial modeling. In contrast, comprehensive ESG reporting is a more recent development, leading to shorter timeseries.
Data Availability: The availability of ESG data has increased significantly in recent years as companies and regulators have placed greater emphasis on ESG disclosures. However, this data typically does not extend as far back as financial data.
Analysis Implications: Shorter timeseries for ESG data can limit the ability to perform long-term trend analysis and may impact the robustness of certain quantitative models. Analysts need to account for this limitation when incorporating ESG factors into their analyses.
Reference:
MSCI ESG Ratings Methodology (2022) - Discusses the challenges of shorter timeseries in ESG data compared to financial data.
ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the relatively recent focus on ESG data collection and its implications for analysis.
NEW QUESTION # 148
Jevon's paradox refers to a situation where improvements in efficiency are offset by increased:
- A. waste.
- B. consumption of the product.
- C. spending on sectors where emissions are harder to abate.
Answer: B
Explanation:
Jevon's paradox describes the phenomenon where increased efficiency leads to a reduction in resource use per unit of consumption, but overall resource consumption rises due to increased demand. (ESGTextBook
[PallasCatFin], Chapter 3, Page 153)
NEW QUESTION # 149
Collective engagements:
- A. Often are resource-inefficient methods of engagement
- B. Are a preliminary step in launching a takeover bid for a company
- C. Are sometimes constrained by regulations regarding investors acting in concert
Answer: C
Explanation:
Collective engagement occurs when multiple investorscollaborateto engage with a company on ESG-related concerns. However, in some jurisdictions, such engagements maytrigger regulationsthat prohibit investors from acting in concert without proper disclosure.
For example, in theEU and UK, financial regulations (e.g.,UK Takeover Code) state that if investors are perceived to becoordinating actions, they may be subject to legal restrictions, particularly concerningtakeover rules or shareholder activism guidelines.
References:
UK Takeover Code (Panel on Takeovers and Mergers)
EU Shareholder Rights Directive II
Principles for Responsible Investment (PRI) Engagement Guidance
========
NEW QUESTION # 150
Scope 3 carbon emissions are accounted for under:
- A. The European Union's (EU) Sustainable Finance Disclosure Regulation (SFDR) only
- B. Both the UK Task Force on Climate-related Financial Disclosures (TCFD) and the European Union's (EU) Sustainable Finance Disclosure Regulation (SFDR)
- C. The UK Task Force on Climate-related Financial Disclosures (TCFD) only
Answer: B
Explanation:
Scope 3 carbon emissions, which include indirect emissions from the entire value chain (e.g., suppliers and customers), are accounted for under both the UK Task Force on Climate-related Financial Disclosures (TCFD) and the European Union's Sustainable Finance Disclosure Regulation (SFDR). These frameworks guide companies in reporting and managing all relevant emissions, beyond direct operations.ESG Reference:
Chapter 3, Page 133 - Environmental Factors in the ESG textbook.
NEW QUESTION # 151
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