F, Mock1

Mock 1
Question 1
[4062312] In respect of water scarcity, which of the following is incorrect?
A
Water scarcity is one of the largest global risks in terms of potential impact over the next decade.
B
45% (3.3 billion people) of the world's population are estimated to have a problem with water scarcity.
C
Water scarcity is the lack of fresh water resources to meet water demand.
D
Water scarcity is present on every continent.
You answered : D - Water scarcity is present on every continent.
The correct answer is: B - 45% (3.3 billion people) of the world's population are estimated to have a problem with water
scarcity.
Explanation
Water scarcity is the lack of fresh water resources to meet water demand. Water scarcity is present on every continent and is
one of the largest global risks in terms of potential impact over the next decade. UN Water reports that 70% of the global
population live near a coastline and, to illustrate the scale of the problem, 40% (2.3 billion people) are estimated to have a
problem with water scarcity.
Reference: Chapter 3 section 1
Question 2
[4062313] Where does ESG analysis have its least significant impact?
A
Asset class
B
Country
C
Sector
D
Security
You answered : A - Asset class
The correct answer is: B - Country
Explanation
The CFA Institute's ESG integration framework forms the foundation of integration and demonstrates the expanding, sequenced
degrees of analysis at different levels. At its core, the framework represents the process of ‘classical ESG research and
analysis’, which is focused at the individual security level. The framework then expands outward, assuming more robust layers
of analysis across a greater number of dimensions – including asset classes and investment strategy types – within portfolio
and ultimately, asset allocation decision-making. This is a reflection of the fact that ESG risk factors are most directly relevant to
companies and then sectors, asset classes and countries. ESG analysis is, therefore, of most significance at the lowest level of
risk diversification (the security level) and of least significance at the highest level of risk diversification (the country level).
Question 3
[4062314] Under the United Nations principles for responsible investment, all but one of the following are considered to be
fiduciary duties of investors. Which one is not a fiduciary duty?
A
Safeguarding investors' asset against developing ESG risks and other exposures.
B
Understand and incorporate beneficiaries' and savers' sustainability related preferences.
C
Encourage high standards of ESG performance in the companies or other entities in which they invest.
D
Incorporate environmental, social and governance issues into investment analysis and decision-making processes.
You answered : C - Encourage high standards of ESG performance in the companies or other entities in which they invest.
The correct answer is: A - Safeguarding investors' asset against developing ESG risks and other exposures.
Explanation
Under the United Nations principles for responsible investment, the following are considered to be fiduciary duties of investors:
incorporate environmental, social and governance issues into investment analysis and decision-making processes; encourage
high standards of ESG performance in the companies or other entities in which they invest; understand and incorporate
beneficiaries' and savers' sustainability related preferences.
Question 4
[4062315] Which of the following statements is true regarding both ESG integration and engagement?
A
It is almost universally accepted that ESG integration leads to better risk-adjusted returns and that ESG tools, such as
scorecards, can be used to assist engagement with the companies.
B
Not all firms believe that ESG integration leads to better risk-adjusted returns, however most accept that ESG tools, such as
C
Not all firms believe that ESG integration leads to better risk-adjusted returns and few believe that ESG tools, such as
D
It is almost universally accepted that ESG integration leads to better risk-adjusted returns, although few believe that ESG tools,
such as scorecards, can be used to assist engagement with the companies.
You answered : B - Not all firms believe that ESG integration leads to better risk-adjusted returns, however most accept that
ESG tools, such as scorecards, can be used to assist engagement with the companies.
The correct answer is: B - Not all firms believe that ESG integration leads to better risk-adjusted returns, however most
accept that ESG tools, such as scorecards, can be used to assist engagement with the companies.
Explanation
Not all firms believe that ESG integration leads to better risk-adjusted returns, however most accept that ESG tools, such as
Question 5
[4062316] Which of the following is relevant to ESG integration but is not relevant to SRI strategies?
A
Governance.
B
Materiality.
C
Sustainability.
D
Climate change.
You answered : B - Materiality.
The correct answer is: B - Materiality.
Explanation
SRI is an exclusionary approach where materiality is irrelevant.
Question 6
[4062317] Which of the following statements is NOT true in respect fixed income ESG integration?
A
Fixed income investors in corporate bonds may use similar principles in materiality and ESG frameworks to equity investors.
B
Materiality may differ between equity and bond investors.
C
Bond investors may find ESG factors that impact upon the balance sheet strength to be of lesser significance.
D
The opportunity side of ESG may be less relevant for bond investors.
You answered : C - Bond investors may find ESG factors that impact upon the balance sheet strength to be of lesser
significance.
The correct answer is: C - Bond investors may find ESG factors that impact upon the balance sheet strength to be of lesser
significance.
Explanation
Bond investors may find ESG factors that impact upon the balance sheet strength to be of greater significance as it is more
relevant to default risk.
Question 7
[4062139] You are a corporate bond analyst at a major investment fund and have been asked to engage with companies in
which you invest regarding their environmental plans. Which companies should you approach first?
A
The smallest holdings with the highest credit ratings.
B
The largest holdings with lowest credit ratings.
C
The smallest holdings with the lowest credit ratings.
D
The largest holdings with the highest credit ratings.
You answered : B - The largest holdings with lowest credit ratings.
The correct answer is: B - The largest holdings with lowest credit ratings.
Explanation
In relation to fixed income, the PRI’s guide to ESG engagement for fixed income investors recommends that investors should
prioritise engagement based on: the size of a holding in the portfolio; lower credit quality issuers (with less balance sheet
flexibility to absorb negative ESG impacts); key themes that are material to sectors; issuers with low ESG scores.
Reference: Chapter 6 Section 6
Question 8
[4062141] Which of the following provides the best description of the primary aim a steward seeks to satisfy?
A
To maximise short-term returns.
B
To preserve and enhance long-term asset values.
C
To preserve and enhance short-term asset values.
D
To maximise long-term returns.
You answered : B - To preserve and enhance long-term asset values.
The correct answer is: B - To preserve and enhance long-term asset values.
Explanation
The focus of stewardship is to preserve and enhance long-term asset value on behalf of another individual.
Question 9
[4062142]
Several questions are associated with the following case study. The material given in the case study will not change.
You work for a major bond fund management company and have been charged with the task of incorporating ESG into your
bond analysis, starting with sovereign debt and then expanding to corporate debt.
Your current thinking in respect of sovereign debt is to establish the most material E, S and G factors that impact on a country-
wide basis and develop a weighting scheme to incorporate each of these three factors into your analysis. You will then consider
how to extend the analysis to corporate debt.
The scoring system you are using applies the following scale:
5. Very strong
4. Strong
3. Average
2. Weak
1. Very weak
You believe that both the score and the score trend are relevant to your analysis and have, therefore, assessed scores for
various factors for the last two years.
To help with this process at the initial sovereign debt level you have examined various ESG factors for two countries, A and B,
and have constructed the following scorecard for environmental issues.
Country A Country B
Last This Last This

year year year year
Emissions 2.6 2.8 2.6 2.6
Energy efficiency 3.1 3.4 2.5 2.5
Water scarcity 4.1 4.1 2.8 2.4
Climate resilience 3.2 2.8 3.8 3.8
You have also constructed the following scorecard for social issues.
Country A Country B
Last This Last This
year year year year
Demographics 2.4 1.9 2.8 3.2
Human rights 4.2 4.2 2.6 2.5

Public safety 4.4 4.4 2.3 2.3
Education 4.1 4.2 2.6 2.9
Employment 4.0 4.1 3.4 3.7
Finally, you have also constructed the following scorecard for governance issues.
Country A Country B
Last This Last This

year year year year
Political stability 4.1 4.2 1.8 1.8
Rule of law 4.0 4.1 1.7 2.0
Corruption levels 4.2 4.2 1.7 2.0
With respect to governance factors, Country B scores poorly for political stability and has a low but rising score in respect of the
rule of law/corruption levels. Which of the following statements is most likely to be based on the characteristics of
Country A and Country B, respectively?

A
Both countries are developed economies.
B
Country A is a developed economy, Country B is an emerging economy.
C
Country A is an emerging economy, Country B a developed economy.
D
Both countries are emerging economies.
You answered : B - Country A is a developed economy, Country B is an emerging economy.
The correct answer is: B - Country A is a developed economy, Country B is an emerging economy.
Explanation
Country A scores highly in respect of human rights, public safety, education and employment, although it has a poor and
deteriorating demographic score (a high demographic risk). It has good political stability and a strong rule of law with low levels
of corruption. This all suggests a quite developed economy. In contrast, Company B has a poor record in respect of human
rights and public safety and a poor, but improving, record in relation to education and employment. Political stability is improving
although the rule of law is weak and corruption exists. This suggests an emerging/developing economy. .
Question 10
[4062143]
ou work for a major bond fund management company and have been charged with the task of incorporating ESG into your bond
analysis, starting with sovereign debt and then expanding to corporate debt.
5. Very strong
4. Strong
3. Average
2. Weak
1. Very weak
Country A Country B
Last This Last This

year year year year
Emissions 2.6 2.8 2.6 2.6
Country A Country B
Last This Last This

year year year year
Human rights 4.2 4.2 2.6 2.5

Education 4.1 4.2 2.6 2.9
Employment 4.0 4.1 3.4 3.7
Country A Country B
Last This Last This

year year year year
Rule of law 4.0 4.1 1.7 2.0
When establishing a weighting scheme for incorporating each of the E, S and G pillars into your analysis, which of the following
would be most appropriate?
A
E = 33.3%, S = 33.3%, G = 33.3%
B
E = 50%, S = 25%, G = 25%
C
E = 25%, S = 50%, G = 25%
D
E = 25%, S= 25%, G = 50%
You answered : D - E = 25%, S= 25%, G = 50%
The correct answer is: D - E = 25%, S= 25%, G = 50%
Explanation
Surveys from investors suggest the G factor remains more important to credit investors than E and S as the direct relevance for
G is easier to trace for both sovereign and corporate credit.
Question 11
[4062144]
5. Very strong
4. Strong
3. Average
2. Weak
1. Very weak
Country A Country B
Last This Last This

year year year year
Emissions 2.6 2.8 2.6 2.6
Country A Country B
Last This Last This

year year year year
Human rights 4.2 4.2 2.6 2.5

Education 4.1 4.2 2.6 2.9
Employment 4.0 4.1 3.4 3.7
Country A Country B
Last This Last This

year year year year
Rule of law 4.0 4.1 1.7 2.0
Which of the following might explain the poor and downward trend in Country A’s demographic score?
A
Rising birth rates and a falling median age.
B
Growing healthcare demands linked to an ageing population.
C
Reducing retirement ages and shorter working hours.
D
Greater wealth and higher expenditure on consumer goods.
You answered : B - Growing healthcare demands linked to an ageing population.
The correct answer is: B - Growing healthcare demands linked to an ageing population.
Explanation
An ageing population has substantial effects on society. Firstly, the ratio between the active and the inactive part of the
workforce drops, impacting national tax revenues and challenging pension systems. Furthermore, older people have higher
accumulated savings per head than younger people, but spend less on consumer goods, which is a business risk for some
industries. In some categories, such as health care, expenditure rises sharply when populations age.
Question 12
[4062145]
5. Very strong
4. Strong
3. Average
2. Weak
1. Very weak
Country A Country B
Last This Last This

year year year year
Emissions 2.6 2.8 2.6 2.6
Country A Country B
Last This Last This

year year year year
Human rights 4.2 4.2 2.6 2.5
Education 4.1 4.2 2.6 2.9
Employment 4.0 4.1 3.4 3.7
Country A Country B
Last This Last This

year year year year
Rule of law 4.0 4.1 1.7 2.0
At which of the following levels may ESG factors affect the price performance and credit risk of a corporate
bond?
i Issuer level.
ii Industry level.
iii Geographic level.
A
i and ii only.
B
i and iii only.
C
ii and iii only.
D
i, ii and iii.
You answered : D - i, ii and iii.
The correct answer is: D - i, ii and iii.
Explanation
ESG factors can affect the price performance and credit risk of a bond at the issuer level, the industry level and the geographic
level. .
Question 13
[4062146]
5. Very strong
4. Strong
3. Average
2. Weak
1. Very weak
Country A Country B
Last This Last This

year year year year
Emissions 2.6 2.8 2.6 2.6
Country A Country B
Last This Last This
year year year year
Human rights 4.2 4.2 2.6 2.5
Education 4.1 4.2 2.6 2.9
Employment 4.0 4.1 3.4 3.7
Country A Country B
Last This Last This

year year year year
Rule of law 4.0 4.1 1.7 2.0
Which of the following may explain Country A’s poor and deteriorating score for climate resilience?
A
Expanding use of nuclear power stations.
B
Rapid adoption of electric motor vehicles.
C
Rapidly expanding heavy industrial sector.
D
Growth in offshore wind power generation.
You answered : A - Expanding use of nuclear power stations.
The correct answer is: C - Rapidly expanding heavy industrial sector.
Explanation
Climate resilience is society's resilience to climate change-related risks in the shorter term. Business sectors that are carbon
intensive are judged to be at particular risk from climate change. High emitting sectors include: oil, gas and coal; heavy
industrial sectors such as petrochemicals and steel; and the transport sector. Exposure may be improved by adopting mitigation
methods to reduce adverse impacts on the environment.
Question 14
[4062147] According to data on responsible investment assets compiled by the Global Sustainable Investment Alliance (GSIA),
in 2018 corporate engagement and shareholder action constitute the predominant strategy in:
A
Japan
B
USA
C
Europe
D
Canada
You answered : C - Europe
The correct answer is: A - Japan
Explanation
Corporate engagement and shareholder action constitute the predominant responsible investment strategy in Japan.
Question 15
[4062148]
A client has received a portfolio report from one of its fund managers. Part of the report focuses on the ESG attribution of the
portfolio. Below is an extract of the report:
Exhibit 1: Overall portfolio analysis
Portfolio (%) Benchmark

(%)
Environmental score 70.4 82.1
Social score 85.3 85.4
Governance score 86.4 79.3
The fund manager has also provided further analysis of the environmental score of the portfolio by showing individual company
analysis. The following extract shows the bottom four environmental detractors:
Exhibit 2: Bottom four environmental detractors
Company Environmental Portfolio Benchmark Detraction

Score (%) Environmenta Environmental Level (%)
l Score (%) Score (%)
ABC Corp. 34.5 70.4 82.1
DEF Corp. 54.3 70.4 82.1
GHI Corp. 44.7 70.4 82.1
JKL Corp. 57.8 70.4 82.1
Having reviewed the information provided by the fund manager the client requests a meeting with the fund manager to discuss
some concerns they have with the portfolio and to address a few items that appeared to be absent from the table in Exhibit 2.
Prior to the meeting, and also as part of the client’s annual review, the fund manager summarises the key characteristics of the
client in order to better understand their clients’ primary drivers towards ESG investing. The key details are shown in the table of
Exhibit 3:
Exhibit 3: Overview of client ESG drivers
Investment horizon 10-70 years
Primary driver for ESG Fiduciary duty

investment
Risk mind-set Long-term view with high risk tolerance
Implied favoured ESG Comprehensive ESG integration

approach
During the meeting the client passes on the details of another client who may be interested in using the fund manager for part of
their ESG investment mandate. The key details of the potential client are shown in the table of Exhibit 4:
Exhibit 4: Overview of potential client ESG drivers
Primary driver for ESG Awareness of financial impacts of climate

investment change
Risk mind-set Loss aversion

Implied favoured ESG ESG integration
approach
Having analysed the content contained in Exhibit 1, the client is likely to express a concern and focus on which of the following
ESG factor exposures in the portfolio?
A
Environmental and social.
B
Environmental.
C
Social.
D
Governance.
You answered : B - Environmental.
The correct answer is: B - Environmental.
Explanation
The portfolio does highlight being significantly below the benchmark (-11.7%) on environmental matters. The portfolio seems at
benchmark for social factors and above benchmark for governance factors. Portfolio (%) Benchmark (%) Positioning vs.
Benchmark (%) Environmental Score 70.4 82.1 -11.7 Social Score 85.3 85.4 -0.1 Governance Score 86.4 79.3 +7.1
Question 16
[4062149]

(%)

ABC Corp. 34.5 70.4 82.1
DEF Corp. 54.3 70.4 82.1
GHI Corp. 44.7 70.4 82.1
JKL Corp. 57.8 70.4 82.1
Exhibit 3:

investment

approach

investment change

approach
Using the information contained in Exhibit 2 the detraction level associated with GHI Corp. is closest to:
A
The detraction level is 22.3
B
C
D
You answered : C - The detraction level is 37.4
The correct answer is: C - The detraction level is 37.4
Explanation
The detraction level compares company score to the benchmark score: Company Environmental Score (%) Portfolio
Environmental Score (%) Benchmark Environmental Score (%) Detraction Level (%) ABC Corp. 34.5 70.4 82.1 47.6 DEF Corp.
54.3 70.4 82.1 27.9 GHI Corp. 44.7 70.4 82.1 37.4 JKL Corp. 57.8 70.4 82.1 24.3
Question 17
[4062150]

(%)

ABC Corp. 34.5 70.4 82.1
DEF Corp. 54.3 70.4 82.1
GHI Corp. 44.7 70.4 82.1
JKL Corp. 57.8 70.4 82.1
Exhibit 3:

investment

approach

investment change

approach
Using the information contained in Exhibit 2 the detraction level associated with JKL Corp. is closest to:
A
The detraction level is 24.3.
B
C
D
You answered : A - The detraction level is 24.3.
The correct answer is: A - The detraction level is 24.3.
Explanation
The detraction level compares company score to the benchmark score: Company Environmental Score (%) Portfolio
Environmental Score (%) Benchmark Environmental Score (%) Detraction Level (%) ABC Corp. 34.5 70.4 82.1 47.6 DEF Corp.
54.3 70.4 82.1 27.9 GHI Corp. 44.7 70.4 82.1 37.4 JKL Corp. 57.8 70.4 82.1 24.3
Question 18
[4062151]

(%)
The fund manager has also provided further analysis of the environmental score of the portfolio by showing
individual company analysis. The following extract shows the bottom four environmental detractors:

ABC Corp. 34.5 70.4 82.1
DEF Corp. 54.3 70.4 82.1
GHI Corp. 44.7 70.4 82.1
JKL Corp. 57.8 70.4 82.1
Having reviewed the information provided by the fund manager the client requests a meeting with the fund
manager to discuss some concerns they have with the portfolio and to address a few items that appeared to be
absent from the table in Exhibit 2.
Prior to the meeting, and also as part of the client’s annual review, the fund manager summarises the key
characteristics of the client in order to better understand their clients’ primary drivers towards ESG investing.
The key details are shown in the table of Exhibit 3:

investment

approach
During the meeting the client passes on the details of another client who may be interested in using the fund
manager for part of their ESG investment mandate. The key details of the potential client are shown in the table
of Exhibit 4:

investment change

approach
Using the information contained in Exhibit 3, the client is most likely to be identified as a:
A
Life Insurer
B
Defined Benefit Pension Scheme
C
Sovereign Wealth Fund
D
Foundation
You answered : C - Sovereign Wealth Fund
The correct answer is: B - Defined Benefit Pension Scheme
Explanation
The characteristics identified in the curriculum book fit the characteristics of a DB pension scheme.
Question 19
[4062152]

(%)

ABC Corp. 34.5 70.4 82.1
DEF Corp. 54.3 70.4 82.1

GHI Corp. 44.7 70.4 82.1
JKL Corp. 57.8 70.4 82.1
Exhibit 3:

investment

approach

investment change

approach
Using the information contained in Exhibit 4, the client is most likely to be identified as a:
A
General Insurer
B
Life Insurer
C
Individual Investor
D
Foundation
You answered : C - Individual Investor
The correct answer is: A - General Insurer
Explanation
The characteristics identified in the curriculum book fit the characteristics of a General Insurer.
Question 20
[4062153] In his research paper, Alex Edmans revealed that over a 25 year period the 100 best companies to work for in
America outperformed their peers in terms of equity returns by what percentage?
A
They outperformed by less than 1.5%.
B
They outperformed by 2.3% to 3.8%.
C
They outperformed by 4.2% to 5.7%.
D
They outperformed by more than 5.4%.
You answered : B - They outperformed by 2.3% to 3.8%.
The correct answer is: B - They outperformed by 2.3% to 3.8%.
Explanation
The study revealed that they outperformed by 2.3 to 3.8%.
Question 21
[4062154]
Helena Moors has been asked to carry out an ESG analysis on two banks, ABC Bank and DEF Bank. One of the banks is UK
based whilst the other is based in China. Both banks are deemed to be globally and domestically systemic in each region.
Moors created the following rating system for the two banks based on ESG factors that she identified as material:
ABC Bank DEF Bank
Environmental
Sustainable lending impact 4 2
Green bond issuance 5 4
Environmental and sustainability 3 3

plan
Social
Customer privacy and data 4 3

security
Regulatory environment 4 2
Governance
Accounting quality 5 1
Board quality 4 2
Risk management 4 2
Culture 5 2
For each of these material factors, Moors developed a scoring system based upon peer assessment and trend analysis. A score
was then assigned to each material factor using the following scale:
5. Leading practice
4. Stronger than peers
3. In-line with peers
2. Weaker than peers
1. Great concerns.
A final aggregated score was then calculated and used to influence the fundamental valuation of the company where a higher
final aggregated ESG score translated into a buy signal, and low final aggregated ESG score translated into a sell signal.
During the process of the analysis, Moors attached a note to the ‘Customer Privacy and Data Security’ social factor attached to
DEF Bank. This highlighted that a significant fine was imposed on the bank by the regulator in relation to a breach of customer
privacy at the banks. A cyber-attack on the bank had resulted in a significant number of customer email addresses being
accessed. The regulator deemed that the bank failed to have adequate systems and controls in place at the time of the cyber-
attack. Having reviewed details of the case, Moors noted that the bank acted in an open and cooperative way with the regulator
and was looking to address the issue going forward by introducing an appropriate compliance solution.
A colleague of Moors, who works in the sales division of the firm, has been talking to a client who wishes to consider adding
DEF Bank to their investment portfolio. Having read the research provided by Moors, their particular interest stems from the
comment made by Moors regarding ‘Customer Privacy and Data Security’ factor identified in the ESG framework. This client
has requested some extra information regarding green bonds. In particular, they have heard of the green bond principles. The
client would like to know which regulatory authority created them and whether they are mandatory or a voluntary set of
principles.
The ESG material factors are weighted in order to develop the final aggregate ESG score for each bank. Which of the following
is most likely to be the weightings used by Moors to create the final ESG aggregate score for each of the banks?
A
Environmental – 10%, Social – 30%, Governance – 60%.
B
C
D
Environmental – 33.3%, Social – 33.3%, Governance – 33.3%.
You answered : D - Environmental – 33.3%, Social – 33.3%, Governance – 33.3%.
The correct answer is: A - Environmental – 10%, Social – 30%, Governance – 60%.
Explanation
The key material factors for financial institutions, where credit risk is one of the main concerns, arise from governance issues.
Indeed, surveys from investors suggest the G factor remains more important to credit investors than E and S as the direct
relevance for G is easier to trace for both sovereign and corporate credit.
Question 22
[4062155]
Moors created the following rating system for the two banks based on ESG factors that she identified as
material:
ABC Bank DEF Bank
Environmental

plan
Social

security
Governance
Board quality 4 2
Risk management 4 2
Culture 5 2
For each of these material factors, Moors developed a scoring system based upon peer assessment and trend
analysis. A score was then assigned to each material factor using the following scale:
5. Leading practice
1. Great concerns.
A final aggregated score was then calculated and used to influence the fundamental valuation of the company
where a higher final aggregated ESG score translated into a buy signal, and low final aggregated ESG score
translated into a sell signal.
During the process of the analysis, Moors attached a note to the ‘Customer Privacy and Data Security’ social
factor attached to DEF Bank. This highlighted that a significant fine was imposed on the bank by the regulator in
relation to a breach of customer privacy at the banks. A cyber-attack on the bank had resulted in a significant
number of customer email addresses being accessed. The regulator deemed that the bank failed to have
adequate systems and controls in place at the time of the cyber-attack. Having reviewed details of the case,
Moors noted that the bank acted in an open and cooperative way with the regulator and was looking to address
the issue going forward by introducing an appropriate compliance solution.
A colleague of Moors, who works in the sales division of the firm, has been talking to a client who wishes to
consider adding DEF Bank to their investment portfolio. Having read the research provided by Moors, their
particular interest stems from the comment made by Moors regarding ‘Customer Privacy and Data Security’
factor identified in the ESG framework. This client has requested some extra information regarding green bonds.
In particular, they have heard of the green bond principles. The client would like to know which regulatory
authority created them and whether they are mandatory or a voluntary set of principles.
The client with the interest in bank DEF is most likely to represent an ESG investor taking on which one of the
following ESG investment strategies?

A
Thematic.
B
Best-in-class.
C
Engagement.
D
Socially responsible investment.
You answered : D - Socially responsible investment.
The correct answer is: C - Engagement.
Explanation
Although the ‘Customer Privacy and Data Security’ note identified by Moors may indicate a concern to an investor, the fact that
bank DEF was open and co-operative with the regulator may provide an opportunity to an investor seeking to implement an
engagement strategy. Engaging with the company to check on the progress made regarding the implementation of compliance
procedures may create value in the long-term. This is clearly not an investment theme, DEF bank are not best in class, and the
issue is of no relevance to socially responsible investment.
Question 23
[4062156]
ABC Bank DEF Bank
Environmental


plan
Social

security
Governance
Board quality 4 2
Risk management 4 2
Culture 5 2
5. Leading practice
1. Great concerns.
has requested some extra information regarding green bonds. In particular, they have heard of the green bond principles. The
client would like to know which regulatory authority created them and whether they are mandatory or a voluntary set of
principles.
When scoring one of the material factors shown in her ESG framework, Moors carried out a particular analysis on the credit
underwriting trends observed for each bank. Which one of the material factors identified is Moors likely to have been analysing
in the ESG framework?
A
Customer privacy and data security.
B
Regulatory environment.
C
Board quality.
D
Sustainable lending impact.
You answered : D - Sustainable lending impact.
The correct answer is: D - Sustainable lending impact.
Explanation
Underwriting trends can give a good insight in order to score the ‘Sustainable Lending Impact’ environmental factor. This can
give signals such as whether the bank is reducing lending to the coal-mining sector and increasing lending for renewables. It
could also identify whether the bank is involved in funding involving controversial projects.
Question 24
[4062157]
ABC Bank DEF Bank
Environmental

plan
Social

security
Governance
Board quality 4 2
Risk management 4 2
Culture 5 2
5. Leading practice
1. Great concerns.
has requested some extra information regarding green bonds. In particular, they have heard of the green bond principles.
The client would like to know which regulatory authority created them and whether they are mandatory or a voluntary set of
principles. The most likely response to the question on the Green Bond Principles is that they have been created by the:
A
International Capital Markets Association and represent a voluntary set of guidelines.
B
Sustainable Account Standards Board and represent a voluntary set of guidelines.
C
International Capital Markets Association and represent a mandatory set of guidelines.
D
Sustainable Account Standards Board and represent a mandatory set of guidelines.
You answered : B - Sustainable Account Standards Board and represent a voluntary set of guidelines.
The correct answer is: A - International Capital Markets Association and represent a voluntary set of guidelines.
Explanation
The International Capital Markets Association (ICMA) sets out voluntary best practice guidelines called the Green Bond
Principles (GBP), which were established in 2014 by a consortium of investment banks to promote the integrity of the green
bond market by recommending transparency, disclosure and reporting.
Question 25
[4062158]
based whilst the other is based in China. Both banks are deemed to be globally and domestically systemic in each
region.
Moors created the following rating system for the two banks based on ESG factors that she identified as
material:
ABC Bank DEF Bank

Environmental

plan
Social
security
Governance
Board quality 4 2
Risk management 4 2
Culture 5 2
For each of these material factors, Moors developed a scoring system based upon peer assessment and trend
analysis. A score was then assigned to each material factor using the following scale:
5. Leading practice
1. Great concerns.
A final aggregated score was then calculated and used to influence the fundamental valuation of the company
where a higher final aggregated ESG score translated into a buy signal, and low final aggregated ESG score
translated into a sell signal.
During the process of the analysis, Moors attached a note to the ‘Customer Privacy and Data Security’ social
factor attached to DEF Bank. This highlighted that a significant fine was imposed on the bank by the regulator in
relation to a breach of customer privacy at the banks. A cyber-attack on the bank had resulted in a significant
number of customer email addresses being accessed. The regulator deemed that the bank failed to have
adequate systems and controls in place at the time of the cyber-attack. Having reviewed details of the case,
Moors noted that the bank acted in an open and cooperative way with the regulator and was looking to address
the issue going forward by introducing an appropriate compliance solution.
A colleague of Moors, who works in the sales division of the firm, has been talking to a client who wishes to
consider adding DEF Bank to their investment portfolio. Having read the research provided by Moors, their
particular interest stems from the comment made by Moors regarding ‘Customer Privacy and Data Security’
factor identified in the ESG framework. This client has requested some extra information regarding green bonds.
In particular, they have heard of the green bond principles.
The client would like to know which regulatory authority created them and whether they are mandatory or a
voluntary set of principles. What is the most likely financial impact on a company arising from a tightening of
regulations in respect of air or water pollution?
A
Increased operating expenses due to enhanced disclosure requirements.
B
Increased asset write-offs and provisions for potential fines.
C
Increased tax charges resulting from profit changes.
D
Decreased revenue due to reduced demand.
You answered : B - Increased asset write-offs and provisions for potential fines.
The correct answer is: B - Increased asset write-offs and provisions for potential fines.
Explanation
Increased asset write-offs and provisions for potential fines.
Question 26
[4062159] In 2018, what value did the Global Sustainable Investment Alliance (GSIA) identify as invested globally in an SRI
form in its most recent report?
A
Over US$10 trillion of assets.
B
C
D
You answered : B - Over US$20 trillion of assets.
The correct answer is: C - Over US$30 trillion of assets.
Explanation
The Global Sustainable Investment Alliance (GSIA) published a set of statistics which identified that over US$30 trillion of
assets were invested globally in an SRI form.
Question 27
[4062160] In January 2004, UN Secretary General Kofi Annan wrote to over 50 CEOs of major financial institutions, inviting
them to participate in a joint initiative under the auspices of the UN Global Compact. What was the objective of this initiative?
A
To find ways to integrate ESG into capital markets.
B
To develop principles underlying the leading investor initiative relevant to ESG.
C
To develop principles to ensure that ESG issues are consistent with fiduciary duty because of their materiality to businesses.
D
To provide a code of conduct guiding ethical investment in South Africa.
You answered : A - To find ways to integrate ESG into capital markets.
The correct answer is: A - To find ways to integrate ESG into capital markets.
Explanation
The initial 2004 objective of the UN Global Compact was to find ways to integrate ESG into capital markets.
Question 28
[4062161] The effectiveness of engagement is best described in which of the following ways?
A
The effects are strongest in relation to environmental issues and then for social issues.
B
The effects are strongest in relation to governance issues and then for environmental issues.
C
The effects are strongest in relation to governance issues and then for social issues.
D
The effects are strongest in relation to social issues and then for governance issues.
You answered : C - The effects are strongest in relation to governance issues and then for social issues.
The correct answer is: C - The effects are strongest in relation to governance issues and then for social issues.
Explanation
The effects are strongest in relation to governance (which also accounts for the majority of engagement cases) and then for
social issues (provided these are also associated with work on governance).
Question 29
[4062162]
Laxitania is home to the indigenous Novodo people, a community of approximately 100 households comprised of more than 700
people, the vast majority having a very basic education and low levels of literacy.
The land upon which they live provides the community with basic food, water, grazing for their livestock and firewood, as well as
employment opportunities in the areas of agriculture and tourism. Within Laxitania, the land is well renowned for having
significant spiritual, religious and cultural importance to the community.
A proposal has been put forward to open a large open-cast copper mine in the area. The government of Laxitania suggested
that the mining company should focus on local communities and recognise how they can be involved in the stakeholder
engagement process, as they think it is important for the company to understand their needs and concerns. The government
has suggested to the mining company that they should establish a bottom-up participation process such as FPIC.
The following points have been identified as part of the engagement process between the company and local community:
Point 1 – The mining company has stressed to the local community that it will seek consent from them in advance of any
activities being commenced or authorized. It will also guarantee time for consultation.
Point 2 – The mining company is very conscious that there should be no manipulation or coercion of the indigenous people.
They have suggested that the Novodo community appoint a Chairperson to represent the local community as part of the
engagement process surrounding the planned mine.
Point 3 – The mining company has stressed that participation and consultation are central pillars to the engagement process
with the local community.
Point 4 – The mining company has agreed to give the indigenous people access to the specialist primary reports on the
economic, environmental and cultural impacts that the mine may have on the local community.
One of the representatives of the mining company has made an economic proposal to the Novodo community. The suggestion
is to intensify the livestock farming practices of the community by taking advantage of the rich grazing land that is present in the
area. However, one of the representatives of the Novodo community is concerned about the risks associated with this proposal
and would like to seek further guidance on the risks and opportunities associated a with intensive livestock practices.
Which one of the points made in the case study would address the issue of ‘Free’ within the context of the bottom-up
participation process of FPIC?
A
Point 1
B
Point 2
C
Point 3
D
Point 4
You answered : B - Point 2
The correct answer is: B - Point 2
Explanation
Point 2 would fall under ‘free’ where there is no manipulation or coercion of the indigenous people.
Question 30
[4062163]

Which one of the points made in the case study would address the issue of ‘Consent’ within the context of the bottom-up
A
Point 1
B
Point 2
C
Point 3
D
Point 4
You answered : A - Point 1
The correct answer is: C - Point 3
Explanation
Point 3 would fall under ‘Consent’. This covers the concept that participation and consultation are the central pillars to the
engagement process.
Question 31
[4062164]
Point 1 – The mining company has stressed to the local community that it will seek
consent from them in advance of any activities being commenced or authorized. It will also guarantee time for consultation.
Which one of the points made in the case study would address the issue of ‘Prior’ within the context of the bottom-up
A
Point 1
B
Point 2
C
Point 3
D
Point 4
You answered : C - Point 3
The correct answer is: A - Point 1
Explanation
Point 1 would fall under ‘Prior’. This covers the concept that consent is sought sufficiently in advance of any activities being
either commenced or authorised and time for consultation to occur.
Question 32
[4062165]
Out of the four points identified in the case study, which one may be of concern under the FPIC engagement process?
A
Point 1
B
Point 2
C
Point 3
D
Point 4
You answered : D - Point 4
The correct answer is: D - Point 4
Explanation
Whilst it is positive that the mining company is providing the indigenous people with access to the primary reports on the
economic, environmental and cultural impacts that the mine may have on the local community, it is questionable whether this
satisfies the ‘Informed’ component of FPIC. The FPIC framework suggests that the language used must be able to be
understood by the indigenous people, however it is noted in the case study that the local community have low levels of
education and literacy.
Question 33
[4062166]
Which one of the following initiatives may be useful to the concerns raised by the representatives of the Novodo community
regarding the suggestion to intensify their livestock farming practices?
A
UNEP FI
B
FAIRR
C
TCFD
D
ICGN
You answered : C - TCFD
The correct answer is: B - FAIRR
Explanation
A growing investor initiative, which is focused and engaged on the risks and opportunities linked to intensive livestock
production is Farm Animal Investment Risk and Return (FAIRR).
Question 34
[4062167] Certain principles contained within the UK Stewardship Codes are often omitted from the Stewardship Codes of other
countries. Which of the following is one such principle?
A
Disclosure of public policy regarding stewardship.
B
Engagement and voting activities.
C
Management of conflicts of interest.
D
Regular monitoring.
You answered : D - Regular monitoring.
The correct answer is: C - Management of conflicts of interest.
Explanation
Two principles that are not always present (though both appear in the UK Code) require investors to manage their conflicts of
interest regarding stewardship matters, and that escalation should include a willingness to act collectively with other institutional
investors.
Question 35
[4028244] Which of the following statements is true of asset managers?
A
They are the legal owners of the assets under management.
B
They are the counterparty to transactions undertaken.
C
They provide investment advice to asset owners including asset allocation.
D
They make investment decisions pursuant to guidelines.
You answered : D - They make investment decisions pursuant to guidelines.
The correct answer is: D - They make investment decisions pursuant to guidelines.
Explanation
Asset managers: Act as agent on behalf of clients (asset owners); Are not legal owner of assets under management; Are not the
counterparty to transactions or to derivatives; Can manage assets via separate accounts and/or funds; Make investment
decisions pursuant to guidelines stated in Investment Management Agreement (IMA) or fund constituent documents; Are
required to act as a fiduciary to clients.
Question 36
[4028247] Which of the following would be regarded as a role of the portfolio manager as opposed to the investment research
analysts?
A
Determining the intrinsic value of a security.
B
Undertaking credit analysis.
C
Weighing security-specific conviction against sensitivities to potential shocks.
D
Estimating a security's earnings growth.
You answered : C - Weighing security-specific conviction against sensitivities to potential shocks.
The correct answer is: C - Weighing security-specific conviction against sensitivities to potential shocks.
Explanation
The role of portfolio managers is of much broader scope than that of the investment research analysts. A portfolio manager
constructs and manages a portfolio through a careful process that aggregates all of the individual underlying risks. And while
portfolio managers often form their own views for a given security, their primary role is to weigh security-specific conviction
against: Macro- and micro-economic data; Portfolio exposure; Sensitivities to potential shocks.
Question 37
[4028248] How may conduct-related exclusions best be defined?
A
Exclusions supported by global norms and conventions like those from the UN and the World Health Organization (WHO).
B
Company or country specific exclusions that are often not a statement against the nature of the business itself but against
violations of human and labour rights.
C
Exclusions specified by religious principles and/or religious laws.
D
Exclusions that are not supported by global consensus but are supported locally. For example, New Zealand’s pension funds
are singularly bound by statutory law to exclude companies involved in the processing of whale meat products.
You answered : A - Exclusions supported by global norms and conventions like those from the UN and the World Health
Organization (WHO).
The correct answer is: B - Company or country specific exclusions that are often not a statement against the nature of the
business itself but against violations of human and labour rights.
Explanation
Conduct-related exclusions are generally company or country specific, and often not a statement against the nature of the
business itself. Labour infractions in the form of violations against the International Labour Organization principles are often
cited.
Question 38
[4028249] What may be described as a strategic asset allocation method resulting in the construction of an efficient frontier that
represents a mix of assets that produces the minimum standard deviation (as a proxy for risk) for the maximum level of
expected return, being based on defined asset class buckets and long-term expected returns, risks and correlations?
A
Mean-variance optimisation (MVO)
B
Total portfolio analysis (TPA)
C
Dynamic asset allocation (DDA).
D
Factor risk allocation.
You answered : A - Mean-variance optimisation (MVO)
The correct answer is: A - Mean-variance optimisation (MVO)
Explanation
Mean-variance optimisation (MVO) results in the construction of an efficient frontier that represents a mix of assets that
produces the minimum standard deviation (as a proxy for risk) for the maximum level of expected return. It is based on defined
asset class buckets and long-term expected returns, risks and correlations.
Question 39
[4028250] Introducing ESG into the asset allocation process through screening will undoubtedly have implications that must be
considered relative to a standard, non-ESG asset mix strategy. Which of the following is the most likely outcome?
A
Improved portfolio diversification and reduced skewness.
B
Improved portfolio diversification and increased skewness.
C
Reduced portfolio diversification and reduced skewness.
D
Reduced portfolio diversification and increased skewness.
You answered : C - Reduced portfolio diversification and reduced skewness.
The correct answer is: D - Reduced portfolio diversification and increased skewness.
Explanation
Introducing ESG into the asset allocation process will undoubtedly carry exposure and weighting implications that must be
considered relative to a standard, non-ESG asset mix strategy. In other words, integrating a given ESG methodology will
introduce some diversification effect or skewness.
Question 40
[4028251] Which of the following risks is most likely to have the greatest potential impact on a business's infrastructure?
A
Compliance risks.
B
Environmental risks.
C
Physical risks.
D
Transition risks.
You answered : B - Environmental risks.
The correct answer is: C - Physical risks.
Explanation
Physical risks represent the physical risks manifested by climate change that may impact businesses’ operations, strategy,
infrastructure, workforce or markets; it may carry wider implications across the investment value chain and to the financial
system.
Question 41
[4028252] Which of the following fixed income strategies demonstrates the highest degree of ESG integration?
A
Unconstrained.
B
Government.
C
Buy and maintain.
D
High yield.
You answered : A - Unconstrained.
The correct answer is: C - Buy and maintain.
Explanation
A buy and maintain strategy currently demonstrates the highest fixed income ESG ratings.
Question 42
[4028253] What may be defined as a type of bond instrument that provides access to essential services, infrastructure and
social programmes to underserved people and communities?
A
Blue bonds.
B
Social bonds.
C
Green bonds .
D
Sustainable bonds.
You answered : B - Social bonds.
The correct answer is: B - Social bonds.
Explanation
Social bonds fund projects that provide access to essential services, infrastructure and social programmes to underserved
people and communities. Examples include projects providing: affordable housing; microfinance lending; healthcare; education.
The Spanish Instituto de Credito issued the first social bond in 2015.
Question 43
[4004938] Forests convert CO2 in the air to oxygen through what process?
A
Sanitation.
B
Nutrient cycling.
C
Decarbonisation.
D
Photosynthesis.
You answered : C - Decarbonisation.
The correct answer is: D - Photosynthesis.
Explanation
Photosynthesis is the process by which forests convert CO2 in the air into oxygen.
Question 44
[4004939] In 2003, European markets were struck by two major scandals that contributed to a major reassessment of Europe’s
approach to governance. What were these scandals?
A
Ahold and Parmalat.
B
HIH and Enron.
C
Olympus and Volkswagen.
D
WorldCom and Tyco.
You answered : A - Ahold and Parmalat.
The correct answer is: A - Ahold and Parmalat.
Explanation
Corporate failures and scandals have been a powerful driver for the formalisation of corporate governance and the development
of codes. When companies fail and investors lose money as happened with Ahold and Parmalal,, there is often pressure for an
improved approach. A codified set of guidelines for good governance has grown from the basic concepts of accountability and
alignment.
Question 45
[4004940]
Which of the following styles of investment analysis are most likely to incorporate qualitative ESG analysis?
i Company-specific research.
ii Fundamental analysis.
iii Stock-picking.
A
i and ii only.
B
i and iii only.
C
ii and iii only.
D
i, ii and iii.
You answered : A - i and ii only.
The correct answer is: D - i, ii and iii.
Explanation
Qualitative ESG analysis is likely to be used in investment processes that are based on company-specific research,
fundamental analysis and stock-picking. Investment teams analyse ESG data to form their opinion on the ability of the firm to
manage certain ESG issues.
Question 46
[4004941] As with all ESG investment measures, carbon footprinting has its uses and limitations. Which of the following
comments is incorrect in this respect?
A
Carbon footprinting applies the international accounting tool of the GHG (Greenhouse Gas) Protocol Standards.
B
Carbon footprinting is one of the most common approaches used by companies.
C
Carbon footprinting cannot be applied on a portfolio basis.
D
Carbon footprinting helps identify priority areas and actions for reducing emissions and tracking progress in making those
reductions.
You answered : C - Carbon footprinting cannot be applied on a portfolio basis.
The correct answer is: C - Carbon footprinting cannot be applied on a portfolio basis.
Explanation
Carbon footprinting is one of the most common approaches used by companies. It applies the international accounting tool of
the GHG (Greenhouse Gas) Protocol Standards and can help to identify priority areas and actions for reducing emissions and to
track progress in making those reductions. A portfolio carbon footprint effectively measures carbon emissions and the intensity
associated with operations of the companies in a portfolio.
Question 47
[4004942] Assessing ESG factor tilts would be categorised as which of the following?
A
An element of ESG research only.
B
An element of ESG analysis only.
C
An element of ESG integration only.
D
An element of both ESG analysis and integration.
You answered : D - An element of both ESG analysis and integration.
The correct answer is: C - An element of ESG integration only.
Explanation
Elements of ESG integration within the investment process include: Adjusting forecast financials, adjusting valuation models or
multiples, adjusting credit risk and duration, managing risk, ESG factor tilts, ESG momentum tilts, strategic asset allocation,
tactical asset allocation and ESG controversies, positive ESG events. Red flag indicators, company questionnaires and/or
management interviews and watch lists are elements of ESG analysis.
Question 48
[4004943] In relation to temperature rises above pre-industrial levels, what is the long-term goal of the Paris Agreement?
A
To limit the increase in global average temperature to 0.5 °C.
B
C
D
You answered : C - To limit the increase in global average temperature to 1.5 °C.
The correct answer is: C - To limit the increase in global average temperature to 1.5 °C.
Explanation
The Paris Agreement's long-term goal is to keep the increase in global average temperature to well below 2°C above pre-
industrial levels, and to limit the increase to 1.5 °C, since this would substantially reduce the risks and effects of climate change.
Question 49
[4004944] With respect to workforce diversity, which of the following statements is true?
A
Fewer women are entering the labour market. However, in comparison to men, women are less likely to become and remain
unemployed.
B
Fewer women are entering the labour market and in comparison to men, women are more likely to become and remain
unemployed.
C
More women are entering the labour market and, in comparison to men, women are less likely to become and remain
unemployed.
D
More women are entering the labour market. However, in comparison to men, women are more likely to become and remain
unemployed.
You answered : D - More women are entering the labour market. However, in comparison to men, women are more likely to
become and remain unemployed.
The correct answer is: D - More women are entering the labour market. However, in comparison to men, women are more
likely to become and remain unemployed.
Explanation
The workforce has become more diverse with more women entering the labour market. However, in comparison to men, women
are more likely to become and remain unemployed.
Question 50
[4004948] Participation with local communities may be achieved through FPIC, but what does FPIC stand for?
A
Free Prior Informed Consent.
B
Free Participative Initiated Consent.
C
Free Prior Involved Consideration.
D
Free Participative Initiated Consideration.
You answered : A - Free Prior Informed Consent.
The correct answer is: A - Free Prior Informed Consent.
Explanation
One way to establish bottom-up participation is to use Free Prior Informed Consent (FPIC).
Question 51
[4004950] Which of the following statements is not correct regarding challenges that exist to ESG integration?
A
There remain significant numbers of investment professionals who do not integrate ESG or believe ESG has limited financial
impact.
B
ESG integration is often different across asset classes.
C
A firm’s global nature may make it easier to integrate globally across the firm.
D
Many quantitative ESG factors are not agreed upon and the data are relatively short-run.
You answered : C - A firm’s global nature may make it easier to integrate globally across the firm.
The correct answer is: C - A firm’s global nature may make it easier to integrate globally across the firm.
Explanation
A firm’s global nature may make culturally different attitudes to ESG factors difficult to integrate globally across the firm.
Question 52
[4004951] With respect to company disclosures on ESG topics, which of the following is false?
A
Listed companies must comply with minimum ESG reporting standards that apply internationally.
B
Companies have variable disclosure policies and reporting requirements.
C
Much ESG data is not compulsory under typical reporting standards.
D
Management has large flexibility in what it chooses to report.
You answered : A - Listed companies must comply with minimum ESG reporting standards that apply internationally.
The correct answer is: A - Listed companies must comply with minimum ESG reporting standards that apply internationally.
Explanation
Listed companies must comply with minimum reporting standards, however, these standards vary by region.
Question 53
[4004953] Of the following statements, which is least likely to form part of an investment philosophy that integrates ESG?
A
We use intangible, ESG and business assessment to invest in great, sustainable companies at attractive valuations.
B
We construct portfolios of sustainable companies with the confidence derived from our deep ESG research and analysis.
C
We manage the ESG risks and opportunities associated with short-term economic trends, taking decisions well and maximising
profits.
D
We consider ESG factors as non-traditional sources of risk and opportunity which we believe should form part of every company
assessment.
You answered : C - We manage the ESG risks and opportunities associated with short-term economic trends, taking
decisions well and maximising profits.
The correct answer is: C - We manage the ESG risks and opportunities associated with short-term economic trends, taking
decisions well and maximising profits.
Explanation
ESG investing is based on the idea that by managing the risks and opportunities associated with long-term economic, social
and environmental trends, companies will have the best chance to prosper by taking decisions well and incorporating the full
range of material risk factors into their decision-making.
Question 54
[4004954] In 2017, the CFA Institute’s Financial Analysts Journal reported that proportion of firms consider ESG factors when
making investment decisions?
A
Over 52%.
B
Over 62%.
C
Over 72%.
D
Over 82%.
You answered : C - Over 72%.
The correct answer is: D - Over 82%.
Explanation
In 20176, the CFA Institute’s Financial Analysts Journal reported that over 82% of respondents reported that their firms consider
ESG factors when making investment decisions.
Question 55
[4004955]
Which of the following are among the observed outcomes of successful engagement?
i Reduced market volatility.
ii Positive abnormal financial returns.
iii Reduced downside risk.
A
i and ii only.
B
i and iii only.
C
ii and iii only.
D
i, ii and iii.
You answered : C - ii and iii only.
The correct answer is: C - ii and iii only.
Explanation
The observed outcomes of successful engagement are positive abnormal financial returns and reduced downside risk.
Question 56
[4004968] What term is typically used to describe the analysis of ESG dataset through the use of algorithms and natural
language processes to determine company quality, reputational risk and many forward-looking aspects of business strength and
valuation?
A
Robo-analysis.
B
AI.
C
API.
D
Big data analysis.
You answered : D - Big data analysis.
The correct answer is: D - Big data analysis.
Explanation
Big data analysis is the term typically used to describe the analysis of ESG dataset through the use of algorithms and natural
language processes to determine company quality, reputational risk and many forward-looking aspects of business strength and
valuation.
Question 57
[4004962] The Japanese Corporate Governance Code was introduced for the first time in 2015 and revised in mid-2018. Which
of the following statements is true regarding this code?
A
Provisions encourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards
through having at least one independent non-executive director.
B
Provisions discourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards
through having at least one independent executive director.
C
through having at least one independent non-executive director.
D
Provisions encourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards
through having at least one independent executive director.
You answered : C - Provisions discourage the maintenance of cross-shareholdings and require increasing independence on
Japanese boards through having at least one independent non-executive director.
The correct answer is: C - Provisions discourage the maintenance of cross-shareholdings and require increasing
independence on Japanese boards through having at least one independent non-executive director.
Explanation
through having at least one independent non-executive director to be in place on every board.
Question 58
[4004961] Under the Sustainalytics Risk Scoring system, risks that could be managed by a company through suitable initiatives
but which may not yet be managed are known as what?
A
Management risk.
B
Unmanageable risk.
C
Management gap.
D
Risk decomposition.
You answered : C - Management gap.
The correct answer is: C - Management gap.
Explanation
Management gap represents risks that could be managed by a company through suitable initiatives but which may not yet be
managed.
Question 59
[4004957]
You manage a portfolio that has a significant holding in the shares of a specific UK company. The fund is highly concentrated
with correspondingly high idiosyncratic risk and, as a result, you believe that a detailed analysis of the governance of each of
stock held is of paramount importance to long-term fund performance.
You have recently received the agenda for the company's AGM that will be held in eight weeks which, along with the normal
items, includes the following details.
The total amount of CEO remuneration was GBP 1.20 million of which 30% was fixed salary, but no detail on the Key
Performance Indicators (KPIs) that influence this variable compensation.
The board composition has changed and the meeting agenda highlights that the chair is the former CEO who stepped down last
year, and that the board is composed of 10 members of whom 3 are independent non-executives.
The following schedule provides an overview of board skills and diversity.
Board skills and experience No. of

directors
Sector experience 3
Global experience 6
Strategy experience 8
Risk management experience 10
Value chain experience 5
Financial expertise 10
Health and safety experience 5
Technology experience 2
Capital allocation and efficiency experience 6
Board tenure No. of

directors
0-3 years 5
3-6 years 1
6-9 years 2
9+ years 2
Board gender No. of

directors
Male 8
Female 2
A minority shareholder has managed to add a resolution to the AGM agenda asking the company to produce a report on how
climate change may affect the company’s strategy and financial stability in the long-term.
Having received this agenda information you have contacted the company's Investor Relations department to discuss
governance issues and have been informed that, given the overall board remuneration scale, that the issue is of no relevance to
company performance.
How are you most likely to take account of the KPIs in relation to the CEO's variable remuneration given that the details have
not been disclosed?

A
Increase the company's estimated costs for next year by an additional GBP0.7 million on the assumption that the variable
element will be substantially the same.
B
Reduce the company’s current total costs by the fixed salary portion of GBP360,000.
C
Decrease the cost of capital used in your financial model to reflect the possibility that the variable remuneration element is
aligned to corporate performance.
D
Increase the cost of capital used in your financial model to reflect the increased risk arising from the variable remuneration
element.
You answered : A - Increase the company's estimated costs for next year by an additional GBP0.7 million on the assumption
that the variable element will be substantially the same.
The correct answer is: D - Increase the cost of capital used in your financial model to reflect the increased risk arising from
the variable remuneration element.
Explanation
When adjusting models based on ESG assessments, the analyst may: 1. Make explicit forecast profit and loss, balance sheet
and cash flows adjustments for specific factors such as litigation, stranded asset write-offs, etc.; 2. Adjust the cost of capital
used in any discounted cash flow (DCF) model for changing ESG risk levels; 3. Make valuation ratio adjustments based on peer
group comparisons.
Question 60
[4004958]
year, and that the board is composed of 10 members of whom three are independent non-executives.

directors
Sector experience 3
Global experience 6
Board tenure No. of

directors
0-3 years 5
3-6 years 1
6-9 years 2
9+ years 2
Board gender No. of

directors
Male 8
Female 2
As the former CEO, you feel that the Chair cannot be considered as an independent member of the board and have scheduled
an engagement meeting with them to discuss the issue. What could be the optimal outcome from a governance perspective?
A
The Chair remains in office and re-assumes the role of CEO, with an expansion in the number of independent directors to
balance executives and non-executives.
B
The Chair steps down from the Board and the Chair role, and a newly-elected independent director is appointed as Chair.
C
The Chair steps down but remains on the board, with one of the existing independent directors assuming the Chair.
D
The Chair remains in office but an additional independent director is added to the board to increase the level of independence.
You answered : D - The Chair remains in office but an additional independent director is added to the board to increase the
level of independence.
The correct answer is: B - The Chair steps down from the Board and the Chair role, and a newly-elected independent
director is appointed as Chair.
Explanation
The role of the Chairman of the board is vital in facilitating a balanced debate in the boardroom. Consequently, many investors
prefer that the Chair is an independent non-executive director. If the Chair is not independent, and especially if that individual
combines the role of Chair with the role of CEO, this can lead to an excessive concentration of powers, and hampers the
board’s ability to make decisions.
Question 61
[4004959]
.You manage a portfolio that has a significant holding in the shares of a specific UK company. The fund is highly concentrated


directors
Sector experience 3
Global experience 6
Board tenure No. of

directors
0-3 years 5
3-6 years 1
6-9 years 2
9+ years 2
Board gender No. of
directors
Male 8
Female 2
Which of the following arguments could you best advance to counter the comments made by the Investor Relations department
and to highlight the importance of appropriate governance to all enterprises?
A
The study by Bernile, Bhagwat and Yonker on the issue of board diversity and its importance to corporate value.
B
The meta study by Friede, Busch and Bassen revealing that in the majority of circumstances there is a positive correlation
between governance and corporate financial performance.
C
The study by NN Investment Partners revealing the correlation between corporate performance and engagement.
D
The study by Eccles et al which identified the link between long-standing good practice in sustainability and long-term corporate
performance.
You answered : A - The study by Bernile, Bhagwat and Yonker on the issue of board diversity and its importance to
corporate value.
The correct answer is: B - The meta study by Friede, Busch and Bassen revealing that in the majority of circumstances
there is a positive correlation between governance and corporate financial performance.
Explanation
The meta study by Friede, Busch and Bassen, ESG and Financial Performance: aggregated evidence from more than 2,000
empirical studies, combined the underlying findings of around 2,200 individual studies and claims to be the most exhaustive
overview of the academic evidence on ESG and performance. The large majority of studies show positive correlation between
ESG factors and performance.
Question 62
[4004960]

TThe board composition has changed and the meeting agenda highlights that the chair is the former CEO who stepped down
last year, and that the board is composed of 10 members of whom three are independent non-executives.

directors
Sector experience 3
Global experience 6
Board tenure No. of

directors
0-3 years 5
3-6 years 1
6-9 years 2
9+ years 2
Board gender No. of

directors
Male 8
Female 2
What are you least likely to consider when making a decision in respect of voting on the minority shareholder's resolution?
A
The extent to which you assess the company to be exposed to climate change risks.
B
The extent to which the company already provides information on the topic of climate change risk.
C
How supportive the company is of the resolution, the nature and reason behind their response.
D
How you categorise this issue (environmental, social or governance) given that your concerns relate to governance.
You answered : C - How supportive the company is of the resolution, the nature and reason behind their response.
The correct answer is: D - How you categorise this issue (environmental, social or governance) given that your concerns
relate to governance.
Explanation
Given the evidence of the positive correlation between ESG factors and performance, you are unlikely to be concerned by which
category the resolution falls within as it is clearly in the ESG domain.
Question 63
[4062140]

directors
Sector experience 3
Global experience 6
Board tenure No. of

directors
0-3 years 5
3-6 years 1
6-9 years 2
9+ years 2
Board gender No. of

directors
Male 8
Female 2
Which of the following would you consider to be the most significant governance weaknesses identified by the skills and
diversity information?
A
Sector experience, board tenure and gender diversity.
B
Sector experience, technology experience and gender diversity.
C
Technology experience, board tenure and gender diversity.
D
Sector experience, technology experience and board tenure.
You answered : B - Sector experience, technology experience and gender diversity.
The correct answer is: B - Sector experience, technology experience and gender diversity.
Explanation
Although board tenure may be an issue when assessing the independence of non-executive directors, it is less relevant for
executive directors, and the spread of tenures does not suggest any issue. The other areas noted do, however, appear weak.
Question 64
[4004964] As a corporate bond analyst with a major investment fund who has been directed to engage with companies in which
your firm has holdings, which clients should you approach first?
A
The largest holdings with the highest ESG scores.
B
The smallest holdings with the lowest ESG scores.
C
The largest holdings with the lowest ESG scores.
D
The smallest holdings with the highest ESG scores.
You answered : C - The largest holdings with the lowest ESG scores.
The correct answer is: C - The largest holdings with the lowest ESG scores.
Explanation
In relation to fixed income, the PRI’s Guide to ESG engagement for fixed income investors recommends that investors should
prioritise engagement based on: the size of a holding in the portfolio; lower credit quality issuers (with less balance sheet
flexibility to absorb negative ESG impacts); key themes that are material to sectors; issuers with low ESG scores.
Question 65
[4004966] Of the following sectors, which does not rely significantly on natural resources and ecosystem services?
A
Agriculture.
B
Fast-moving consumer goods.
C
Software development.
D
Infrastructure.
You answered : C - Software development.
The correct answer is: C - Software development.
Explanation
Sectors that rely significantly on natural resources and ecosystem services include: Agriculture, aquaculture, fisheries and food
production; extractives, infrastructure and activities or projects involving large-scale construction activities; fast moving
consumer goods (FMCG) companies, primarily through the sourcing of raw materials in products; forestry. Service businesses
such as software development do not rely significantly on natural resources.
Question 66
[4004969] What is the most accurate description of the typical composition of a Board of Directors in Japan compared to that of
boards in Europe or the US?
A
Japanese companies have a much lower number of independent directors on their boards than the European or US average.
B
Japanese companies have much the same number of independent directors on their boards as the European or US average.
C
Japanese companies have a much higher number of independent directors on their boards than the European or US average.
D
Japanese companies have a broader spread in the number of independent directors on their boards than the European or US
average.
You answered : A - Japanese companies have a much lower number of independent directors on their boards than the
European or US average.
The correct answer is: A - Japanese companies have a much lower number of independent directors on their boards than
the European or US average.
Explanation
Japanese companies have a much lower number of independent directors on their boards than the European or US average.
Question 67
[4004970] According to the OECD Centre for Opportunity and Equality (COPE) 2015 report, the average income of the richest
10% of the global population is how many times that of the poorest 10% across the OECD?
A
Almost 9 times.
B
Almost 14 times.
C
Almost 20 times.
D
Almost 30 times.
You answered : B - Almost 14 times.
The correct answer is: A - Almost 9 times.
Explanation
According to the OECD Centre for Opportunity and Equality (COPE) 2015 report, the average income of the richest 10% of the
population is almost 9 times that of the poorest 10% across the OECD.
Question 68
[4004971] The Natural Capital Protocol is a decision-making framework that enables organisations to identify, measure and
value the direct and indirect impacts and dependencies of companies on natural capital. Which of the following sectors does it
currently provide guidance on?
A
Construction.
B
Food and beverage.
C
Fast-moving consumer goods.
D
Travel.
You answered : D - Travel.
The correct answer is: B - Food and beverage.
Explanation
The Natural Capital Protocol (NCP) is a decision-making framework that enables organisations to identify, measure and value
the direct and indirect impacts and dependencies of companies on natural capital. It currently provides guidance for the apparel
sector, food and beverage sector and forest products sector.
Question 69
[4004973]
Which of the following are challenges faced by auditors in the prevention or detection of fraud?
i. Audits are intended to prevent or detect only material items, hence may not identify smaller frauds.
ii. Auditors rely heavily on the accuracy of a company’s accounting records and systems.
iii. Auditing is a sampling process that aims to identify anomalies that can then be followed up.
iv. Auditors may provide non-audit work, reducing their independence.
A
i, ii and iv only.
B
ii, iii and iv only.
C
i, ii and iii only.
D
i, ii, iii and iv.
You answered : C - i, ii and iii only.
The correct answer is: C - i, ii and iii only.
Explanation
The auditor is there to provide an independent pair of eyes assessing the financial reports prepared by management, and to
provide some assurance that those reports fairly represent the performance and position of the business. There is no absolute
assurance that the numbers are correct, nor is there certainty that there is no fraud within the business. Auditing is a sampling
process trying to identify anomalies that can then be followed up. The depth of sampling is highly dependent on the auditor’s
assessment of the quality of the company’s own systems and financial controls, and their materiality assessment.
Question 70
[4004975] What event inspired the UK to develop the first stewardship code, which is now part of the UK law?
A
The collapse of BCCI.
B
The Maxwell pension scandal.
C
The 2008 financial crisis.
D
The Polly Peck scandal.
You answered : D - The Polly Peck scandal.
The correct answer is: C - The 2008 financial crisis.
Explanation
The introduction of stewardship codes around the world has reinforced the need for investment manager and asset owner
engagement with their investees, including around ESG. The UK was the first country to develop such a code, in response to
one of the recommendations in the Walker Review of November 2009 into the collective failures that led up to the financial crisis
of 2008. This led to the UK’s Financial Reporting Council proposing a UK Stewardship Code in 2010.
Question 71
[4004976] A company's long-term value and prospects are most likely to be enhanced by positive ESG factors. Which of the
following is a positive ESG factor?
A
Presence of senior managers on the audit committee. .
B
Related party transactions that require approval by the founders of the company.
C
Enhanced board diversity.
D
Responsibilities concentrated in the hands of the CEO and Chair of the Board. .
You answered : C - Enhanced board diversity.
The correct answer is: C - Enhanced board diversity.
Explanation
A mixed skill set among directors (enhanced diversity) is important as it ensures that discussions and debate are appropriately
informed from a range of perspectives and the risk of “group-think” is avoided. Increasing diversity and the range of
perspectives in the boardroom, through gender diversity, but also diversity in terms of professional backgrounds and
experiences, has been demonstrated to deliver a more challenging culture that is more likely to enhance long-term value.
Question 72
[4004981]
Different asset managers adopt different responsible investment strategies. Which of the following are valid investment
strategies?
i A strategy based on fundamental company-specific research.
ii A strategy based on quant models.
iii A strategy that is event-driven.
iv A strategy based on identifying companies with a long-term track record of delivering superior financial performance.
A
i, ii and iii only.
B
i, ii and iv only.
C
D
i, ii, iii and iv.
You answered : D - i, ii, iii and iv.
The correct answer is: D - i, ii, iii and iv.
Explanation
Different asset managers adopt different responsible investment strategies because their investment philosophy and investment
processes may fundamentally differ. For instance, some active investors focus on fundamental company-specific research,
others on quant models; some will be more event-driven, others more focused on identifying companies with a long-term track
record of delivering superior financial performance.
Question 73
[4004982] ESG analysis incorporates which of the following elements?
A
ESG momentum tilts.
B
ESG factor tilts.
C
Watch lists.
D
Managing risks.
You answered : C - Watch lists.
The correct answer is: C - Watch lists.
Explanation
Elements of ESG analysis include: Red flag indicators, company questionnaires and management interviews, checks with
outside experts, watch lists, internal ESG research, external ESG research, ESG agenda items on investment committee or
Chief Information Officer (CIO) meetings.
Question 74
[4004983] The physical impacts of climate change are most likely to have been identified as a key ESG driver for which of the
following institutional investors?
A
Pension funds.
B
General insurance companies.
C
Life insurance companies.
D
Mutual investment fund companies.
You answered : C - Life insurance companies.
The correct answer is: B - General insurance companies.
Explanation
Insurance companies offering property and general insurance cover most directly experience the physical impacts of climate
change and the damage that it causes, and are increasingly obliged to alter their pricing to reflect the new dynamic of more
frequent extreme weather events.
Question 75
[4004985]
Materiality mapping may be applied in which of the following ways?
i By market.
ii By sector.
iii By sub-sector.
iv By company.
A
i and ii only.
B
i, ii and iii only.
C
D
i, ii, iii and iv.
You answered : C - ii, iii and iv only.
The correct answer is: C - ii, iii and iv only.
Explanation
Materiality mapping may be applied to whole sectors, sub-sectors, or specific companies, but serves little purpose by market.
Question 76
[4004986] With respect to investors who utilise quantitative factor analysis to assess and integrate ESG factors into their
investment decision making, which of the following statements is false?
A
Quantitative practitioners typically utilise large data sets of shares or bonds rather than assessing companies in isolation.
B
Quantitative practitioners may assess ESG factors at the research stage.
C
Quantitative practitioners typically integrate ESG factors alongside other factors, such as value, size, momentum, growth and
volatility.
D
Quantitative practitioners typically gather data that is similar to fundamental investors but tends to be over smaller datasets.
You answered : D - Quantitative practitioners typically gather data that is similar to fundamental investors but tends to be
over smaller datasets.
The correct answer is: D - Quantitative practitioners typically gather data that is similar to fundamental investors but tends to
be over smaller datasets.
Explanation
Quantitative practitioners typically gather data that is similar to fundamental investors but tends to be over larger (rather than
smaller) datasets.
Question 77
[4004992] The ESG scorecard development process involves a number of stages. Which of the following places these stages in
the correct chronological order?
A
Step 1: Identify sector or company specific ESG items; Step 2: Breakdown issues into a number of indicators; Step 3: Determine
a scoring system based on what good/best practice looks like for each indicator/issue; Step 4: Assess a company and give it a
score; Step 5: Calculate aggregated scores at issue level, dimension level, or total score level; Step 6: Benchmark the
company’s performance against industry averages or peer group.
B
Step 1: Determine a scoring system based on what good/best practice looks like for each indicator/issue; Step 2: Assess a
company and give it a score; Step 3: Identify sector or company specific ESG items; Step 4: Benchmark the company’s
performance against industry averages or peer group; Step 5: Calculate aggregated scores at issue level, dimension level, or
total score level; Step 6: Breakdown issues into a number of indicators.
C
Step 1: Determine a scoring system based on what good/best practice looks like for each indicator/issue; Step 2: Breakdown
issues into a number of indicators; Step 3: Assess a company and give it a score; Step 4: Identify sector or company specific
ESG items; Step 5: Calculate aggregated scores at issue level, dimension level, or total score level; Step 6: Benchmark the
D
Step 1: Identify sector or company specific ESG items; Step 2: Assess a company and give it a score; Step 3: Breakdown
issues into a number of indicators; Step 4: Determine a scoring system based on what good/best practice looks like for each
indicator/issue; Step 5: Calculate aggregated scores at issue level, dimension level, or total score level; Step 6: Benchmark the
You answered : A - Step 1: Identify sector or company specific ESG items; Step 2: Breakdown issues into a number of
indicators; Step 3: Determine a scoring system based on what good/best practice looks like for each indicator/issue; Step 4:
Assess a company and give it a score; Step 5: Calculate aggregated scores at issue level, dimension level, or total score level;
Step 6: Benchmark the company’s performance against industry averages or peer group.
The correct answer is: A - Step 1: Identify sector or company specific ESG items; Step 2: Breakdown issues into a number
of indicators; Step 3: Determine a scoring system based on what good/best practice looks like for each indicator/issue; Step 4:
Assess a company and give it a score; Step 5: Calculate aggregated scores at issue level, dimension level, or total score level;
Step 6: Benchmark the company’s performance against industry averages or peer group.
Explanation
To develop a scorecard it is necessary to Step 1: Identify sector or company specific ESG items. Step 2: Breakdown issues into
a number of indicators (e.g. policy, measures, disclosure). Step 3: Determine a scoring system based on what good/best
practice looks like for each indicator/issue. Step 4: Assess a company and give it a score. Step 5: Calculate aggregated scores
at issue level, dimension level (environmental, social or governance level) or total score level (depending on the relative weight
of each issue). Step 6: Benchmark the company’s performance against industry averages or peer group (optional).
Question 78
[4004993]
There is a tendency for certain investment processes to reduce the investment universe. Which of the following have that
impact?
i Exclusionary screening.
ii Tracking an ESG benchmark index.
iii Active ownership.
A
i only.
B
i and ii only.
C
ii and iii only.
D
i, ii and iii.
You answered : A - i only.
The correct answer is: A - i only.
Explanation
Only the negative (exclusionary) screening approach reduces the investment opportunity set.
Question 79
[4004994] Which of the following is not a direct method of ESG information collection?
A
Direct company communication.
B
Surveys.
C
Company reports.
D
Third-party reports and analysis.
You answered : D - Third-party reports and analysis.
The correct answer is: D - Third-party reports and analysis.
Explanation
Information can be collected directly via surveys, direct company communication, company reports, presentations and public
documents or indirectly via news articles, third-party reports and analysis. The assessments can be given in a raw form, or used
to determine index weights or processed to determine specific ratings and scores.
Question 80
[4004995] How would you best describe the Corporate Reporting Dialogue?
A
A collective effort among standard setters to try to establish a consistent approach/requirement in respect of corporate reporting.
B
A report by the TCFD regarding the most appropriate way to combine ESG into corporate reporting.
C
An effort to re-align the thinking of the TCFD with the requirements of stewardship and profitability.
D
A discussion/debate regarding stewardship and the purpose of corporate reporting.
You answered : B - A report by the TCFD regarding the most appropriate way to combine ESG into corporate reporting.
The correct answer is: A - A collective effort among standard setters to try to establish a consistent approach/requirement in
respect of corporate reporting.
Explanation
The Corporate Reporting Dialogue is a collective effort among standard setters to try to establish a consistent
approach/requirement in respect of corporate reporting in order to align metrics and frameworks for corporate reporting
purposes to TCFD recommendations.
Question 81
[4004996] Company ESG ratings are not available from which of the following ESG service providers?
A
Inrate.
B
Real Impact Tracker.
C
MSCI.
D
Thomson Reuters.
You answered : B - Real Impact Tracker.
The correct answer is: B - Real Impact Tracker.
Explanation
Real Impact Tracker (RIT) provides ESG fund ratings, not individual company ratings’.
Question 82
[4004998] When considering the valuation of equity securities, which of the following processes is the least appropriate within
the ESG integration framework?
A
Valuation multiples.
B
Scenario analysis.
C
Duration analysis.
D
Forecast financial ratios.
You answered : C - Duration analysis.
The correct answer is: C - Duration analysis.
Explanation
Within the ESG integration framework the following are security level components for fixed income: Internal credit assessment;
forecast financial ratios; relative ranking; relative value analysis/spread analysis; duration analysis. The following are security
level components for equities: Forecast financial ratios; valuation multiples; valuation model variables; forecast financials.
Security sensitivity/scenario analysis may be used for both equities and fixed income.
Question 83
[4004999] ESG integration faces many hurdles and challenges which may be placed within four broad categories. Which of the
following is not one of those categories?
A
Comparability challenges.
B
Disclosure and data-related challenges.
C
Materiality and judgement challenges.
D
ESG take-up challenges.
You answered : D - ESG take-up challenges.
The correct answer is: D - ESG take-up challenges.
Explanation
The hurdles and challenges to ESG integration may be placed into the following categories: Disclosure and data-related
challenges; comparability challenges; materiality and judgement challenges; ESG integration challenges across asset classes.
Question 84
[4005000] Within the UK, there are several Stewardship code principles that apply to institutional investors. Which of the
following is not one of those principles?
A
Monitoring.
B
Voting.
C
Engagement.
D
Capital structure.
You answered : D - Capital structure.
The correct answer is: D - Capital structure.
Explanation
The principles of all the codes around the world are similar and typically there are around seven Stewardship Code principles for
institutional investors to comply with: 1. regular monitoring of investee companies, 2. active engagement where relevant
(sometimes termed 'escalation', or sometimes escalation is deemed worthy of a separate principle of its own); 3. thoughtfully
intelligent voting.
Question 85
[4005001] The Sustainalytics ESG risk rating provides insight into which of the following?
A
The magnitude of a company’s unmanaged ESG returns.
B
The magnitude of a company’s unmanaged ESG risks.
C
The magnitude of a company’s managed ESG returns.
D
The magnitude of a company’s managed ESG risks.
You answered : B - The magnitude of a company’s unmanaged ESG risks.
The correct answer is: B - The magnitude of a company’s unmanaged ESG risks.
Explanation
The Sustainalytics ESG Risk Rating measures the degree to which a company’s economic value is at risk driven by ESG factors
or, more technically speaking, the magnitude of a company’s unmanaged ESG risks.
Question 86
[4005003] The Access to Medicine Index provides what information for investors?
A
It analyses how 50 of the world’s largest pharmaceutical companies are addressing access to medicine in 156 low- to middle-
income countries for 177 diseases, conditions and pathogens.
B
C
D
You answered : B - It analyses how 50 of the world’s largest pharmaceutical companies are addressing access to medicine
in 106 low- to middle-income countries for 77 diseases, conditions and pathogens.
The correct answer is: D - It analyses how 20 of the world’s largest pharmaceutical companies are addressing access to
medicine in 106 low- to middle-income countries for 77 diseases, conditions and pathogens.
Explanation
The Access to Medicine Index analyses how 20 of the world’s largest pharmaceutical companies are addressing access to
medicine in 106 low- to middle-income countries for 77 diseases, conditions and pathogens and it evaluates them in areas
where they have the biggest potential and responsibility to make change, such as research and development (R&D) and pricing.
Question 87
[4005006] Natural resources cover all of the following key environmental factors except one, which is the exception?
A
Biodiversity.
B
Water.
C
Waste.
D
Land use.
You answered : A - Biodiversity.
The correct answer is: C - Waste.
Explanation
Natural resources include water, biodiversity, land use, forestry and marine resources.
Question 88
[4005012] The strongest positive correlation to business performance is demonstrated by which ESG factor/factors?
A
Environmental and social only.
B
Governance only.
C
Social and governance only.
D
Environmental only.
You answered : B - Governance only.
The correct answer is: B - Governance only.
Explanation
Of the three ESG factors, governance demonstrates the strongest positive correlation to business performance.
Question 89
[4005014] The Index Industry Association (IIA) estimate what proportion of total indices are ESG related?
A
Roughly 1% of indices are ESG indices.
B
C
D
You answered : D - Roughly 25% of indices are ESG indices.
The correct answer is: A - Roughly 1% of indices are ESG indices.
Explanation
ESG indices still represent a small proportion of the total number of indices and, according to the Index Industry Association
(IIA), they represent roughly 1% of the indices that are globally available.
Question 90
[4005018] In regards to adjusting discounted cash flow (DCF) valuation model inputs, which of the following statements is true
when integrating ESG into traditional financial analysis?
A
Adjusting DCF model inputs is valid only at company level.
B
Adjusting DCF model inputs is not valid at country level.
C
Adjusting DCF model inputs is valid at the level of company, sector or country.
D
Adjusting DCF model inputs is not valid at sector level.
You answered : A - Adjusting DCF model inputs is valid only at company level.
The correct answer is: C - Adjusting DCF model inputs is valid at the level of company, sector or country.
Explanation
Adjusting the discounted cash flow models when integrating ESG into traditional financial analysis is valid at the level of
company, sector or country.
Question 91
[4005019] ESG real estate investors would find which of the following indices most useful for benchmarking purposes?
A
MorningStar.
B
MSCI ESG.
C
GRESB.
D
Thomson Reuters.
You answered : C - GRESB.
The correct answer is: C - GRESB.
Explanation
The Global Real Estate Sustainability Benchmark (GRESB) assesses and benchmarks ESG performance of real estate assets.
Question 92
[4005020] Which of the following is not among the key escalation mechanisms identified within the UK Stewardship Code that
can be considered to advance engagements?
A
Proposing a change in board membership.
B
Intervening jointly with other institutions.
C
Holding additional meetings with management.
D
Discussing the matter with proxy advisers.
You answered : B - Intervening jointly with other institutions.
The correct answer is: D - Discussing the matter with proxy advisers.
Explanation
The UK Stewardship Code sets out a list of escalation measures as follows: holding additional meetings with management
specifically to discuss concerns; expressing concerns through the company’s advisers; meeting with the chair or other board
members; intervening jointly with other institutions on particular issues; making a public statement in advance of general
meetings; submitting resolutions and speaking at general meetings; requesting a general meeting, in some cases proposing to
change board membership.
Question 93
[4005021] Which of the following would best be described as, at a minimum, seeking to mitigate risky ESG practices in order to
protect value?
A
Financial investing.
B
Responsible investing.
C
Sustainable investing.
D
Impact investing.
You answered : B - Responsible investing.
The correct answer is: B - Responsible investing.
Explanation
Responsible investing involves seeking to mitigate environmental, social and governance practices in order to protect value.
Question 94
[4005022] The Japanese Government Pension Investment Fund (GPIF) has created, with the aid of index providers, which of
the following for passive/index ESG investment purposes?
A
Environment tilted rules-based indices.
B
Governance tilted rules-based indices.
C
Gender tilted rules-based indices.
D
ESG tilted rules-based indices.
You answered : C - Gender tilted rules-based indices.
The correct answer is: C - Gender tilted rules-based indices.
Explanation
The Japanese Government Pension Investment Fund (GPIF) has, with the aid of index providers, created gender tilted rules-
based indices for passive/index investment purposes.
Question 95
[4005023]
Which types of screen will typically be used to generate best-in-class investment screens in relation to ESG factors?
i Positive.
ii Negative.
iii Growth.
iv Momentum.
A
i and ii only.
B
i, ii and iv only.
C
D
i, ii, iii and iv.
You answered : D - i, ii, iii and iv.
The correct answer is: B - i, ii and iv only.
Explanation
Investment ideas can be generated from the data. Some practitioners start this stage using a valuation screen, or fundamental
screen, which may incorporate ESG factors – this may be a mix of positive (e.g. seek high G, governance), negative (avoid low
G) or momentum (seek rising G or avoid declining G) to create an attractive investment universe.
Question 96
[4005025] What is the anticipated impact on investment risk and return arising from the integration of ESG into the investment
process?
A
Both risk and return will be reduced.
B
Return may increase, risk will be reduced.
C
Both risk and return will be increased.
D
Risk will increase, return will be reduced.
You answered : B - Return may increase, risk will be reduced.
The correct answer is: B - Return may increase, risk will be reduced.
Explanation
The integration of ESG into the investment process is expected to increased investment returns and reduce investment risks.
Question 97
[4005026] What is not one of the typical three components of ESG integration?
A
Analysis.
B
Investment policy.
C
Decision-making.
D
Research.
You answered : B - Investment policy.
The correct answer is: B - Investment policy.
Explanation
ESG integration may be undertaken in various ways, tailored to the investment style and approach of the fund manager, but
typically has three components: 1. research; 2. analysis; 3. decision-making.
Question 98
[4005032] Which of the following statements regarding the agency problem is incorrect?
A
Through appropriate chains of accountability, corporate governance attempts to ensure that there is greater alignment between
the interests of the agents with the directors.
B
The agency problem arises in that the interests of the managers may not always be wholly aligned with the interests of the
owners of the business.
C
The agency challenge is magnified at larger corporations.
D
The agency problem has been identified as an inevitable consequence of the separation of ownership and control.
You answered : C - The agency challenge is magnified at larger corporations.
The correct answer is: A - Through appropriate chains of accountability, corporate governance attempts to ensure that there
is greater alignment between the interests of the agents with the directors.
Explanation
Corporate governance, through appropriate chains of accountability, attempts to ensure that there is greater alignment in the
interests of the directors as agents with the owners through appropriate chains of accountability.
Question 99
[4005033]
In which of the following ways is domestic waste disposal typically funded in most developed countries?
i. From a specifically charged sum.
ii. From a national tax.
iii. From a local tax.
A
i and ii only.
B
i and iii only.
C
ii and iii only.
D
i, ii and iii.
You answered : D - i, ii and iii.
The correct answer is: C - ii and iii only.
Explanation
In most developed countries, domestic waste disposal is funded from a national or local tax which may be related to income, or
property values. Commercial and industrial waste disposal is typically charged for as a commercial service, often as an
integrated charge which includes disposal costs.
Question 100
[4005036] Which of the following can be described as being most likely to utilise negative screening?
A
Impact investing.
B
Thematic investing.
C
Ethical investing.
D
Social investing.
You answered : C - Ethical investing.
The correct answer is: C - Ethical investing.
Explanation
Ethical investing is most likely to utilise negative screening to allow investors to avoid investments that they dislike for moral or
ethical reasons. The determining factor in ethical investing is the individual's or institution’s ethical preferences..

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how to extend the analysis to corporate debt.

various factors for the last two years.

and have constructed the following scorecard for environmental issues.

Last This Last This

Energy efficiency 3.1 3.4 2.5 2.5

Water scarcity 4.1 4.1 2.8 2.4

Climate resilience 3.2 2.8 3.8 3.8

Human rights 4.2 4.2 2.6 2.5

Education 4.1 4.2 2.6 2.9

Employment 4.0 4.1 3.4 3.7

Last This Last This

Rule of law 4.0 4.1 1.7 2.0

Corruption levels 4.2 4.2 1.7 2.0

Country A and Country B, respectively?

how to extend the analysis to corporate debt.

various factors for the last two years.

and have constructed the following scorecard for environmental issues.

Last This Last This

Energy efficiency 3.1 3.4 2.5 2.5

Water scarcity 4.1 4.1 2.8 2.4

Climate resilience 3.2 2.8 3.8 3.8

Last This Last This

Human rights 4.2 4.2 2.6 2.5

Education 4.1 4.2 2.6 2.9

Employment 4.0 4.1 3.4 3.7

Last This Last This

Rule of law 4.0 4.1 1.7 2.0

Corruption levels 4.2 4.2 1.7 2.0

would be most appropriate?

how to extend the analysis to corporate debt.

various factors for the last two years.

and have constructed the following scorecard for environmental issues.

Last This Last This

Energy efficiency 3.1 3.4 2.5 2.5

Water scarcity 4.1 4.1 2.8 2.4

Climate resilience 3.2 2.8 3.8 3.8

Last This Last This

Human rights 4.2 4.2 2.6 2.5

Public safety 4.4 4.4 2.3 2.3

Employment 4.0 4.1 3.4 3.7

Last This Last This

Rule of law 4.0 4.1 1.7 2.0

Corruption levels 4.2 4.2 1.7 2.0

how to extend the analysis to corporate debt.

various factors for the last two years.

and have constructed the following scorecard for environmental issues.

Last This Last This

Energy efficiency 3.1 3.4 2.5 2.5

Water scarcity 4.1 4.1 2.8 2.4

Climate resilience 3.2 2.8 3.8 3.8

Last This Last This

Public safety 4.4 4.4 2.3 2.3

Education 4.1 4.2 2.6 2.9

Employment 4.0 4.1 3.4 3.7

Last This Last This

Rule of law 4.0 4.1 1.7 2.0

Corruption levels 4.2 4.2 1.7 2.0

iii Geographic level.

how to extend the analysis to corporate debt.

various factors for the last two years.

and have constructed the following scorecard for environmental issues.

Last This Last This