Responsible Investing Midterm

Which of the following social trends is most closely associated with environmen- tal trends?

Mass migration

Over the last few decades, developed countries have most likely experienced declining:

average annual working hours.

A developed country with an aging population is most likely to

achieve higher per capita savings levels

Which of the following scenarios best illustrates the concept of a 'just' transition?

A government pledges a multibillion-dollar fund to employ displaced oil industry workers in safely decommissioning abandoned drill sites.

Which of the following is most likely to be assessed in an institutional investor's evaluation of employee health performance indicators? Programs that

limit employee exposure to conditions that lead to occupational diseases.

In which area of a food processing company's business is forced labor most likely to be found?

Producers of the raw agricultural ingredients processed by the company

Which of the following social issues is likely to be most relevant to low-to-middle income countries?

Access to medicines

An investment fund scores its potential investments on a scale of one to ten based on the contributions they make to the environmental objectives under the EU taxonomy for sustainable activities. The following table shows how each company's score has changed over the past year. Which company most likely complies with the EU taxonomy for sustainable activities?

Company 2

Within the transportation sector, advances in artificial intelligence are most likely to result in fewer employment opportunities for:

taxi drivers.

An investment fund requires that its analysts consider an extensive list of po- tential social factors and trends that could affect the performance of individual investments. Which of the following steps should its analysts take first when eval- uating the social suitability of a potential acquisition?

Carry out a materiality assessment

An appliance retailer is facing a consumer boycott due to reports of forced labor in its supply chain. The ratio most likely to be affected by the consumer action is:

asset turnover.

A portfolio analyst is modeling the potential impact of a safety incident with multiple fatalities on its mining sector holdings. Which of the following ratios is most likely to be affected as a result?

Liabilities-to-assets ratio

What does 'offshoring' mean?

Moving company production to low-income countries

Of the following, what is the increase in automation and AI not associated with?

Employment losses in the garment sector

What is an example of an internal and an external social factor?

Internal: health and safety; external: social opportunities

What is meant by the concept of a just transition?

A transition that shares the financial and social burden in a fair way

What is the FAIRR initiative?

It is an initiative that focuses on the increased prevalence of antimicrobial resistance.

What kinds of cases require Free Prior Informed Consent (FPIC)?

Developments on ancestral land or the use of resources of a territory owned by indigenous people

What does the Access to Medicine Index analzye?

How pharmaceutical companies are addressing access to medicine in low- to middle-income countries

The OECD Guidelines for Multinational Enterprises:

is a comprehensive set of government-backed recommendations on respon- sible business conduct.

Which social megatrends are important to consider within the investment analysis?

Automation, globalization, and longevity

Why is a (social) materiality assessment important?

Not all countries, sectors, and companies are affected equally by the differ- ent social megatrends and social factors.

Which of the following investment approaches focuses on enhancing the long-term value of an investment portfolio?

ESG investing

Which of the following ESG investments addresses the bottom of the pyramid (BOP)?

Micro-finance bonds

The "core planetary boundaries" identified by the Stockholm Resilience Centre are:

biosphere integrity and climate change.

ESG integration can have a material financial impact on a company, resulting in:

reduced costs.

Which of the following statements regarding externalities is most accurate?

Externalities can be due to environmental or social factors.

Which of the following is a minimum requirement for signatories to the Princi- ples of Responsible Investment (PRI)? Members must:

be active owners in the companies in which they are invested.

Which of the following organizations developed a toolkit for establishing long-term, sustainable investment mandates?

Principles of Responsible Investment (PRI)

Which of the following statements is most accurate? The majority of studies suggest that:

good ESG standards increase the cost of capital for a company.

Greenwashing refers to:

companies making misleading claims about their environmental practices.

The ESG reporting framework used by the United Nations Global Compact sig- natories is published by the:

Global Reporting Initiative (GRI).

What is ESG investing?

An approach to managing assets where investors explicitly acknowledge the relevance of environmental, social, and governance factors in their invest- ment decisions

Which of the following is not an example of a social factor?

Biodiversity

What is not one of the three P's in the triple bottom line concept?

Principle

Which of the following sectors is not typically excluded by ethical and faith-based investments?

Technology

The efficiency of shareholder engagement does not depend on

the amount of security in free float.

In what sense are ESG considerations non-financial?

They are difficult to value precisely and difficult to time.

For which of the following sectors will the management of greenhouse gas emis- sions be most material?

Power generation

Which of the following is not a form of ESG investment?

Valuation investment

Which of the following statements is true about best-in-class investment?

It involves selecting only the companies that overcome a defined ranking hurdle.

In which way can ESG matters become financially material for a company and contribute to reduced risk and enhanced return?

Increased adaptability to sustainability megatrends

What kinds of situations does the term "negative externality" best describe?

Situations where the production or consumption of a product or service's private price equilibrium cannot reflect the true costs of that product or service for society as a whole

According to Oxfam, "reports show that the richest 1% in the world have more than double the wealth of 6.9 billion people."1 Which megatrend does this refer to?

Demographic changes and wealth inequality

What is the most probable reason why an investor would engage with policy makers on ESG issues?

The consideration of ESG-related matters can contribute to the proper func- tioning of the financial markets.

Which of the following is not a typical method by which ESG factors are reflected in investment approaches?

Disclosing the investor's corporate social responsibility activities

What are the four broad groupings of issues covered by the UN Global Compact?

Poverty, diversity, sustainability, and transparency

Which of the following asset classes has the lowest allocation of global sustainable investing assets?

Real estate

Asset managers:

are not the counterparty to investment transactions.

Which of the following parties holds the ultimate fiduciary responsibility in a pension fund? The pension fund:

trustees

Which of the following established a framework that states conditions for an economic activity to be considered environmentally sustainable?

EU Taxonomy Regulation

Which role do insurance companies most likely undertake?

Asset owners

An ESG government policy with a "comply and explain" approach suggests that:

ESG integration at a country level is at a mature stage.

Which of the following required investors to be active owners and to act with a Real estatemore long-term focus?

EU Shareholder Rights Directive (SRD)

Which of the following is most accurate with respect to individual investors?

Millennial high-net-worth investors are more likely to review the impact of their investment holdings than Generation X high-net-worth investors.

With regard to ESG investing, financial regulators:

consider how ESG factors might influence the long-term risk-return profile of financial instruments.

Which two reports formed the backbone for the launch of the Principles for Responsible Investment (PRI) in 2006?

"Who Cares Wins" and the Freshfields Report

Which regions manage the highest proportion of sustainable and responsible investment assets?

Canada and Europe

What is the largest sustainable investment strategy globally?

Negative screening

The largest and second largest asset classes that implement responsible invest- ment are, respectively:

public equities and fixed income.

Why is ESG investing a concern for investors who are cautious of high tracking error?

The perception that exclusion resulting from ESG will distort the weight of sectors and countries in the portfolio in comparison to the benchmark

Why are investment mandates important for ESG investing?

They are contracts that define the requirements of the asset manager with regard to ESG issues.

Which of the following is not an outcome of short-termism?

Companies are more willing to take on projects, such as research and development.

How are pension fund members most likely to influence responsible investment?

Their ethical preferences may be taken into account.

Which of the following is not among the challenges limiting the development of ESG investing?

Lack of regulation and voluntary initiatives

What is the least likely reason why a pension fund trustee may consider ESG investing?

Pension fund trustees are the ultimate beneficiaries of pension funds and, as a result, should act in their interest.

In what way can investment consultants be a barrier to the growth of the ESG investing market?

By not considering ESG characteristics of the funds in their screening

In what way can stock exchanges support the advancement of ESG investing?

By increasing the requirement on the disclosure of ESG data by listed securities

What is the main challenge with policies that are "comply or explain" regarding ESG issues?

It leads to investors challenging the assertion that ESG integration is a requirement.

Which matters does the Technical Expert Group address?

Green bonds and low-carbon benchmarks

Why was the US Department of Labor's clarification of fiduciary duty in 2015 welcomed by the ESG investing industry?

It allowed plans to invest in generating societal benefits in addition to finan- cial return, as long as they were deemed appropriate for the plan's invest- ment objectives, return, and risk.

What is the highest risk to the industry regarding greenwashing?

The negative impact on the industry's credibility

The Paris Agreement:

aims to limit the increase in global average temperature to 2°C above pre-industrial levels by the end of the century.

The first international convention to set targets for emissions of the main greenhouse gases was the:

Kyoto Protocol.

In relation to the European Green Deal, the "green supporting factor" refers to:

the treatment of "green" assets in the capital requirements of banks and insurers.

Sustainability integration is most effective when sustainability is embedded in the practices of:

asset owners, investee companies, and financial intermediaries.

Which of the following countries has the highest level of investments in the low-carbon energy transition?

China

A sustainability bond funding a climate-friendly project that may be exposed to physical and transitional climate risks yet has no strategies in place to mitigate their impact would be graded by CICERO as:

light green.

Which of the following initiatives recommends that signatories incorporate cli- mate change effects into macroeconomic policy and fiscal planning?

Helsinki Principles

Which of the following best describes the principles of a circular economy?

Designing out waste and pollution, keeping materials in use, and regenerat- ing natural systems

The Network for Greening the Financial System (NGFS) comprises:

central banks and financial supervisors.

Which of the following carbon pricing methods is used by companies to determine the impact of climate change on the profitability of a new project?

Shadow carbon pricing

In relation to ESG analysis, investors should make adjustments to the credit assessment of a company based on

the sector and geographic location of the company's assets.

Which of the following would be considered a climate change adaptation strategy?

Protecting coastlines from erosion

What is "natural capital"?

The stock of natural assets, which include geology, soil, air, water, and all living things

Which of the following has the highest potential to contribute to global decarbonization?

Coal gasification combined with carbon capture and storage

What is the most common method of waste management globally?

Landfills

For a reasonable chance of limiting the global average temperature rise to 1.5°C (2.7°F), the Intergovernmental Panel on Climate Change (IPCC) recommends that global emissions of CO2 must reach "net zero" around:

2050.

What is the blue economy?

Sustainable economic and social activity related to oceans and coastal areas

Which of the following represents a transition risk?

Policy change to encourage low-carbon technologies

In relation to shadow carbon pricing, which of the following is incorrect?

Shadow carbon pricing is used to reduce a business's carbon footprint.

Which of the following is not a Task Force on Climate-Related Financial Disclo- sures (TCFD) core element of climate-related disclosures?

Access to affordable, clean nuclear energy

Which of the following is not an explicit UN Sustainable Development Goal (SDG)?

An EU-wide classification system of sustainable activities.

What is the primary objective of the EU Taxonomy?

An EU-wide classification system of sustainable activities.

Scope 3 of the GHG Protocol Standards covers which of the following emission sources?

Purchased goods and services

Which of the following is not a requirement for a bond or a loan to be considered "green" under such frameworks as the Green Bond Principles (GBP) or Green Loan Principles (GLP)?

A minimum of 10 tonnes of certified emissions reductions per every US$1 (£0.7) of debt

The long-term goal of the Paris Agreement, adopted in 2015, is to keep the in- crease in the global average temperature above pre-industrial levels to well below what level?

2.0°C (3.6°F)

What is the first step in the effective design of a client ESG investment mandate?

Clarify client needs and set them out in a clear statement of ESG investment beliefs.

An ESG policy of a fund management firm needs to address the manner in which the portfolio manager establishes:

rationale and methodology for ESG portfolio-level assessment.

Which of the following best describes an ESG-related thematic focus? It:

aims to invest in sectors, industries, or companies that are expected to ben- efit from long-term macro or structural ESG-related trends.