CFA Institute CFA Institute Sustainable-Investing PDF CFA Institute CFA Institute Sustainable-Investing PDF Questions Available Here at: https://www.certification-exam.com/en/dumps/cfa-institute-exam/sustainable-investing- dumps/quiz.html Enrolling now you will get access to 245 questions in a unique set of CFA Institute Sustainable-Investing Question 1 Which of the following sectors has the highest percentage of corporate profits at risk from state intervention? Options: A. Banking B. Consumer goods C. Pharmaceuticals and healthcare Answer: A Explanation: The correct answer is A. Banking. The question asks which sector has the highest percentage of corporate profits at risk from state intervention. State intervention can include actions such as tighter regulation, price controls, limits on lending, capital requirements, stress tests, bailouts, taxes, and direct government oversight. Among the options, banking is typically the most exposed to this kind of intervention because it is a heavily regulated industry and often considered systemically important to the economy. Why banking is the highest-risk sector: - Banks operate in a sector where governments have strong incentives to intervene. - Financial stability concerns make regulators monitor banks closely. - Governments may impose rules on interest rates, lending practices, reserve requirements, capital adequacy, and risk management. - In times of crisis, banks may face emergency actions such as rescues, restrictions, or forced restructuring. - Because banks rely heavily on public trust and financial system stability, state intervention can directly CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ affect a large share of their profits. Why the other options are less likely: - Consumer goods: This sector can be affected by taxes, trade rules, and product regulations, but it is generally less directly controlled by the state than banking. - Pharmaceuticals and healthcare: This sector is regulated, especially on safety and pricing, but it usually faces less direct profit risk from state intervention than banking does, since banking is more central to government oversight and crisis response. Conclusion: Banking has the highest percentage of corporate profits at risk from state intervention because it is one of the most tightly regulated and intervention-prone sectors. Question 2 Scores used to construct ESG index benchmarks can be Options: A. data based, but not rating based B. rating based, but not data based. C. both data based and rating based Answer: C Explanation: The correct answer is C. both data based and rating based. ESG index benchmarks are constructed using scores that can come from two main types of inputs: 1. Data-based scores These are built directly from measurable, objective information collected about a company. Examples include: - carbon emissions - energy usage - water consumption - board diversity statistics - workplace injury rates - employee turnover This type of scoring relies on raw, observable data that can be quantified and compared. 2. Rating-based scores These are based on an evaluation or assessment of the company’s ESG performance. A rating agency or index provider may analyze the available information and assign a score or rating based on its methodology. This can include judgments about: - how well the company manages ESG risks - the quality of its disclosures - its overall sustainability practices CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ - how it compares with peers Why C is correct: ESG index providers may use either: - direct data inputs, or - higher-level ratings derived from those data and other qualitative assessments. In practice, many ESG benchmarks combine both approaches to create a more complete picture of a company’s ESG profile. Why A is incorrect: It says scores can be data based, but not rating based. That is too restrictive because rating-based scores are also commonly used. Why B is incorrect: It says scores can be rating based, but not data based. This is also too restrictive because many ESG benchmarks are built from actual underlying data. Therefore, the best answer is C: both data based and rating based. Question 3 When undertaking an ESG assessment of a private equity deal ESG screening and due diligence will most likely take place during: Options: A. exit B. ownership C. deal sourcing Answer: C Explanation: The correct answer is C. deal sourcing. In a private equity transaction, ESG screening and due diligence are typically performed early in the investment process, during deal sourcing or initial screening. This is when the investor evaluates whether a potential target company fits the fund’s ESG standards and whether there are any significant ESG risks that could affect the investment decision. Why deal sourcing is correct: - ESG screening helps filter out unsuitable opportunities before significant time and resources are committed. - Due diligence at this stage identifies material environmental, social, and governance issues that could affect valuation, deal structure, or whether the deal should proceed at all. - Early ESG review allows the investor to: - exclude high-risk companies, - assess compliance risks, - identify potential value creation opportunities, CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ - and plan post-acquisition ESG improvements. Why the other options are incorrect: - A. exit: The exit stage is when the investor is preparing to sell the investment. ESG may be considered then to improve marketability or valuation, but the main screening and due diligence occur much earlier. - B. ownership: During ownership, ESG management focuses on monitoring, improving, and reporting on ESG performance. This is after the investment has already been made, so it is not the main stage for initial screening and due diligence. In summary: ESG screening and due diligence most commonly take place during deal sourcing because this is the stage where the investor decides whether to pursue the opportunity further. Question 4 Which of the following statements about corporate governance is most accurate? Companies with a more diverse board of directors are most likely associated with Options: A. lower profitability B. lower stock return volatility. C. less investment in research and development. Answer: B Explanation: The correct answer is B. lower stock return volatility. Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. One important aspect of corporate governance is board diversity, which can include differences in gender, age, professional background, ethnicity, and experience. A more diverse board of directors is often associated with better oversight, broader perspectives, and improved decision-making. This can help reduce the chances of groupthink, improve risk management, and make the firm more resilient to poor strategic choices. As a result, companies with more diverse boards are commonly linked to lower stock return volatility, meaning their stock prices tend to fluctuate less dramatically over time. Why the other options are less accurate: A. lower profitability This is not generally supported. In fact, diverse boards are often associated with better long-term performance, although results can vary across studies. C. less investment in research and development This is not a standard or widely accepted effect of board diversity. Diverse boards may even encourage more innovation and broader strategic thinking, which can support research and development rather than reduce it. So the best answer is B, because board diversity is most commonly associated with reduced volatility and CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ improved stability in corporate outcomes. Question 5 Which of the following greenhouse gases (GHGs) has the longest lifetime in the atmosphere? Options: A. Methane B. Carbon dioxide C. Fluorinated gas Answer: C Explanation: The correct answer is C. Fluorinated gas. Greenhouse gases differ not only in how strongly they trap heat, but also in how long they remain in the atmosphere. - Methane has a relatively short atmospheric lifetime, usually around 10 to 12 years. - Carbon dioxide does not have a single fixed lifetime because it is removed by multiple processes over different time scales. Some of it leaves the atmosphere fairly quickly, but a significant fraction can remain for hundreds to thousands of years. - Fluorinated gases, such as hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride, can remain in the atmosphere for very long periods. Some last for decades, centuries, or even thousands of years, making them the longest-lived among these options. Why C is correct: Fluorinated gases generally have the longest atmospheric lifetimes, so they persist the longest after being released. Why the other options are not the best answer: - A. Methane: potent but short-lived compared with the others. - B. Carbon dioxide: long-lasting, but many fluorinated gases last even longer. So, among the choices given, fluorinated gas has the longest lifetime in the atmosphere. Question 6 Human rights violations are most likely to affect workers employed Options: A. by first-tier suppliers to publicly traded companies B. by second-tier suppliers to publicly traded companies. C. deep within the supply chain of publicly traded companies. CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ Answer: C Explanation: The correct answer is C. deep within the supply chain of publicly traded companies. Human rights violations are often most likely to occur farther away from the final customer and from the public attention that surrounds large, publicly traded companies. As you move deeper into a supply chain, oversight usually becomes weaker, transparency decreases, and labor conditions are harder to monitor. Why this is true: - First-tier suppliers are the direct business partners of publicly traded companies. They are usually more visible and more likely to be audited or monitored. - Second-tier suppliers are one step further removed, so they may receive less direct scrutiny. - Deep supply chain suppliers are even farther removed, often operating in places where labor protections may be weaker and where companies have less direct control or visibility. Because of this distance from the top-level company, workers deep in the supply chain are more exposed to risks such as: - unsafe working conditions - excessive working hours - forced labor - child labor - low wages - abuse or exploitation In short, the farther down the supply chain, the less oversight there tends to be, making human rights violations more likely. That is why option C is correct. Question 7 What is the underlying principle of the corporate governance code in most markets? Options: A. If not, why not B. Apply or explain C. Comply or explain Answer: C Explanation: The correct answer is C. Comply or explain. The main principle behind corporate governance codes in most markets is that companies are expected to follow the code’s recommendations, but if they do not, they must explain why they have chosen not to comply. This is called the "comply or explain" approach. Why this is the right answer: - "Comply" means the company should adhere to the governance standards set out in the code. CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ - "Or explain" means if the company does not follow a particular provision, it must provide a clear and reasonable explanation to shareholders and the market. This approach gives companies some flexibility while still promoting transparency and accountability. Why the other options are not correct: - A. If not, why not is not the standard name of the principle, even though it is similar in meaning. - B. Apply or explain is not the usual formulation used in corporate governance codes. - C. Comply or explain is the widely recognized underlying principle. In summary, corporate governance codes generally rely on "comply or explain," making C the correct choice. Question 8 Which of the following is an example of a bottom-up ESG engagement approach? An asset manager: Options: A. joining the PRI Collaboration Platform B. sending out a letter to the CFOs of all investee companies C. initiating dialogue with an investee company's investor relations team Answer: C Explanation: The correct answer is C. initiating dialogue with an investee company's investor relations team. A bottom-up ESG engagement approach means the asset manager engages with companies individually, focusing on specific issuers, issues, or opportunities rather than applying a broad, top-down campaign across many companies at once. Why C is correct: - Contacting an individual investee company's investor relations team is a company-specific action. - It usually starts at the level of a single firm and addresses that firm’s particular ESG practices, disclosures, or concerns. - This is characteristic of a bottom-up approach because the engagement is built from the individual company level upward. Why the other options are not correct: - A. joining the PRI Collaboration Platform - This is a collaborative, broad-based initiative involving multiple investors. - It is more of a coordinated or collective engagement approach than a bottom-up one. - B. sending out a letter to the CFOs of all investee companies - This is a uniform, portfolio-wide action. - It is top-down because it applies the same message to many companies at once rather than starting with one company and its specific circumstances. In short, bottom-up ESG engagement is targeted and company-specific, which makes C the best answer. CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ Question 9 The concept of double-agency in society refers to the conflict of interest between Options: A. corporate CEOs and shareholders B. money managers and asset owners. C. corporate CEOs and money managers Answer: B Explanation: The correct answer is B. money managers and asset owners. Double-agency in society refers to a situation where one party is supposed to act on behalf of another, but the interests of the two sides may not fully align. In this context, the key relationship is between money managers and asset owners. Asset owners are the people or institutions that ultimately own the money, such as pension funds, endowments, or individual investors. Money managers are the professionals who manage those assets on their behalf. Because money managers are paid to make investment decisions for others, there can be a conflict of interest if their goals differ from the goals of the asset owners. For example, money managers may focus on short-term performance, fees, or growing assets under management, while asset owners are often more concerned with long-term returns, risk control, and preserving value. This mismatch is what creates the double-agency problem. Why the other options are incorrect: A. corporate CEOs and shareholders This is a common agency problem, but it is not what is meant by double-agency in this question. C. corporate CEOs and money managers These two groups may interact in financial markets, but they are not the central conflicting parties in the double-agency concept described here. So, the best answer is B because double-agency specifically concerns the conflict between those who manage assets and those who own them. Question 10 In France, shareholders eligible for being awarded double voting rights are Options: A. founding shareholders during an IPO B. long-standing shareholders of at least two years. C. minority shareholders that are employee representatives CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/ Answer: B Explanation: The correct answer is B. long-standing shareholders of at least two years. In France, the default rule is one share, one vote. However, French company law allows companies to grant double voting rights to shares that have been held in registered form for a continuous period of at least two years, unless the company’s bylaws provide otherwise. This mechanism is designed to reward shareholder loyalty and encourage long-term investment. It is not limited to founding shareholders or employee representatives. Instead, the key condition is the length of shareholding, typically two years or more, along with the required registration of the shares. Why the other options are incorrect: - A. founding shareholders during an IPO Founding shareholders are not automatically entitled to double voting rights just because they took part in the IPO. - C. minority shareholders that are employee representatives Employee representatives do not receive double voting rights merely because of their status as minority shareholders or employees. So the right choice is B because French law recognizes double voting rights for shareholders who have held their shares for at least two years. Would you like to see more? Don't miss our CFA Institute Sustainable-Investing PDF file at: https://www.certification-exam.com/en/pdf/cfa-institute-pdf/sustainable-investing-pdf/ CFA Institute CFA Institute Sustainable-Investing PDF https://www.certification-exam.com/