CFA Institute ESG-Investing Exam Practice Test Instant Access

Question 1

The potential impacts of climate risk on asset allocation strategies are:

Alocal but not systemic.

Bsystemic but not local.

Cboth local and systemic.

Answer : C

Climate risks have both local and systemic impacts on asset allocation. Local risks pertain to specific regions or industries, while systemic risks can affect the entire financial system due to the global nature of climate change. (ESGTextBook[PallasCatFin], Chapter 3, Page 139)

Question 2

If a company faces significant environmental regulations, investors would most likely decrease the company's:

Adiscount rate.

Bterminal growth rate.

Ccash flow projections.

Answer : C

Facing significant environmental regulations may reduce a company's cash flow projections due to the costs associated with compliance, fines, or the need to invest in cleaner technologies. (ESGTextBook[PallasCatFin], Chapter 7, Page 325)

Question 3

The UK's Green Finance Strategy identifies the policy lever of greening finance as:

Astrengthening the role of the UK financial sector in driving green finance.

Bdirecting private sector financial flows to economic activities that support an environmentally sustainable and resilient growth.

Censuring that the financial sector systematically considers environmental and climate factors in its lending and investment activities.

Answer : C

The UK's Green Finance Strategy emphasizes the importance of ensuring that environmental and climate factors are systematically considered in financial decisions, including lending and investment activities. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)

Question 4

Which of the following ESG factors has the clearest link to corporate financial performance?

ASocial

BGovernance

CEnvironmental

Answer : B

Governance has the clearest and most direct link to corporate financial performance, as strong governance practices help reduce risk, improve decision-making, and lead to more sustainable long-term growth. (ESGTextBook[PallasCatFin], Chapter 5, Page 236)

Question 5

Which of the following best describes a mature ESG regulatory framework? A government putting forward:

Aa 'comply or explain' ESG regulation.

Bvoluntary ESG corporate disclosures.

CESG implementation and reporting guidelines.

Answer : A

A mature ESG regulatory framework often includes a 'comply or explain' regulation, which requires companies to either comply with ESG standards or explain why they are not following them, promoting greater transparency and accountability. (ESGTextBook[PallasCatFin], Chapter 9, Page 522)

Question 6

Which of the following would most likely be the initial step when drafting a client's investment mandate?

AClarifying the client's ESG investment beliefs

BDefining how ESG performance will be measured

CReflecting the client's investment beliefs operationally in the fund manager's investment approach

Answer : A

The first step in drafting an investment mandate is understanding the client's ESG investment beliefs, which will guide the overall strategy, including performance measurement and implementation. (ESGTextBook[PallasCatFin], Chapter 9, Page 494)

Question 7

A portfolio manager of an ESG fund attempting to outperform the general market is most likely to:

Aignore non-financial risks.

Bapply a lower discount rate to companies that poorly manage social factors.

Cinvest in companies that identify social trends early on and adapt their strategy.

Answer : C

To outperform the market, an ESG fund manager focuses on companies that not only meet financial criteria but also recognize and adapt to social trends, positioning themselves as long-term leaders in their industry. (ESGTextBook[PallasCatFin], Chapter 8, Page 406)

CFA Institute ESG-Investing Certificate in ESG Investing Exam Practice Test