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

A French company is most likely considered to have weak corporate governance practices if its board:

Ahas 40% female representation.

Bis chaired by the company's CEO.

Chas only three committees: nominations, audit, and risk.

Answer : B

A company where the CEO also serves as the board chair is typically viewed as having weak corporate governance practices because it concentrates too much power in one individual, leading to potential conflicts of interest. (ESGTextBook[PallasCatFin], Chapter 5, Page 236)

Question 3

Which of the following is best described as a form of engagement that requires institutions to have a formal agreement with concrete objectives and agreed steps?

AConcert party

BSoliciting support

CCollaborative campaigns

Answer : A

A concert party refers to an agreement between institutions to engage with a company in a coordinated manner, usually with concrete objectives and steps agreed upon to drive change through collective shareholder action. (ESGTextBook[PallasCatFin], Chapter 6, Page 285)

Question 4

In a request for proposal from managers, for which of the following asset classes are voting policies least likely to be considered?

AActive equity

BActive fixed income

CPassive/index tracking

Answer : C

Voting policies are typically less relevant in passive/index tracking asset classes, as these managers have less influence over the selection of securities and engagement with company management compared to active strategies. (ESGTextBook[PallasCatFin], Chapter 6, Page 302)

Question 5

Which of the following is most likely a consequence of income inequality?

AAn increase in social mobility

BA decrease in educational opportunities

CAn increase in the number of companies adopting aggressive tax optimization strategies

Answer : B

Income inequality often leads to a decrease in educational opportunities, as lower-income groups may have less access to quality education and resources, further perpetuating the cycle of inequality. (ESGTextBook[PallasCatFin], Chapter 4, Page 192)

Question 6

In governance analysis, a threshold assessment best describes a minimum:

Acriterion before making an investment.

Blevel of confidence about future earnings.

Clevel of stewardship dialogue with the company.

Answer : A

A threshold assessment refers to setting a minimum criterion for governance practices that must be met before considering an investment in a company. (ESGTextBook[PallasCatFin], Chapter 5, Page 259)

Question 7

Determining which ESG issues are material:

Ainvolves judgment.

Bexcludes impacts on short-term financial performance.

Cis a process that is independent of a company's industry and business model.

Answer : A

Determining material ESG issues involves significant judgment based on the company's industry, business model, and specific risk factors. This process helps to focus on the most relevant ESG considerations. (ESGTextBook[PallasCatFin], Chapter 7, Page 325)

CFA Institute Certificate in ESG Investing Exam Practice Test