CFA Institute ESG-Investing Exam Practice Test Instant Access

Question 1

Compared to equities, bonds most likely:

Ahave an infinite maturity.

Bhave a wider range of issuers.

Care inferior in the capital structure.

Answer : C

Bonds are typically considered inferior in the capital structure compared to equities, meaning bondholders are paid after senior debt but before equity holders in the event of a liquidation. (ESGTextBook[PallasCatFin], Chapter 8, Page 451)

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

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 ESG-Investing Certificate in ESG Investing Exam Practice Test