CFA Institute ESG-Investing Exam Practice Test Instant Access

Question 1

In contrast to engagement, monitoring is more likely to result in:

Achanged company behaviors.

Ba two-way sharing of perspectives.

Cefficient capital allocation by investors.

Answer : C

Monitoring focuses on tracking a company's performance and ensuring that the investment aligns with ESG objectives, leading to more efficient capital allocation based on data-driven insights. (ESGTextBook[PallasCatFin], Chapter 6, Page 283)

Question 2

Under which perspective did the Freshfields Report argue that integrating ESG considerations was necessary in all jurisdictions?

AEconomic

BFiduciary duty

CImpact and ethics

Answer : B

The Freshfields Report argued that integrating ESG considerations is necessary from a fiduciary duty perspective, as failure to consider material ESG risks can undermine long-term financial performance. (ESGTextBook[PallasCatFin], Chapter 5, Page 236)

Question 3

Which of the following statements is most accurate? Faith-based Islamic investors:

Amay invest in gambling companies.

Bmay own investments that pay interest.

Clook to invest in line with Shariah principles.

Answer : C

Faith-based Islamic investors follow Shariah principles, which prohibit investments in industries such as gambling, alcohol, and those earning interest (riba). (ESGTextBook[PallasCatFin], Chapter 1, Page 31)

Question 4

With respect to ESG reporting by investment managers, the 2020 version of the UK Stewardship Code calls for more reporting on the:

Aoutcomes from ESG activity.

Bpolicies and activities of signatories.

Cassertions of investment managers on ESG themes.

Answer : A

The 2020 version of the UK Stewardship Code emphasizes reporting on the outcomes from ESG activity, highlighting the practical impact of stewardship efforts rather than just focusing on policies or intentions. (ESGTextBook[PallasCatFin], Chapter 6, Page 276)

Question 5

An emissions trading system (ETS) permits a high allocation of free allowances to energy-intensive companies. The most likely objective of this practice is to:

Amaintain a low unit price for emissions.

Bprevent the offshoring of emissions into other jurisdictions.

Cincrease the quantity of emissions allocated to the participants in the ETS.

Answer : B

Free allowances in an ETS are often allocated to energy-intensive companies to prevent the offshoring of emissions, also known as 'carbon leakage,' where companies relocate to jurisdictions with laxer environmental regulations. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)

Question 6

Compared to other ESG strategies, fully integrated ESG strategies tend to feature:

Aless concentrated positions.

Bsimilarly concentrated positions.

Cmore concentrated positions.

Answer : C

Fully integrated ESG strategies tend to have more concentrated positions as they focus on companies with strong ESG practices, often limiting the investment universe to a smaller selection of high-performing companies. (ESGTextBook[PallasCatFin], Chapter 8, Page 451)

Question 7

According to a study of the Hermes UK Focus Fund, which of the following engagement objectives was most likely to be achieved through shareholder activism?

ARenumeration policy changes

BImprovements to investor relations

CRestructuring and financial policies

Answer : C

Shareholder activism, particularly through funds like the Hermes UK Focus Fund, often leads to restructuring and changes in financial policies as these are critical areas where investors can drive long-term value improvements. (ESGTextBook[PallasCatFin], Chapter 6, Page 285)

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