F, Mock3

Mock 3
Question 1
[4062324] Which summit held in 1992 ultimately led to the creation of the UN Commission on Sustainable Development?
A
Geneva.
B
Montreal.
C
Rio summit.
D
Paris summit.
You answered : B - Montreal.
The correct answer is: C - Rio summit.
Explanation
The Rio summit held in 1992 ultimately led to the creation of the UN Commission on Sustainable Development.
Reference: Chapter 2 section 1
Question 2
[4062325] Within their financial reports, companies have been urged to disclose against four factors by the Financial Stability
Board Task Force on Climate-related Financial Disclosures (TCFD). Which of the following is not one of those four factors?
A
Ethics.
B
Risk management.
C
Metrics and targets.
D
Strategy.
You answered : A - Ethics.
The correct answer is: A - Ethics.
Explanation
The four factors are governance, strategy, risk management, metrics and targets.
Reference: Chapter 1 Section 5
Question 3
[4062326] How may ESG integration best be defined?
A
The explicit systematic inclusion of ESG factors in investment analysis and investment decisions.
B
The explicit systematic exclusion of securities from client portfolios that fail negative screening.
C
The consideration of ESG factors when finalising an investment decision.
D
The prioritisation of ESG factors above all others within the investment process.
You answered : A - The explicit systematic inclusion of ESG factors in investment analysis and investment decisions.
The correct answer is: A - The explicit systematic inclusion of ESG factors in investment analysis and investment decisions.
Explanation
ESG integration is the systematic and explicit inclusion of material ESG factors into investment analysis and investment
decisions. It is a holistic approach to investment analysis, where material factors, ESG factors and traditional financial factors,
are identified and assessed to form an investment decision. This may be done in various ways, tailored to the investment style
and approach of the fund manager, but typically has three components: 1. research; 2. analysis; 3. decision-making.
Question 4
[4062327] How should alignment between asset manager and client be achieved within ESG investment mandates?
A
Alignment should ensure engagement with companies and issuers on ESG issues and, for listed equities, voting all
shareholdings.
B
Alignment should mean that portfolio managers respond to the clearly expressed intentions of the clients and report as fully as
required.
C
Alignment should be clearly specified within the investment mandate through more regular performance reviews.
D
Alignment should be designed so that the time frames and structures of portfolio manager remuneration closely reflect the
performance experienced by the clients.
You answered : D - Alignment should be designed so that the time frames and structures of portfolio manager remuneration
closely reflect the performance experienced by the clients.
The correct answer is: D - Alignment should be designed so that the time frames and structures of portfolio manager
remuneration closely reflect the performance experienced by the clients.
Explanation
Alignment should be designed so that the time frames and structures of portfolio manager remuneration closely reflect the
performance experienced by the clients, and accountability should mean that portfolio managers respond to the clearly
expressed intentions of the clients and report as fully as required.
Question 5
[4062328]
According to the 2016 PRI report, How Asset Owners Can Drive Responsible Investment, investment mandates should require
investment managers to do which of the following?
i. Implement the asset owners’ investment beliefs and relevant investment policies.
ii. Implement effective stewardship processes aligned with the asset owner’s ESG policies.
iii. Integrate ESG issues into their investment research, analysis and decision-making processes.
iv. Invest in a manner consistent with the asset owner’s time horizons.
A
i, ii and iii only.
B
i, ii and iv only.
C
ii, iii and iv only.
D
i, ii, iii and iv.
You answered : D - i, ii, iii and iv.
The correct answer is: D - i, ii, iii and iv.
Explanation
According to the 2016 PRI report, investment mandates should require investment managers to: implement the asset owners’
investment beliefs and relevant investment policies; integrate ESG issues into their investment research, analysis and decision-
making processes; invest in a manner consistent with the asset owner’s time horizons, understanding the key risks that must be
managed to achieve the asset owner’s portfolio goals; implement effective stewardship processes, including engagement with
companies and issuers on ESG issues and, for listed equities, voting all shareholdings – this engagement should align with the
asset owner’s responsible investment and related policies; engage constructively and proactively with policymakers on
responsible investment and ESG-related issues – this engagement should align with the asset owner’s responsible investment
and related policies; report on the actions taken and outcomes achieved – the reporting should enable the asset owner to
assess the manner in which the investment manager has implemented the asset owners’ investment beliefs and policies, and to
understand how this has affected investment performance and ESG outcomes and impacts.
Question 6
[4062329]
Which of the following factors may be addressed by mutual fund investors when incorporating the voting of the fund manager
into their investment decision?
i. How does the fund manager vote in general.
ii. How did the manager vote on specific controversial matters.
iii. By what process does the manager reach its decisions.
A
i and ii only.
B
i and iii only.
C
ii and iii only.
D
i, ii and iii.
You answered : D - i, ii and iii.
The correct answer is: D - i, ii and iii.
Explanation
Voting is considered by mutual fund clients as a key aspect of stewardship. Voting often gets more attention in client
assessments, because the data points on voting are clearer: e.g., how does the fund manager vote in general, by what process
does the manager reach its decisions, and how did the manager vote on specific controversial matters? The most sophisticated
clients use hard cases to test whether the policy and process actually lead to justifiable results in practice.
Question 7
[4062330] Which of the following techniques represents a relatively easy way to attribute the performance drag or enhancement
that comes from ESG investing?
A
Attributing performance based on ESG reporting by asset managers.
B
Assessing the effect of a variety of ESG evaluation techniques.
C
Assessing the effect of removing one sector from a portfolio.
D
Assessing the impact of individual ESG factors.
You answered : D - Assessing the impact of individual ESG factors.
The correct answer is: C - Assessing the effect of removing one sector from a portfolio.
Explanation
The attribution of returns to ESG is challenging not least because of the significant range of investment approaches that are
included within the broad realm of ESG investing. It is relatively easy to assess the performance drag or enhancement that
comes from excluding an industrial sector such as tobacco, but it is hard to demonstrate the value added by a programme of
engagement. And the more fully integrated ESG becomes into the investment process, the harder it becomes to disaggregate
the ESG driver from the broader investment decision.
Question 8
[4062331]
Several questions are associated with the following case study. The material given in the case study will not change.
The local government of Amandoria region has announced issuance of a municipal bond. Amandoria is a coastal
region that relies on leisure and tourism thanks to the lakes and the ocean coastline. Tax revenues from tourism
bring in valuable contribution to the region’s budget that relies heavily on the local property and income taxes
paid by local businesses and residents.
The region has felt the impact of climate change in recent years, suffering from more extreme weather events – flooding from
the local rivers and lakes as well as a period of drought. The main city in the region suffers from air pollution. The purpose of the
debt issue is to fund several environmental projects. The proceeds will fund an upgrade to the transport system and switch to
the use of electric buses. The funding will also enable the city to fund the construction of flood defences protecting the city and
its surrounding areas from swollen rivers in times of heavy rain. The projects would also boost the coastal flood defences. The
infrastructure projects should be completed within five years. The bond issue announcement coincided with the unveiling of
several other environmental initiatives. The authorities are encouraging the local industries to comply with the latest government
regulations and to better plan for stricter regulations in the future. The local authorities also plan to enforce compliance with
emission limits and waste-water treatment requirements, issuing fines if necessary. The local property owners are being
incentivised to support energy efficiency retrofits in buildings and production facilities and promote energy efficient new
construction. This will be done through subsidies. In addition, because increasing waste levels are putting pressure on landfill
space, the local government is planning to introduce a system of subsidies to facilitate progress toward circular economy
business models. Fixed income analysts at a fund management firm are assessing the features, risks and attractiveness of the
municipal bond.
What type of risk to assets does the increasing frequency of flooding represent?
A
Supply chain risk because the companies operating in the area may experience a disruption to their supplies of inputs cause by
the flooding.
B
Transition risk as the economy transitions to a period of more frequent weather events causing flooding.
C
Physical risk that arises from damage to property, infrastructure and land.
D
Risk to circular economy as flooding may delay adoption of recycling.
You answered : C - Physical risk that arises from damage to property, infrastructure and land.
The correct answer is: C - Physical risk that arises from damage to property, infrastructure and land.
Explanation
Frequent flooding represents physical risk that arises from damage to property, infrastructure and land.
Question 9
[4062332]
Several questions are associated with the following case study. The material given in the case study will not change.The local
government of Amandoria region has announced issuance of a municipal bond. Amandoria is a coastal region that relies on
leisure and tourism thanks to the lakes and the ocean coastline. Tax revenues from tourism bring in valuable contribution to the
region’s budget that relies heavily on the local property and income taxes paid by local businesses and residents. The region
has felt the impact of climate change in recent years, suffering from more extreme weather events – flooding from the local
rivers and lakes as well as a period of drought. The main city in the region suffers from air pollution. The purpose of the debt
issue is to fund several environmental projects. The proceeds will fund an upgrade to the transport system and switch to the use
of electric buses. The funding will also enable the city to fund the construction of flood defences protecting the city and its
surrounding areas from swollen rivers in times of heavy rain. The projects would also boost the coastal flood defences. The
municipal bond.
The analysts are assessing the list of initiatives that the regional government has announced in response to climate change.
They assess whether the initiatives represent mitigation or adaptation. Which of the following initiatives represent climate
change mitigation?
i. Sustainable transport by switching to electric vehicles;
ii. Construction of flood defences;
iii. Protection of coastlines;
iv. Retrofit of buildings.
A
i and ii only..
B
ii and iii only.
C
iii and iv only.
D
i and iv only.
You answered : D - i and iv only.
The correct answer is: D - i and iv only.
Explanation
Responding to climate change involves two possible approaches: mitigation, i.e. reducing and stabilising the levels of heat-
trapping greenhouse gases in the atmosphere; adaptation, i.e. adapting to the climate change already taking place and
increasing climate change resilience. Retrofit of buildings and introduction of sustainable transport are examples of climate
change mitigation, aimed at reducing or stabilising the levels of heat-trapping greenhouse gases in the atmosphere.
Question 10
[4062333] Several questions are associated with the following case study. The material given in the case study will not
change.The local government of Amandoria region has announced issuance of a municipal bond. Amandoria is a coastal region
that relies on leisure and tourism thanks to the lakes and the ocean coastline. Tax revenues from tourism bring in valuable
contribution to the region’s budget that relies heavily on the local property and income taxes paid by local businesses and
residents. The region has felt the impact of climate change in recent years, suffering from more extreme weather events –
flooding from the local rivers and lakes as well as a period of drought. The main city in the region suffers from air pollution. The
purpose of the debt issue is to fund several environmental projects. The proceeds will fund an upgrade to the transport system
and switch to the use of electric buses. The funding will also enable the city to fund the construction of flood defences protecting
the city and its surrounding areas from swollen rivers in times of heavy rain. The projects would also boost the coastal flood
defences. The infrastructure projects should be completed within five years. The bond issue announcement coincided with the
unveiling of several other environmental initiatives. The authorities are encouraging the local industries to comply with the latest
government regulations and to better plan for stricter regulations in the future. The local authorities also plan to enforce
compliance with emission limits and waste-water treatment requirements, issuing fines if necessary. The local property owners
are being incentivised to support energy efficiency retrofits in buildings and production facilities and promote energy efficient
new construction. This will be done through subsidies. In addition, because increasing waste levels are putting pressure on
landfill space, the local government is planning to introduce a system of subsidies to facilitate progress toward circular economy
municipal bond.
How should the analysts interpret the statement that the Amandorian authorities are encouraging the local economy’s transition
into a circular economy?
A
The local government is encouraging businesses to offer products and services that will enable their customers to recycle and
reuse more of their raw materials.
B
The local government is encouraging businesses to design out waste and pollution, keep products and materials in use and
regenerate natural systems.
C
The local government is most likely to encourage incineration of commercial waste to reduce the pressure on the capacity of
landfill space.
D
The local government is encouraging businesses that generate commercial waste to make greater use of landfill space.
You answered : B - The local government is encouraging businesses to design out waste and pollution, keep products and
materials in use and regenerate natural systems.
The correct answer is: B - The local government is encouraging businesses to design out waste and pollution, keep
products and materials in use and regenerate natural systems.
Explanation
Circular economy is an economic model that aims to avoid waste and to preserve the value of resources for as long as possible.
Question 11
[4062334]
municipal bond.
What is the most likely conclusion that the analysts will reach about the strategic steps made by the local government in its
efforts to ensure sustainable sources of local tax revenues for the local authority budget?
A
The steps taken by the local government should protect the revenues by reducing disruption from floods, maintaining the
attractiveness of the lakes and the coastline, reducing air pollution, thereby protecting tourism and the local economy and, in
turn, securing future tax revenues.
B
The local government is stepping up enforcement of environmental regulation, thereby generating sustainable future sources of
revenues for the budget in the form of fines imposed on the polluters.
C
The proposed incentives to encourage circular economy and retrofits of building and production facilities will most likely result in
higher tax income, thereby supporting the local government budget.
D
The local government is focused on raising spending levels in future years, which may require further debt raising in the future.
You answered : A - The steps taken by the local government should protect the revenues by reducing disruption from floods,
maintaining the attractiveness of the lakes and the coastline, reducing air pollution, thereby protecting tourism and the local
economy and, in turn, securing future tax revenues.
The correct answer is: A - The steps taken by the local government should protect the revenues by reducing disruption from
floods, maintaining the attractiveness of the lakes and the coastline, reducing air pollution, thereby protecting tourism and the
local economy and, in turn, securing future tax revenues.
Explanation
Sustainable cities and communities is SDG11 of the UN’s Sustainable Development Goals. The purpose of the debt raising is to
fund several projects whose purpose is to protect the local industries from the impacts of climate change and pollution, securing
future tax income.
Question 12
[4062335]
municipal bond.
Which of the following risks identified in the scenario are physical climate-related risks?
i. Climate change;
ii. Pollution;
iii. Flooding and droughts;
iv. Emissions limits.

A
i and iii only.
B
i, ii and iii only.
C
D
i, ii, iii and iv.
You answered : B - i, ii and iii only.
The correct answer is: A - i and iii only.
Explanation
Physical climate-related risks result from extreme weather events, either acute or chronic risks from longer-term shifts in climate
patterns, including climate change, flooding and droughts. Pollution is not climate-related, neither is the imposition of emissions
limits which is a transitional risk.
Question 13
[4062336]
Several questions are associated with the following case study. The material given in the case study will not change. Joanna is
a portfolio manager. The fund she manages holds positions in several dozen stocks across several industries. She, and a small
team of analysts that support her, regularly carry out an in-depth analysis of each stock in the portfolio, paying attention to
operating performance as well as environmental, social and governance factors and how the firm is managing any risks arising
from those factors. One of the stocks in the fund is a food producer Zyxx. Joanna is reviewing the company’s recent disclosures
and notes the following. Zyxx has 11 individuals on its board, 5 of whom are independent, including the Chair. The company
provides a brief, one-paragraph description of each Board member’s background, skills and expertise. The disclosures also
explain which Board committees each person is a member of. The CEO compensation in the last reporting period was GBP 2
million, 20% of which was fixed salary. The company states that variable compensation in the form of a bonus and long-term
equity rewards is influenced by a wide range of factors but does not provide any detail on the Key Performance Indicators
(KPIs). The company has also revised its whistle-blowing procedures. All employees now have access to the procedures which
are meant to ensure that the company is living up to high standards that the board expects. The whistle-blowing procedures are
overseen by the company management. Joanna reviews the documentation as the company’s AGM is to be held in the near
future. She discusses her concerns with her team.

Looking closely at the company’s disclosures, Joanna notes the following about three of the independent
directors: Director 1 has served on the board for more than 10 years. The director’s brother owns a company
that provides consultancy services to Zyxx. Director 2 served as a senior member of the management team for
12 years before retiring a year ago. Director 3 serves on the boards of two other unrelated listed companies and
is a shareholder in one of the other companies. What is most likely to be Joanna’s conclusion about the
independence of the three directors in question based on ICGN’s Global Governance Principles?
A
The independence criteria are satisfied by all three directors.
B
Only Director 1 satisfies the criteria and can be considered as independent.
C
D
You answered : D - Only Director 3 satisfies the criteria and can be considered as independent.
The correct answer is: D - Only Director 3 satisfies the criteria and can be considered as independent.
Explanation
Director 3 can serve on the boards of other companies as long as he has no links with other directors through cross-
directorships. Director 1, having served on the Board for a substantial amount of time, is likely to have become compromised.
The fact that his brother provides services to the company further erodes the director’s independence. Director 2 previously
served as a senior member of the management and cannot be considered to be independent due to his past links with the
company and because there has not been sufficient gap between his employment and him joining the Board.
Question 14
[4062337]
Joanna finds that the disclosures and policies on Board diversity are insufficient and considers putting forward a resolution to be
voted on at the AGM, calling on the company to provide more comprehensive disclosures on Board diversity. What evidence
would best be used to justify her increasing concern about the Board diversity?
A
Academic evidence on the beneficial effect of diversity from Carter, Simpkins and Simpson 2003 study as well as Bernile,
Bhagwat and Yonker 2017 study.
B
The CFA Institute’s 2017 ESG survey that showed that investors are increasingly taking governance into consideration in their
analysis and investment decision-making.
C
A 2015 meta-study by Friede, Busch and Bassen on ESG and financial performance.
D
The Dodd-Frank legislation.
You answered : A - Academic evidence on the beneficial effect of diversity from Carter, Simpkins and Simpson 2003 study
as well as Bernile, Bhagwat and Yonker 2017 study.
The correct answer is: A - Academic evidence on the beneficial effect of diversity from Carter, Simpkins and Simpson 2003
study as well as Bernile, Bhagwat and Yonker 2017 study.
Explanation
The Carter, Simpkins and Simpson 2003 study found positive relationship between the presence of women or minorities on the
board and firm value among Forbes 1,000 firms. Bernile, Bhagwat and Yonker 2017 study found that diversity on the board
resulted in lower stock return volatility and more stable board policies.
Question 15
[4062338]
Joanna is discussing the Zyxx valuation model with her analysts and wonders how best to take into account the risk of a
possible lack of alignment between the CEO’s and investors’ incentives. Which approaches is she most likely to implement?
A
Make assumptions about how much further the CEO’s compensation could increase next year and incorporate that amount into
the financial model used by her team for company analysis.
B
Leave the company analysis model unchanged and review once greater clarity is gained on the incentive structure.
C
Increase the cost of capital estimate to reflect the increased risk from uncertainty around alignment of interest.
D
Decrease the cost of capital estimate to reflect the reduced level of certainty about alignment of interest.
You answered : C - Increase the cost of capital estimate to reflect the increased risk from uncertainty around alignment of
interest.
The correct answer is: C - Increase the cost of capital estimate to reflect the increased risk from uncertainty around
alignment of interest.
Explanation
If the analysis of corporate governance is specifically built into valuation models, this is most typically done through recognising
negative governance characteristics by way of adding a risk premium to the cost of capital or raising the discount rate applied.
Question 16
[4062339]
Joanna is discussing the company’s recent announcement regarding whistleblowing with her team of analysts. Which of the
following should give Joanna and her team most concern about the updated whistleblowing procedures?
A
The procedures should be overseen by the audit committee or other appropriate board-level group.
B
Whistleblowing could disrupt the company’s operations and have negative impact on shareholders.
C
The procedures should be made available to the company’s customers.
D
The procedures should be approved by the AGM.
You answered : A - The procedures should be overseen by the audit committee or other appropriate board-level group.
The correct answer is: A - The procedures should be overseen by the audit committee or other appropriate board-level
group.
Explanation
The procedures should be overseen by the audit committee or other appropriate board-level group so that non-executive
directors can assure themselves of the independence of the process and that the company is living up to the standards that the
board expects.
Question 17
[4062340]

Which of the following statements are true regarding the composition of the board?
i. Boards should never include directors whose independence is questioned.
ii. The chair must be effective in bringing out the contributions of each board member.
iii. With respect to diversity, gender diversity is of primary importance.
iv. The board should operate with independence of thought such that it can challenge both management and
previous decision-making at the company.

A
i, ii and iii only.
B
i, iii and iv only.
C
ii and iv only.
D
i, ii, iii and iv.
You answered : B - i, iii and iv only.
The correct answer is: C - ii and iv only.
Explanation
The chair must be effective in bringing out the contributions of each board member, and the board should operate with
independence of thought such that it can challenge both management and previous decision-making at the company. With
respect to diversity, diversity of thought is of primary importance. However, there is no suggestion that boards should never
include directors whose independence is questioned. Indeed, such individuals may provide useful skills and perspectives.
Rather, every board needs a sufficient weight of clearly independent individuals such that it is able to operate independently and
is not subject to bias or inappropriate influence.
Question 18
[4062341]
Several questions are associated with the following case study. The material given in the case study will not change. Sandra
Chen is an active portfolio manager at ACT fund management. She is supported by a team of analysts. She and her team are
taking a closer look at Choco Industries, a well-established, widely known and profitable confectionery producer. The company
has been growing profitably, and until recently in-line with the rest of the sector. The growth delivered by the company has
slowed down slightly over the past few reporting periods. Choco Industries has a diverse set of shareholders. The stock has
been held in ACT’s equity portfolio managed by Sandra. The analysts have identified two issues of concern. Choco Industries
has not been embracing the need to change the packaging it has been using to make it fully recyclable or biodegradable. When
questioned about this issue by journalists and research analysts, the CEO recognised it as an issue but replied that such a
transition in inputs and technologies could only happen over time and would require significant investments. The other issue the
analysts have identified is a trend in changing consumer preferences in the company’s key markets toward healthier snack
options. They believe that Choco Industries is failing to adapt its product offering to the changing tastes
A junior team member asks Sandra about engagement with the management of Choco Industries. She is concerned about the
fact that the issues the firm may wish to discuss with the management are not of governance nature and is concerned that
engagement may not be effective. Which statement best captures what Sandra should explain to the analyst?
A
Engagement can encompass a full range of issues that affect long-term value of a business, not just governance matters, and
may include strategy and operational performance. There is growing body of evidence that engagement adds value to portfolios.
B
Engagement can encompass a full range of issues that affect long-term value of a business, including strategy and operational
performance. It is a relatively new phenomenon with limited historical data and lack of consensus on the key metrics, so
evidence
C
Engagement involves voting on any issues that arise at the AGM, while stewardship is a dialogue with a specific and targeted
objective to achieve change.
D
Engagement relates to matters involving governance, while stewardship relates to social and environmental factors.
You answered : A - Engagement can encompass a full range of issues that affect long-term value of a business, not just
governance matters, and may include strategy and operational performance. There is growing body of evidence that
engagement adds value to portfolios.
The correct answer is: A - Engagement can encompass a full range of issues that affect long-term value of a business, not
just governance matters, and may include strategy and operational performance. There is growing body of evidence that
engagement adds value to portfolios.
Explanation
Engagement can cover a wide range of topics. Empirical studies show that successful engagement is followed by positive
abnormal financial returns.
Question 19
[4062342]
Having identified an opportunity for engagement with the aim of adding value, what should the order of steps in
engagement be in for engagement to deliver meaningful results in the most cost-effective manner?
A
Define the scope of the engagement and prioritise engagement activities; Frame the engagement topic into a broader strategy
discussion; Develop a clear process that articulates realistic goals and milestones.
B
Develop a clear process that articulates realistic goals and milestones; Frame the engagement topic into the broader strategy
discussion; Define the scope of the engagement and prioritise engagement activities.
C
Frame the engagement topic into the broader strategy discussion; Define the scope of the engagement and prioritise
engagement activities; Develop a clear process that articulates realistic goals and milestones.
D
Develop a clear process that articulates realistic goals and milestones; Define the scope of the engagement and prioritise
engagement activities; Frame the engagement topic into the broader strategy discussion.
You answered : A - Define the scope of the engagement and prioritise engagement activities; Frame the engagement topic
into a broader strategy discussion; Develop a clear process that articulates realistic goals and milestones.
The correct answer is: A - Define the scope of the engagement and prioritise engagement activities; Frame the engagement
topic into a broader strategy discussion; Develop a clear process that articulates realistic goals and milestones.
Explanation
The recommendation is that the challenges are addressed in the following order: define the scope & prioritize activities. frame
the topic; develop a clear process. In addition, the engagement process needs to be adapted to the local context.
Question 20
[4062343]
The team members need to decide who to engage with to raise the identified issues, which they consider to be
of business strategy nature. They follow Principle 11 of the UK Stewardship Code. Who should they engage with
first and how should they escalate engagement if necessary?

A
They should first engage privately through the regulator or by sending a formal letter to the government. To escalate they should
contact the Investor Relations department or raise the matter with the CFO or CEO.
B
They should first engage privately through the CFO or the CEO. To escalate, they could approach the non-executive board
members and, if necessary, take further steps by submitting resolutions, speaking at general meetings or making public
statements.
C
They should request a general meeting, propose to change board membership and make public statements. They should
escalate by meeting the chair and non-executive directors.
D
They should first discuss the issue privately with the chair and non-executive directors. They could escalate engagement by
approaching the Investor Relations team.
You answered : B - They should first engage privately through the CFO or the CEO. To escalate, they could approach the
non-executive board members and, if necessary, take further steps by submitting resolutions, speaking at general meetings or
making public statements.
The correct answer is: B - They should first engage privately through the CFO or the CEO. To escalate, they could approach
the non-executive board members and, if necessary, take further steps by submitting resolutions, speaking at general meetings
or making public statements.
Explanation
The recommended approach is to raise the matter privately with the company. In strategy and operational matters the starting
point is typically the CEO or CFO.
Question 21
[4062344]
Which of the following engagement approaches is Sandra most likely to adopt?
A
Company-focused, top-down engagement.
B
Company-focused, bottom-up engagement.
C
Issues-based, top-down engagement.
D
Issues-based, bottom-up engagement.
You answered : B - Company-focused, bottom-up engagement.
The correct answer is: B - Company-focused, bottom-up engagement.
Explanation
Company-focused, bottom-up engagement fits most naturally with active investment approaches, as adopted by Sandra,
particularly those with concentrated portfolios. Issues-based, top-down engagement tends to align more closely with passive
investments.
Question 22
[4062345]
The team discusses the possibility of working together with other investors who may share the same concerns about the
company. Which of the following best describes the benefits and difficulties of collective engagement?
A
Collective engagement helps investors overcome challenges in reaching a consensus on what might need to change to address
the identified problem.
B
Collective engagement helps investors learn what issues they should focus their engagement on and how they should vote.
C
Collective engagement enables investors to share resources, can aid their own education about an issue and add weight and
emphasis to their concerns.
D
Collective engagement helps to overcome the problem of coordinating a potentially disparate group of separate investors who
may be concerned about the rules around anti-competitive behaviour.
You answered : C - Collective engagement enables investors to share resources, can aid their own education about an
issue and add weight and emphasis to their concerns.
The correct answer is: C - Collective engagement enables investors to share resources, can aid their own education about
an issue and add weight and emphasis to their concerns.
Explanation
Sharing resources is one of the main advantages of collective engagement. It also makes it more likely that their concerns are
heard.
Question 23
[4062346]
Several questions are associated with the following case study. The material given in the case study will not change. Company
A is a long-established UK-based manufacturer of electronic components, devices and measuring equipment used by industrial
clients. The company is regarded as a desirable employer. The management of the company is aware of global trend to rely
more heavily on new technologies and more modern manufacturing processes that rely more heavily on automation, reduce
waste of raw materials, improve employee productivity and enable the firm to more successfully compete with new competitors
on the global scene. Company B is Company A’s competitor. It is a more recently established manufacturer based in Latin
America. Although it operates on a smaller scale it has been an early adopter of automated manufacturing models leading to
higher profitability and less waste. Both companies use raw materials and purchased components from a range of
suppliers. The table below provides information about the companies that may or may not be material.
Company A B
Number of directors on the Board 11 9
Number of independent directors 4 7
Correlation between CEO’s remuneration and 0.84 0.60
company performance
Average tenure of Board members 5 4
Revenue (USD millions) 800 400
Resource intensity (water and energy used for In-line with 20% below
cooling and cleaning) per unit of revenue industry industry
average average
Product packaging (recycled material as a % 60% 90%
of total packaging material used)
No. of reported spills and leaks (per annum) 82 38
Total CO2 emissions (tonnes per annum) 8.2 3.3
Wage levels 15% above 5% above
national national
average average
No of employees 4,000 2,300
Employee turnover 14% 30%
Total days lost due to staff absence (per 5000 3000
annum)
Work-related injuries per year 24 16
Supply chain audits per year 11 6
Which of the governance indicators can most likely be considered as a “red flag indicator” requiring further investigation?
A
Correlation between CEO’s remuneration and performance of Company B because it is lower than the same indicator for
Company A.
B
Board size of Company A because compared to Company B it appears small relative to company revenues.
C
Average tenure of Board members of Company B because it appears that the Board members do not have enough experience.
D
Director independence for Company A as fewer than half of board members are independent.
You answered : D - Director independence for Company A as fewer than half of board members are independent.
The correct answer is: D - Director independence for Company A as fewer than half of board members are independent.
Explanation
Director independence is a concern because fewer than half the Board members in Company A are independent, posing a risk
for shareholders.
Question 24
[4062347]
Company A B
company performance
average average
national national
average average
annum)
Which company appears to score better on environmental performance indicators?
A
Company A because it carries more supply chain audits per year, has higher revenues and therefore has the resources to
invest in more environmentally friendly production processes.
B
Company B because on a per-revenue basis it emits fewer CO2 emissions, wastes fewer inputs and uses a greater proportion
of recycled materials than Company A.
C
The companies achieve comparable metrics relative to the size of their revenues.
D
Company B on aggregate basis and Company A on per unit of revenue basis.
You answered : B - Company B because on a per-revenue basis it emits fewer CO2 emissions, wastes fewer inputs and
uses a greater proportion of recycled materials than Company A.
The correct answer is: B - Company B because on a per-revenue basis it emits fewer CO2 emissions, wastes fewer inputs
and uses a greater proportion of recycled materials than Company A.
Explanation
Company B scores better on all four metrics reported in the table.
Question 25
[4062348]
Company A B
company performance
average average
national national
average average
annum)
Considering the social metrics that relate to employees, which company is more likely to be able to retain staff, maintain high
levels of engagement and motivation and suffer from fewer delays and product defects?
A
Company B because fewer of its employees suffer injuries and its employee turnover is higher, leading to more innovation and
flow of new ideas.
B
Company B because it reports fewer injuries and fewer days lost due to staff absence.
C
Company A because it enjoys lower staff turnover and reports relatively fewer employee injuries and absences.
D
Company A because it has managed to recruit more employees than Company B.
You answered : C - Company A because it enjoys lower staff turnover and reports relatively fewer employee injuries and
absences.
The correct answer is: C - Company A because it enjoys lower staff turnover and reports relatively fewer employee injuries
and absences.
Explanation
Staff turnover, injury rates and absences relative to total number of employees are all lower in the case of Company A.
Question 26
[4062349]
Company A B
company performance
average average
national national
average average
annum)
What tool is available to analysts to determine what the most relevant ESG factors are, enhancing their analysis
and improving side-by-side comparisons?

A
Requirements under the EU Shareholder Rights Directive.
B
Guidance provided by UK Corporate Governance Code.
C
Materiality maps such as those provided by SASB.
D
ESG indices.
You answered : C - Materiality maps such as those provided by SASB.
The correct answer is: C - Materiality maps such as those provided by SASB.
Explanation
SASB materiality maps are helpful in providing guidance on which ESG issues are material for companies in a specific industry.
Question 27
[4062350]
Company A B
company performance
average average
national national
average average
annum)
In which of the following areas would you assess Company A's performance to be superior?
i. Employee turnover;
ii. Work-related injuries;
iii. Alignment of CEO remuneration;
iv. Waste.
A
i and iii only.
B
ii and iv only.
C
i, ii and iii only.
D
You answered : C - i, ii and iii only.
The correct answer is: C - i, ii and iii only.
Explanation
Company A has a lower staff turnover, perhaps indicating better working conditions. The higher correlation between the CEO’s
remuneration and company performance suggests better alignment. Company A performs better on both a per-revenue basis
and a per-employee basis for work-related injuries. Company B has less waste (spills and leaks) in both absolute terms and per-
revenue.
Question 28
[4062351]
Several questions are associated with the following case study. The material given in the case study will not change.
Analysts at a major fund management firm are reviewing holdings in one of the fixed income portfolios that the team manages.
They use an integrated ESG ratings system that was developed in-house by the firm.
The system outputs are used alongside other metrics such as duration, coupon rate, payment schedules, seniority, currency
considerations and balance sheet strength of the issuer country based on a selection of macroeconomic indicators.
The ESG scores in the ratings system reflect the team’s views on the country’s environmental, social and governance risks and
opportunities. The firm focuses on 10 such factors, with each scored on a scale from 1 to 10. 10 is the highest score, reflecting
analysts’ confidence in the country’s management of that particular risk (or the presence of opportunities). 1 is the lowest score,
awarded when the analysts believe the risks are significant and not managed by the country.
The analysts use a range of data sources and a selection of qualitative and quantitative techniques to decide on the individual
factor scores for each country. The next stage is then to assign weights to the ESG factors to produce an overall weighted
average score (not shown) for each country.
Examples of the rating system applied to two different sovereigns are shown below.
Category Factor Country Country Country Country

A Score A B Score B Trend
Trend
Environmenta Energy sources 6 ↓ 7 →
l
Environmenta Air and Water 7 ↓ 7 ↑
l Pollution
Environmenta Waste 6 ↑ 8 ↑
l management
Environmenta Climate Resilience 3 → 7 ↑
l
Social Demographics 8 ↑ 6 ↓
Social Human Rights 5 ↑ 8 →
Social Education & 6 ↑ 8 ↑
Employment
Governance Political Stability 4 → 7 →
& Government
Effectiveness
Governance Rule of Law & 3 ↑ 8 →
Corruption
Governance Regulatory Quality 4 ↑ 7 →
Which group of factors is usually seen as most relevant and attracts most scrutiny by sovereign debt investors?
A
Climate change.
B
Environmental.
C
Governance.
D
Social.
You answered : C - Governance.
The correct answer is: C - Governance.
Explanation
Surveys shows that governance factors remain more important than environmental and social factors for fixed income investors.
Question 29
[4062352]
Several questions are associated with the following case study. The material given in the case study will not change. Analysts at
a major fund management firm are reviewing holdings in one of the fixed income portfolios that the team manages. They use an
integrated ESG ratings system that was developed in-house by the firm. The system outputs are used alongside other metrics
such as duration, coupon rate, payment schedules, seniority, currency considerations and balance sheet strength of the issuer
country based on a selection of macroeconomic indicators. The ESG scores in the ratings system reflect the team’s views on
the country’s environmental, social and governance risks and opportunities. The firm focuses on 10 such factors, with each
scored on a scale from 1 to 10. 10 is the highest score, reflecting analysts’ confidence in the country’s management of that
particular risk (or the presence of opportunities). 1 is the lowest score, awarded when the analysts believe the risks are
significant and not managed by the country. The analysts use a range of data sources and a selection of qualitative and
quantitative techniques to decide on the individual factor scores for each country. The next stage is then to assign weights to the
ESG factors to produce an overall weighted average score (not shown) for each country. Examples of the rating system applied
to two different sovereigns are shown below.

Trend
l
l Pollution
l management
l
Employment
& Government
Effectiveness
Corruption
Based on the scores and trends in the table, what would be the best description of the two countries?
A
Both economies are developed economies.
B
Country A is a developed economy, Country B is an emerging economy .
C
Country A is an emerging economy, Country B is a developed economy.
D
Both countries are emerging economies.
You answered : C - Country A is an emerging economy, Country B is a developed economy.
The correct answer is: C - Country A is an emerging economy, Country B is a developed economy.
Explanation
The poor scores for climate resilience, human rights and governance indicate that Country A is an emerging economy, whereas
the high scores accross the board indicate that Country B is a developed economy.
Question 30
[4062353]

Trend
l
l Pollution
l management
l
Employment
& Government
Effectiveness
Corruption
Explain how the analysts may explain the link between social factors (health spending, demographics, education
and employment) and the attractiveness of the sovereign bonds.

A
Social factors are considered to be important drivers of productivity and economic growth which positively impact the debt
issuer’s ability to repay debt and should therefore lead to higher real yields.
B
Social factors are considered to be important drivers of productivity and economic growth, which positively impact the debt
issuer’s ability to repay debt and should therefore lead to lower real yields.
C
Higher rating of sovereign bonds should have a positive impact on the social factor scores and trends.
D
Higher rating of sovereign bonds should have a negative impact on the social factor scores and trends.
You answered : B - Social factors are considered to be important drivers of productivity and economic growth, which
positively impact the debt issuer’s ability to repay debt and should therefore lead to lower real yields.
The correct answer is: B - Social factors are considered to be important drivers of productivity and economic growth, which
positively impact the debt issuer’s ability to repay debt and should therefore lead to lower real yields.
Explanation
Higher heath spending and favourable demographic profile should lead to larger workforce and higher productivity, in turn
positively impacting economic growth. Higher economic growth puts the government into a better position to repay sovereign
debt, reducing the required rate of return (real yields).
Question 31
[4062354]

Trend
l
l Pollution
l management
l
Employment
& Government
Effectiveness
Corruption
The research team is considering broadening the range of inputs and tools they use to produce the ESG scores.
Which of the following is most likely to be considered for inclusion?

A
Inputs from credit rating agencies that use ESG as part of credit assessments.
B
Company-focused ESG ratings.
C
SASB materiality maps.
D
GRESB scores.
You answered : A - Inputs from credit rating agencies that use ESG as part of credit assessments.
The correct answer is: A - Inputs from credit rating agencies that use ESG as part of credit assessments.
Explanation
Global credit rating agencies have started to roll out ESG as part of their credit assessments provided as part of their offering to
fixed income investors.
Question 32
[4062355]

Trend
l
l Pollution
l management
l
Employment
& Government
Effectiveness
Corruption
Which of the following may explain the downward trend in Country B’s demographic score?
A
Rising birth rates and a falling median age.
B
Growing healthcare demands linked to an ageing population.
C
Increases in the retirement age and longer working lives.
D
Greater wealth and higher expenditure on consumer goods.
You answered : B - Growing healthcare demands linked to an ageing population.
The correct answer is: B - Growing healthcare demands linked to an ageing population.
Explanation
An ageing population has substantial effects on society. Firstly, the ratio between the active and the inactive part of the
workforce drops, impacting national tax revenues and challenging pension systems. Furthermore, older people have higher
accumulated savings per head than younger people, but spend less on consumer goods, which is a business risk for some
industries. In some categories, such as health care, expenditure rises sharply when populations age.
Question 33
[4062356]
Which of the following are typical objectives of sovereign wealth funds?
i. Economic stabilisation.
ii. Strategic development.
iii Securing wealth for future generations.
A
i and ii only
B
i and iii only
C
ii and iii only
D
i, ii and iii
You answered : D - i, ii and iii
The correct answer is: D - i, ii and iii
Explanation
Typical objectives of sovereign wealth funds include economic stabilisation, strategic development and securing wealth for
future generations.
Question 34
[4062357] Which of the following is NOT part of the EU Taxonomy Regulation framework which states conditions for economic
activity to be considered environmentally sustainable?
A
The activity contributes substantially to at least one of the environmental objectives.
B
The activity is financed by the issue of Green bonds or other green finance sources.
C
The activity complies with the minimum social and governance safeguards
D
The activity does no significant harm to any of the other environmental objectives.
You answered : C - The activity complies with the minimum social and governance safeguards
The correct answer is: B - The activity is financed by the issue of Green bonds or other green finance sources.
Explanation
The conditions for an economic activity to be considered environmentally sustainable within the EU Taxonomy Regulation are:
The activity contributes substantially to at least one of the environmental objectives; The activity does no significant harm to any
of the other environmental objectives; The activity complies with the minimum social and governance safeguards.
Question 35
[4062358] Which of the following statements is true regarding the application of quantitative and qualitative ESG analysis?
A
Both quantitative and qualitative analysis should be applied in a standard way to all asset classes.
B
Quantitative analysis should be applied in a standard way to all asset classes, qualitative analysis should be tailored to the
asset class.
C
Qualitative analysis should be applied in a standard way to all asset classes, quantitative analysis should be tailored to the
asset class.
D
Both quantitative and qualitative analysis should be tailored to the asset class.
You answered : B - Quantitative analysis should be applied in a standard way to all asset classes, qualitative analysis
should be tailored to the asset class.
The correct answer is: D - Both quantitative and qualitative analysis should be tailored to the asset class.
Explanation
Both quantitative and qualitative analysis should be tailored to the asset class.
Question 36
[4062359] Within the IIRC Framework, how should a positive relationship with regulators be viewed?
A
A tangible asset.
B
An intangible asset.
C
A tangible liability.
D
An intangible liability.
You answered : B - An intangible asset.
The correct answer is: B - An intangible asset.
Explanation
A positive relationship with regulators should be viewed as an intangible asset within the IIRC Framework.
Question 37
[4062360] Which of the following statements is typically true regarding the applicability of ESG tools?
A
ESG tools tend to be universally applicable across all asset classes and strategies.
B
ESG tools tend to be universally applicable across all asset classes, but tend to be strategy-specific.
C
ESG tools tend to be universally applicable across all strategies, but tends to be an asset class specific.
D
ESG tools tend to be asset classes and strategy-specific.
You answered : D - ESG tools tend to be asset classes and strategy-specific.
The correct answer is: D - ESG tools tend to be asset classes and strategy-specific.
Explanation
ESG tools tend to be asset classes and strategy-specific.
Question 38
[4062361] Which of the following is an intangible asset?
A
Inventory assets.
B
Innovation assets.
C
Property assets.
D
Land assets.
You answered : B - Innovation assets.
The correct answer is: B - Innovation assets.
Explanation
Innovation assets and intangibles.
Question 39
[4062362] Which of the following statements is most accurate regarding the availability of ESG tools and data?
A
Most tools are only available commercially, and most data providers continue to evolve their ratings processes.
B
Most tools are only available commercially, and most data providers have well established and stable ratings processes.
C
Most tools are freely available, and most data providers continue to evolve their ratings processes.
D
Most tools are freely available, and most data providers have well established and stable ratings processes.
You answered : A - Most tools are only available commercially, and most data providers continue to evolve their ratings
processes.
The correct answer is: A - Most tools are only available commercially, and most data providers continue to evolve their
ratings processes.
Explanation
Most tools are only available commercially, and most data providers continue to evolve their ratings processes.
Question 40
[4048397] The primary impact of urbanisation for societies globally falls into one of three categories. What are those three
categories?
A
Economic, environmental, ethical.
B
Ethical, environmental, social.
C
Economic, ethical, social..
D
Economic, environmental, social.
You answered : D - Economic, environmental, social.
The correct answer is: D - Economic, environmental, social.
Explanation
For societies, the primary impact of urbanisation falls in one of three categories: economic; environmental; social.
Question 41
[4048399] Which of the following is not one of the eight potential mechanisms recommended by the PRI that investors should
consider when acting as engaged owners in infrastructure?
A
Use ESG assessments undertaken during due diligence to prioritise attention to ESG considerations and potential for improving
profitability, efficiency and risk management.
B
Set performance targets for preserving or improving environmental and social impact, including regular reports to the board and
investors.
C
Engage with and encourage the management of the business to act on any identified ESG risks and opportunities using the
mechanisms available.
D
Ensure that ESG factors identified as immaterial during due diligence are implicitly woven into asset-level policies.
You answered : D - Ensure that ESG factors identified as immaterial during due diligence are implicitly woven into asset-
level policies.
The correct answer is: D - Ensure that ESG factors identified as immaterial during due diligence are implicitly woven into
asset-level policies.
Explanation
The PRI recommends that investors consider eight potential mechanisms to act as engaged owners in infrastructure: 1 Use
ESG assessments undertaken during due diligence to prioritise attention to ESG considerations and potential for improving
profitability, efficiency and risk management. 2 Include material ESG risks and opportunities identified during due diligence into
the post-acquisition plan of each asset/project company and integrate this into asset management activities. 3 Engage with and
encourage the management of the business to act on any identified ESG risks and opportunities using the mechanisms
available. 4 Define and communicate your expectations of ESG operations and maintenance performance to the infrastructure
business managers. 5 Ensure ESG factors identified as material during due diligence are explicitly woven into asset-level
policies. 6 Advocate a governance framework that clearly articulates who has responsibility for ESG and sustainability. 7 Set
performance targets for preserving or improving environmental and social impact, including regular reports to the board and
investors. 8 Where possible, make ESG information and expertise available to the asset or project company to help it develop
capacity.
Question 42
[4048400] When considering the integration challenges of quantitative ESG factors, which of the following statements is true?
A
Many quantitative ESG factors are agreed upon and the data are relatively long-run.
B
Many quantitative ESG factors are not agreed upon and the data are relatively short-run.
C
Many quantitative ESG factors are agreed upon and the data are relatively short-run.
D
Many quantitative ESG factors are not agreed upon and the data are relatively long-run.
You answered : B - Many quantitative ESG factors are not agreed upon and the data are relatively short-run.
The correct answer is: B - Many quantitative ESG factors are not agreed upon and the data are relatively short-run.
Explanation
Many quantitative ESG factors are not agreed upon and the data are relatively short-run.
Question 43
[4048401] ESG integration incorporates which of the following elements?
A
Company questionnaires and management interviews.
B
ESG factor tilts.
C
Red flag indicators.
D
External ESG research.
You answered : B - ESG factor tilts.
The correct answer is: B - ESG factor tilts.
Explanation
Elements of ESG integration include: adjusting forecast financials, adjusting valuation models or multiples, adjusting credit risk
and duration, managing risk, ESG factor tilts, ESG momentum tilts, strategic asset allocation, tactical asset allocation; and ESG
controversies, positive ESG events. Red flag indicators, company questionnaires and/or management interviews and watch lists
are all elements of ESG analysis.
Question 44
[4048402] In what year was the Universal Declaration of Human Rights (UDHR) proclaimed?
A
The UDHR was proclaimed in 1946
B
C
D
You answered : C - The UDHR was proclaimed in 1948
The correct answer is: C - The UDHR was proclaimed in 1948
Explanation
The Universal Declaration of Human Rights (UDHR) was proclaimed by the United Nations General Assembly on 10 December
1948 by General Assembly resolution 217A and is a common standard of achievements for all peoples and all nations.
Question 45
[4048403] Which of these statements is not true in respect of the ESG integration framework?
A
The ESG integration framework is not meant to illustrate the perfect ESG-integrated investment process.
B
The ESG integration techniques of one firm are not necessarily the right techniques for all firms.
C
Every firm is unique and many will use a selection of the techniques referenced in the ESG Integration Framework.
D
Firms typically use a narrow range of tools and techniques to identify material factors.
You answered : D - Firms typically use a narrow range of tools and techniques to identify material factors.
The correct answer is: D - Firms typically use a narrow range of tools and techniques to identify material factors.
Explanation
The ESG Integration Framework is not meant to illustrate the perfect ESG-integrated investment process. As every firm is
unique, the ESG integration techniques of one firm are not necessarily the right techniques for all firms. Firms typically use a
large array of tools and techniques to identify material factors. These tools can be qualitative or quantitative, or a mix of both.
Question 46
[4048404] Approximately what percentage of the world's greenhouse gas emissions may be attributable to deforestation and
agriculture?
A
Approximately 3%.
B
Approximately 13%.
C
Approximately 23%.
D
Approximately 33%.
You answered : C - Approximately 23%.
The correct answer is: C - Approximately 23%.
Explanation
It is estimated that deforestation and forest degradation account for approximately 23% of the world's greenhouse gas
emissions.
Question 47
[4048405] What is a source of employee satisfaction data and scores which have been directly sourced from employee
surveys?
A
Bloomberg.
B
FTSE Russell.
C
HR Stats.
D
Glassdoor.
You answered : D - Glassdoor.
The correct answer is: D - Glassdoor.
Explanation
Glassdoor provides employee satisfaction data and scores, which are directly sourced from employee surveys.
Question 48
[4048406] Which of the following risks will not be lowered by the integration of ESG into a firm's investment process?
A
Investment risk.
B
Firm level reputational risk.
C
Market risk.
D
Investment level reputational risk.
You answered : C - Market risk.
The correct answer is: C - Market risk.
Explanation
By integrating ESG into a firm's investment process, firms are seeking to lower reputational risk at a firm level and investment
level, thereby reducing investment risk.
Question 49
[4048407] Technology significantly impacts on work. Which of the following statements regarding these impacts is false?
A
Technology creates opportunities for employees to adopt more flexible working patterns.
B
Technology has helped reduce working hours over the last half decade.
C
Technology makes employment requirements more rigid.
D
Technology increases levels of part-time employment.
You answered : D - Technology increases levels of part-time employment.
The correct answer is: C - Technology makes employment requirements more rigid.
Explanation
Technology creates an opportunity for both employers and employees to adopt a more flexible work pattern, increases levels of
part-time employment and has helped reduce working hours over the last half decade.
Question 50
[4048408] Most companies that seek to address forced labour start and end their efforts at what point?
A
With first and second-tier contractors and suppliers.
B
With first-tier contractors and suppliers.
C
Examining their own direct employment.
D
With all contractors and suppliers.
You answered : B - With first-tier contractors and suppliers.
The correct answer is: B - With first-tier contractors and suppliers.
Explanation
Most companies that address forced labour, start and end their due diligence by focusing on first-tier contractors and suppliers.
Question 51
[4048409]
Which of the following statements are recognised as comparability challenges of ESG integration?
I ESG ratings agencies use different techniques and assessments so that the ratings are not easily comparable.
II ESG ratings do not correlate like bond credit ratings, nor do agencies use the same methods of scoring.
III Judgements on ESG materiality may differ between analysts.
IV Most ESG terms are used consistently and are easy for non-specialists to interpret.
A
i, ii and iii only.
B
i, ii and iv only.
C
i, iii and iv only.
D
You answered : A - i, ii and iii only.
The correct answer is: A - i, ii and iii only.
Explanation
Many ESG terms are used inconsistently and are difficult for non-specialists to interpret.
Question 52
[4048411] Passive and index approaches to the integration of ESG analysis into investment decisions may be best described in
which of the following ways?
A
Passive and index approaches typically gather data that is similar to fundamental investors but tends to be over larger data sets.
B
Passive and index approaches typically integrate ESG factors alongside other factors, such as value, size, momentum, growth
and volatility.
C
Passive and index approaches may tilt towards ESG factors chosen by investors.
D
Passive and index approaches use ESG data to adjust company or sector weights after parsing the ESG data through rules
based formulae.
You answered : D - Passive and index approaches use ESG data to adjust company or sector weights after parsing the
ESG data through rules based formulae.
The correct answer is: C - Passive and index approaches may tilt towards ESG factors chosen by investors.
Explanation
Passive and index approaches may tilt towards ESG factors chosen by investors.
Question 53
[4048412] With respect to ESG data and the use of technology within its analysis, which of the following statements is
incorrect?
A
Investors use application programming interfaces (API) to compile and assess data.
B
Natural language processing and other quantitative techniques are likely to continue to develop over time.
C
Much of the ESG data available on companies is highly structured.
D
Artificial intelligence (AI) and machine learning algorithms may be used to bring structure and numerical value to ESG data set.
You answered : C - Much of the ESG data available on companies is highly structured.
The correct answer is: C - Much of the ESG data available on companies is highly structured.
Explanation
Much of the ESG data available on companies is unstructured.
Question 54
[4048413] How many mutual funds and ETFs were covered by Morningstar as of 2018?
A
10,000 mutual funds and over 1,000 ETFs.
B
C
D
You answered : D - 20,000 mutual funds and over 2,000 ETFs.
The correct answer is: D - 20,000 mutual funds and over 2,000 ETFs.
Explanation
As of 2018, Morningstar covered over 20,000 mutual funds and over 2,000 ETFs with a 1–5 score.
Question 55
[4048414] A number of key recommendations have been made by the EU’s European Green Deal strategy on Sustainable
Finance that are designed to encourage investments that deepen and further integrate ESG. Which of the following is not one of
those recommendations?
A
To develop a classification system to provide market clarity on what is 'sustainable'.
B
To increase EU funding for sustainable projects.
C
To introduce common tax treatments to ensure market consistency and clarity, starting with climate change.
D
To foster transparency and long term thinking.
You answered : C - To introduce common tax treatments to ensure market consistency and clarity, starting with climate
change.
The correct answer is: C - To introduce common tax treatments to ensure market consistency and clarity, starting with
climate change.
Explanation
Key recommendations include the introduction of a common sustainable finance taxonomy (rather than tax treatment) to
establish standards and labels for green bonds, benchmarks and other financial products, to increase EU funding for
sustainable project, to mainstream sustainability into risk management, and to foster transparency and long-term thinking..
Question 56
[4048415] The earliest approach to the integration of ESG into portfolio construction involved which technique?
A
Active ownership.
B
Impact investing.
C
Thematic investing.
D
Negative screening.
You answered : D - Negative screening.
The correct answer is: D - Negative screening.
Explanation
The original ESG portfolio construction approach is that of exclusionary screening.
Question 57
[4048416] Which one of the following is not one of the minimum membership requirements implemented by the Principles of
Responsible Investment (PRI) in 2018?
A
Investment policy that covers the firm’s responsible investment (RI) approach, covering more than 50% of assets under
management (AUM).
B
Internal or external staff being responsible for implementing RI policy.
C
Senior-level commitment and accountability mechanisms for RI implementation.
D
Facilitate knowledge exchange.
You answered : B - Internal or external staff being responsible for implementing RI policy.
The correct answer is: D - Facilitate knowledge exchange.
Explanation
The three minimum membership requirements are: 1. Investment policy that covers the firm’s responsible investment approach,
covering more than 50% of assets under management (AUM). 2. Internal or external staff is responsible for implementing
responsible investment policy. 3. Senior-level commitment and accountability mechanisms for responsible investment
implementation.
Question 58
[4048421] Which of the following are, respectively, the most likely and least likely responsible investment clauses to be
incorporated within investment mandates?
A
Specific requirements for ESG incorporation into decision-making, and voting requirements.
B
Reporting on agreed responsible investment activities, and voting requirements.
C
Reporting on the impact of ESG issues of financial performance, and engagement requirements.
D
Acting in accordance with responsible investment beliefs of policy, and engagement requirements.
You answered : C - Reporting on the impact of ESG issues of financial performance, and engagement requirements.
The correct answer is: D - Acting in accordance with responsible investment beliefs of policy, and engagement
requirements.
Explanation
The most likely and least likely responsible investment clauses to be incorporated within investment mandates are acting in
accordance with responsible investment beliefs of policy, and engagement requirements (respectively).
Question 59
[4048423] Which of the following ESG issues would typically be categorised as a social issue within the materiality maps
provided by the Sustainability Accounting Standards Board (SASB)?
A
Resource management.
B
Health and safety.
C
Board structure.
D
Business ethics and culture.
You answered : B - Health and safety.
The correct answer is: B - Health and safety.
Explanation
Materiality maps provided by the Sustainability Accounting Standards Board (SASB) are helpful in providing some guidance on
ESG or risk factors. Of the options suggested, only health and safety is a social factor, the others being governance factors.
Question 60
[4048425] Which of the following is not one of the organisation that are seeking to align models for corporate reporting on ESG
factors and broader narrative reporting?
A
International Integrated Reporting Council
B
Grantham Research Institute.
C
Global Reporting Initiative.
D
Climate Disclosure Standards Board.
You answered : B - Grantham Research Institute.
The correct answer is: B - Grantham Research Institute.
Explanation
Among the standard-setters or would-be standard-setters are the Climate Disclosure Standards Board, the CDP (formerly the
Carbon Disclosure Project), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the
Sustainability Accounting Standards Board (SASB) who have come together to try to coalesce around a consistent approach, as
the Corporate Reporting Dialogue.
Question 61
[4048426] When considering the valuation of fixed-income securities, which of the following processes is the least appropriate
within the ESG integration framework?
A
Duration analysis.
B
Valuation multiples.
C
Relative ranking.
D
Internal credit assessment.
You answered : B - Valuation multiples.
The correct answer is: B - Valuation multiples.
Explanation
Within the ESG integration framework the following are security level components for fixed income: internal credit assessment;
forecast financial ratios; relative ranking; relative value analysis/spread analysis; duration analysis. The following are security
level components for equities: forecast financial ratios; valuation multiples; valuation model variables; forecast financials.
Security sensitivity/scenario analysis may be used for both equities and fixed income.
Question 62
[4048428] Within investment analysis there are a number of main social megatrends that are considered to be important. Which
of the following is not one of these?
A
Demographic change.
B
Automation.
C
Digital disruption.
D
Biodiversity.
You answered : D - Biodiversity.
The correct answer is: D - Biodiversity.
Explanation
Investors need to take notice of the different social megatrends that could have an effect on the businesses of the investee
companies. These include globalisation, automation and AI in manufacturing and service sectors, inequality and wealth
creation, digital disruption and social media, changes to work, leisure time and education, changes to individual rights and
responsibilities and family structures, changing demographics, including health and longevity and urbanisation.
Question 63
[4048429] Which of the following is not a theme followed by the Corporate Human Rights Benchmark?
A
Governance and policy commitments.
B
Transparency.
C
Shareholder rights and commitments.
D
Remedies and grievance mechanisms.
You answered : B - Transparency.
The correct answer is: C - Shareholder rights and commitments.
Explanation
The measurement themes and indicators within the Corporate Human Rights Benchmark provide a truly rigorous and credible
proxy measure of corporate human rights performance, which can be used by analysts and investors. The themes are as
follows, and consist of multiple questions that are listed in the report: governance and policy commitments; embedding respect
and human rights due diligence; remedies and grievance mechanisms; performance: company human rights practices;
performance: responses to serious allegations; transparency.
Question 64
[4048436] Automation offers a number of advantages for business. Which of the following is not considered to be among those
advantages?
A
Reduced labour costs.
B
Reduced unemployment.
C
Faster production.
D
Replacing dangerous physical work.
You answered : B - Reduced unemployment.
The correct answer is: B - Reduced unemployment.
Explanation
The biggest advantages of automation in industry is that it is associated with faster production and reduced labour costs and
that it replaces hard, physical, or monotonous work.
Question 65
[4048437] Which of the following correctly expresses the belief underlying ESG investing in the light of economic, social and
environmental trends?
A
That by managing the risks associated with short-term economic, social and environmental trends companies will have the best
chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making.
B
That by managing the risks and opportunities associated with long-term economic, social and environmental trends companies
will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their
decision-making.
C
That by managing the risks and opportunities associated with short-term economic, social and environmental trends companies
decision-making.
D
That by managing the risks associated with long-term economic, social and environmental trends companies will have the best
chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making.
You answered : B - That by managing the risks and opportunities associated with long-term economic, social and
environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of
material risk factors into their decision-making.
The correct answer is: B - That by managing the risks and opportunities associated with long-term economic, social and
environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of
material risk factors into their decision-making.
Explanation
That by managing the risks and opportunities associated with long-term economic, social and environmental trends companies
decision-making.
Question 66
[4048438]
Which of the following criteria have been identified by the Investor Forum as essential to an effective engagement process?
I. The process is framed by a close understanding of the nature of the company and the drivers of its business model and long-
term opportunity to prosper.
II. The process is based on clear objectives, focused on effecting change.
III. The process recognises that change is a process that should be achieved rapidly.
IV. The process involves reflection so that lessons are learned in order to improve future engagement activity.
A
i, ii and iii only.
B
i, ii and iv only.
C
i, iii and iv only.
D
i, ii, iii and iv.
You answered : B - i, ii and iv only.
The correct answer is: B - i, ii and iv only.
Explanation
The Investor Forum states that effective engagement requires a process that is framed by a close understanding of the nature
of the company and the drivers of its business model and long-term opportunity to prosper. Thus, engagement should: Be set in
an appropriate context of long-term ownership and have a focus on long-term value preservation and creation, so that the
engagement is aligned with the investment thesis; Recognise that change is a process, while haste may at times be needed,
change cannot be inappropriately rushed; Ensure overall resources used efficiently, so engagement coverage is as broad as
possible, whilst also proving effective. Have clear and specific objective leads to effective change; Involve reflection, so lessons
are learned and taken fully into account in future.
Question 67
[4048439] Bernile, Bhagwat and Yonker published a study in 2017 on the impact of governance on investment opportunities.
Which of the following are conclusions that were drawn from that study?
A
Firms with diverse boards tend to take on less financial risk and adopt more volatile policies.
B
Firms with diverse boards tend to take on less financial risk and adopt more stable policies.
C
Firms with diverse boards tend to take on greater financial risk and adopt more volatile policies.
D
Firms with diverse boards tend to take on greater financial risk and adopt more stable policies.
You answered : B - Firms with diverse boards tend to take on less financial risk and adopt more stable policies.
The correct answer is: B - Firms with diverse boards tend to take on less financial risk and adopt more stable policies.
Explanation
Bhagwat and Yonker’s 2017 study concludes that firms with diverse boards tend to have reduced stock return volatility, adopt
policies that are more stable and persistent, and take less financial risk.
Question 68
[4048440] Which of the following statements is true in respect of private markets?
A
They are more transparent, but have lower obligations.
B
They are less transparent but have the same reporting obligations.
C
They are more transparent, but have the same reporting obligations.
D
They are less transparent and have lower reporting obligations.
You answered : D - They are less transparent and have lower reporting obligations.
The correct answer is: D - They are less transparent and have lower reporting obligations.
Explanation
Private markets are less transparent and tend to have lower reporting obligations.
Question 69
[4048441] In the near future, there is likely to be an increase in the number of stewardship codes in Europe as a result of what?
A
Shareholder Rights Directive II.
B
Shareholder Obligations Directive II.
C
Active Investor Directive II.
D
Institutional Investor Directive II.
You answered : A - Shareholder Rights Directive II.
The correct answer is: A - Shareholder Rights Directive II.
Explanation
The number of stewardship codes in Europe is likely to increase significantly now that the Shareholder Rights Directive II has
come into effect (from June 2019).
Question 70
[4048443]
Which one of the following is not typically a way that institutional investors typically reflect ESG considerations?
A
Investment-decision making
B
Policy engagement
C
Corporate engagement
D
Externality engagement
You answered : D - Externality engagement
The correct answer is: D - Externality engagement
Explanation
Externality engagement is not identified as a typical way that institutional investors reflect ESG considerations.
Question 71
[4048448] Which of the following US corporate governance issues in combination represent a corporate governance code as it
would be understood elsewhere in the world?
A
The Common Sense Corporate Governance Principles and the Corporate Governance Policies of the Council of Institutional
Investors.
B
The Investor's Stewardship Group's Corporate Governance Principles for US Listed Companies and the Corporate Governance
Policies of the Council of Institutional Investors.
C
The Common Sense Corporate Governance Principles and the Investor's Stewardship Group's Corporate Governance
Principles for US Listed Companies.
D
The Common Sense Corporate Governance Principles, the Investor's Stewardship Group's Corporate Governance Principles
for US Listed Companies and the Corporate Governance Policies of the Council of Institutional Investors.
You answered : C - The Common Sense Corporate Governance Principles and the Investor's Stewardship Group's
Corporate Governance Principles for US Listed Companies.
The correct answer is: C - The Common Sense Corporate Governance Principles and the Investor's Stewardship Group's
Corporate Governance Principles for US Listed Companies.
Explanation
The Commonsense Corporate Governance Principles and the Investor's Stewardship Group's Corporate Governance Principles
for US Listed Companies represent a corporate governance code as it would be understood elsewhere in the world.
Question 72
[4048449] When integrating ESG analysis into the investment process, which of the following statements is true?
A
ESG analysis can only be integrated in a quantitative manner, not a qualitative manner.
B
ESG analysis is integrated in neither a qualitative nor quantitative manner.
C
ESG analysis can only be integrated in a qualitative manner, not a quantitative manner.
D
ESG analysis can be integrated in either a qualitative or quantitative manner.
You answered : D - ESG analysis can be integrated in either a qualitative or quantitative manner.
The correct answer is: D - ESG analysis can be integrated in either a qualitative or quantitative manner.
Explanation
The way ESG analysis is integrated can also be purely qualitative (e.g. opinion on quality of management added to the
investment thesis) or quantified (e.g. impact on financial models/valuation).
Question 73
[4048451] Which of the following sectors is at the greatest risk from the impact of physical climate change?
A
Utilities.
B
Fast moving consumer goods.
C
Telecommunications.
D
Chemicals.
You answered : A - Utilities.
The correct answer is: A - Utilities.
Explanation
Climate change debate and approaches to dealing with greenhouse gas emissions are global issues, the major risk sectors
being oil and gas, utilities, basic resources, travel and leisure.
Question 74
[4048452] What difference would arise in the investment universe between a policy of integration and a policy of exclusion?
A
The investment universe will be larger when exclusion is applied.
B
The investment universe will be larger when integration is applied.
C
It is not possible to comment on the difference that would arise.
D
There would be no change as integration and exclusionary screening are the same.
You answered : B - The investment universe will be larger when integration is applied.
The correct answer is: B - The investment universe will be larger when integration is applied.
Explanation
ESG integration and exclusionary screening are not the same, exclusionary screening potentially reduces the investment
universe whereas integration does not.
Question 75
[4048453] What was the legislation that gave rise to the Public Company Accounting Oversight Board (PCAOB) in the US?
A
Sarbanes-Oxley Act.
B
US ERISA Legislation.
C
Dodd-Frank Legislation.
D
Gramm–Leach–Bliley Act.
You answered : A - Sarbanes-Oxley Act.
The correct answer is: A - Sarbanes-Oxley Act.
Explanation
The Enron, Tyco and WorldCom scandals in the USA drove the passage of the Sarbanes-Oxley Act in 2002 which lifted
expectations for greater integrity in financial reporting and created the Public Company Accounting Oversight Board (PCAOB).
Question 76
[4048454] In the UK, the UK Stewardship Code followed the earlier introduction of the Corporate Governance Code based on
the Cadbury Report. Which events gave rise to this Corporate Governance Code?
A
The Polly Peck scandal and the dot com bubble.
B
The BCCI and Maxwell scandals.
C
Caparo and Polly Peck scandals.
D
The Maxwell and Polly Peck scandals.
You answered : C - Caparo and Polly Peck scandals.
The correct answer is: C - Caparo and Polly Peck scandals.
Explanation
The Cadbury Committee had been brought together in May 1991 by the Financial Reporting Council, the London Stock
Exchange and the
accounting profession to consider what were called ‘the financial aspects of corporate governance’. Its creation followed the
Caparo and Polly Peck scandals.
Once committee began its work (but before its planned publication), the Maxwell/Mirror Group and BBCI scandal were also
emerging.
Question 77
[4048456]
Which of the following are organisations that support their members in their governance work?
I AMEC.
II CII.
III PLUS.
IV ACGA.
A
i, ii and iii only.
B
i, ii and iv only.
C
D
i, ii, iii and iv.
Explanation
A number of asset owner organisations globally support their members in their governance work. These are bodies such as the
Pensions and Lifetime Savings Association (PLSA), formerly the NAPF, National Association of Pension Funds) in the UK, the
Council of Institutional Investors (CII) in the US, the Asian Corporate Governance Association (ACGA), the Australian Council
for Superannuation Investors (ACSI), or AMEC in Brazil, Assogestioni in Italy or Eumedion in the Netherlands. Most have a
broader remit than governance alone with stewardship being just one element of their offering.
Question 78
[4048463]
A report by McKinsey and Company (2017) identified that while, until recently, 97% of the Fortune Global 500 were
headquartered in developed economies, nearly half of the world’s large companies are expected to be headquartered in
emerging markets by 2025.
Which sustainability megatrend does this relate to?
A
Technological disruption
B
Emerging markets and urbanisation
C
Climate change and resource scarcity
D
Demographic changes and wealth inequality
You answered : B - Emerging markets and urbanisation
The correct answer is: B - Emerging markets and urbanisation
Explanation
This relates to the emerging markets and urbanisation megatrend. .
Question 79
[4048464] Many of the recommendations made by the Cadbury Commission are still considered best practice today and have
been incorporated in codes and guidelines globally. Which of the following correctly reflects some of these key
recommendations?
A
Every public company should have an audit committee meeting at least annually and the roles of chair and CEO should not be
combined.
B
Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should be
combined.
C
Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should not
be combined.
D
Every public company should have an audit committee meeting at least annually and the roles of chair and CEO should be
combined.
You answered : C - Every public company should have an audit committee meeting at least twice a year and the roles of
chair and CEO should not be combined.
The correct answer is: C - Every public company should have an audit committee meeting at least twice a year and the roles
of chair and CEO should not be combined.
Explanation
Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should not
be combined.
Question 80
[4048465]
Several types of assessment may be used by ESG data providers, including which of the following?
I. Fundamental.
II. Operational.
III. Disclosure-based.
IV. Algorithmic and news-based.
A
i, ii and iii only.
B
i, ii and iv only.
C
i, iii and iv only.
D
i, ii, iii and iv.
Explanation
There are several types of assessment, as follows: Fundamental including risk, business model, policies and preparedness;
Operational including carbon impact, water stress, human capital management; Disclosure-based assessment; Algorithm and
news-based including controversies.
Question 81
[4048466] In addition to the UK Stewardship Code's list of escalation measures that can be considered to advance
engagements, there are a handful of additional methods used by some companies as part of their escalation models. Which of
the following does not fall within these additional measures?
A
Formally adding the company to an exclusion list.
B
Voting at the annual general meeting.
C
Seeking dialogue with other stakeholders.
D
Seeking governance improvements through legal methods.
You answered : B - Voting at the annual general meeting.
The correct answer is: B - Voting at the annual general meeting.
Explanation
The UK Stewardship Code sets out a list of escalation measures that can be considered to advance engagements, however
there are a handful of additional methods used by some companies as part of their escalation models, including: writing a formal
letter setting out concerns, usually following one of the above meetings, and typically to the chair; such letters are usually
private, but may occasionally be leaked publicly if frustrations worsen; seeking dialogue with other stakeholders, including
regulators, banks, creditors, customers, suppliers, the workforce and NGOs (stakeholder dialogue is most typically a tool in
European markets, but is increasingly being used elsewhere as well); seeking governance improvements and/or damages
through legal remedies or arbitration; formally adding the company to an exclusion list, or otherwise exiting or threatening to exit
from the investment.
Question 82
[4048467] What impact does the inclusion of ESG data within the investment processes have on portfolio investment
weightings?
A
They are unaltered.
B
They are reduced, possibly to zero.
C
The impact is indeterminate.
D
They are increased.
You answered : D - They are increased.
The correct answer is: C - The impact is indeterminate.
Explanation
When ESG data are included in the investment processes it could result in either an upward or a downward adjustment to the
weights of securities, including to zero.
Question 83
[4048468] In practice, corporate governance comes down to two ‘A’s, what are these?
A
Advocacy and acceptability.
B
Accountability and alignment.
C
Accountability and advocacy.
D
Acceptability and alignment.
You answered : B - Accountability and alignment.
The correct answer is: B - Accountability and alignment.
Explanation
There are different rules worldwide but corporate governance comes down to the two ‘A’s of: accountability and alignment.
Question 84
[4048469] Which of the following statements would it be correct for you to make in respect of the comparison between carbon
taxes and emissions trading schemes (ETSs)?
A
An ETS does not stimulate a reduction in energy consumption.
B
Carbon taxes have no impact on energy consumption.
C
A carbon tax is a market-based instrument.
D
An ETS incentivises industries to reduce or limit emissions.
You answered : D - An ETS incentivises industries to reduce or limit emissions.
The correct answer is: D - An ETS incentivises industries to reduce or limit emissions.
Explanation
There remains an ongoing debate about whether a market-based instrument such as the EU's ETS or a top-down imposed
carbon tax is more effective in mitigating emission. Nevertheless ETSs have revealed that when emissions bear a cost in profit-
and-loss statements, it helps businesses to uncover inefficiencies and incentivises a reduction in a company's energy use and
carbon pollution.
Question 85
[4048470] The demographic structure of markets change as those markets develop, which of the following correctly describes
the typical demographics of a developed market?
A
The ratio between the active and inactive part of the workforce drops and older people have higher accumulated savings per
head.
B
The ratio between the active and inactive part of the workforce drops and older people have lower accumulated savings per
head.
C
The ratio between the active and inactive part of the workforce rises and older people have lower accumulated savings per
head.
D
The ratio between the active and inactive part of the workforce rises and older people have higher accumulated savings per
head.
You answered : A - The ratio between the active and inactive part of the workforce drops and older people have higher
accumulated savings per head.
The correct answer is: A - The ratio between the active and inactive part of the workforce drops and older people have
higher accumulated savings per head.
Explanation
In developed markets, the ratio between the active and inactive part of the workforce drops and older people have higher
accumulated savings per head.
Question 86
[4048471] When corporate ESG disclosures are made within financial statements there are several valid problems that may
arise. Which of the following are among those problems? I They may be unaudited. II They may not be complete. III They may
not be comparable to other companies. IV They may exclude highly significant factors due to commercial sensitivity.
A
i, ii and iii only.
B
i, ii and iv only.
C
i, iii and iv only.
D
i, ii, iii and iv.
You answered : A - i, ii and iii only.
Explanation
Valid problems in relation to any ESG disclosure that are made within financial statements include the fact that they may be
unaudited, not complete or not comparable to other companies. In addition, companies have variable disclosure policies and
management may assume certain information is of limited importance to investors or commercially sensitive.
Question 87
[4048477] In relation to outsourcing in the area of voting, which of the following statement is true?
A
Outsourcing of voting is very common.
B
Outsourcing of voting is never undertaken.
C
Outsourcing of voting rarely undertaken.
D
Outsourcing of voting is uncommon.
You answered : A - Outsourcing of voting is very common.
The correct answer is: A - Outsourcing of voting is very common.
Explanation
Outsourcing of voting is very common, where proxy advisers are hired to provide a voting platform and to provide advice on how
to vote.
Question 88
[4048479]
Analysts consider it essential to undertake a materiality assessment of social issues, why may this be the case?
i. There are many social factors that investors may wish to take into account.
ii. Social trends could have an effect on the risks and opportunities in a portfolio.
iii. Social factors are always most significant at the company level.
iv. Social factors do not impact equally on each country, sector or company.
A
i, ii and iii only.
B
i, ii and iv only.
C
i, iii and iv only.
D
Explanation
There is a wide range of social trends and factors that could have an effect on the risks and opportunities for any one
investment within a portfolio. However, the impact of the different social megatrends and social factors is not the same for all
countries, sectors and companies. Thus, it is necessary to identify which social issues are material from an investment point of
view. This should start with an understanding of materiality at the geographical level and industry level. Once this is established,
the company-level exposure can be determined by looking at the sector it operates in and which countries/regions it mostly
operates in (looking at locations of key suppliers, plants, customers and main tax jurisdictions).
Question 89
[4048480] There are three main ways in which product liability can arise. Which of the following correctly states these three
ways?
A
Design flaws, manufacturing sabotage, absence of user instructions.
B
Design flaws, manufacturing defects, absence of necessary warning signs.
C
Design flaws, manufacturing errors, absence of user instruction.
D
Design flaws, manufacturing sabotage, absence of necessary warning signs.
You answered : B - Design flaws, manufacturing defects, absence of necessary warning signs.
The correct answer is: B - Design flaws, manufacturing defects, absence of necessary warning signs.
Explanation
The three main types of product liability to consumers arises when a court finds design flaws, manufacturing defects or a failure
to warn consumers of a possible danger.
Question 90
[4048481] In relation to ethical/impact investors, which of the following statements is true?
A
They may consider immaterial ESG factors.
B
They only consider material ESG factors.
C
They only considers immaterial ESG factors.
D
They do not consider any ESG factors.
You answered : A - They may consider immaterial ESG factors.
The correct answer is: A - They may consider immaterial ESG factors.
Explanation
An ethical/impact investor is one who may judge factors affecting social or environmental returns that have minimal impact on
financial returns, i.e. they may consider immaterial ESG factors.
Question 91
[4048482] To identify attractive investment opportunities, how is quantitative ESG analysis typically used in quant models?
A
By either screening or by adjusting valuation models.
B
By screening only.
C
By adjusting valuation models only.
D
By neither screening nor by adjusting valuation models.
You answered : A - By either screening or by adjusting valuation models.
The correct answer is: A - By either screening or by adjusting valuation models.
Explanation
Qualitative and quantitative ESG equity analysis may each be integrated into the investment process on either a qualitative or
quantitative basis. Qualitative approaches typically assess the qualitative or quantitative company data relative to its peer group,
perhaps resulting in a relative ESG score which may be used to guide the strategic or tactical asset allocation, or ESG factor
screens or tilts. Quantitative integration typically involves one of: 1. Adjusting forecast financials for specific quantified factors
such as litigation, stranded asset write-offs, etc.; 2. Adjusting the cost of capital used in any discounted cash flow (DCF) model
for changing ESG risk levels; 3 Adjusting valuation multiples based on peer group comparisons within relative valuation models
such as P/E based valuations.
Question 92
[4048486] Which one of the following asset owners is typically regarded as having the most advanced understanding of ESG
concepts?
A
Insurers
B
Retail investors
C
Pension funds
D
Wealth managers
You answered : A - Insurers
The correct answer is: A - Insurers
Explanation
Insurers are sensitive to aspects of ESG: Frequency and strength of extreme weather events (P&C), Demographic changes
(Life insurance).Insurers are typically advanced in their understanding of ESG in comparison to other asset owners.
Question 93
[4048487] Which of the following is considered to be crucial for the next wave of responsible investment?
A
Ensuring that sovereign wealth fund advisors incorporate ESG factors into their core service provision.
B
Ensuring that pension fund advisors incorporate ESG factors into their core service provision.
C
Ensuring that investment consultants and retail financial advisors incorporate ESG factors into their core service provision.
D
Ensuring that insurance fund advisors incorporate ESG factors into their core service provision.
You answered : B - Ensuring that pension fund advisors incorporate ESG factors into their core service provision.
The correct answer is: C - Ensuring that investment consultants and retail financial advisors incorporate ESG factors into
their core service provision.
Explanation
Ensuring that investment consultants and retail financial advisors incorporate ESG factors into their core service provision is
crucial for the next wave of responsible investment.
Question 94
[4048489] There are a variety of drivers that influence an investors ESG objectives, which of the following is not a driver for any
class of client?
A
Investors' personal perspectives.
B
Personal ethics.
C
Short-termism.
D
Reputational risk.
You answered : C - Short-termism.
The correct answer is: C - Short-termism.
Explanation
Different clients (institutional, retail and/or private) have different investment objectives, risk/return profiles and drivers, the latter
including: fiduciary duty, investors' personal perspectives, reputational risk, financial risk, personal ethics and perspectives will
lead to the client seeking ESG investment.
Question 95
[4048490] Which of the following correctly places the noted asset classes in the correct descending order by reference to ESG
integration?
A
Public equity, private equity, fixed income, real estate
B
Public equity, fixed income, private equity, real estate
C
Public equity, private equity, real estate, fixed income
D
Public equity, fixed income, real estate, private equity.
You answered : D - Public equity, fixed income, real estate, private equity.
The correct answer is: B - Public equity, fixed income, private equity, real estate
Explanation
The correct order is public equity, fixed income, private equity, real estate.
Question 96
[4048491]
Exclusions-based investment approaches remain the largest portion of dedicated, ESG-screened AUM, although it is possible to
organise exclusions across four basis categories. Which of the following are within those four categories?
i. Faith-based
ii. Systematic exclusions
iii. Universal
iv. Conduct-related
A
i, ii and iii only.
B
i, iii and iv only.
C
D
i, ii, iii and iv.
The correct answer is: B - i, iii and iv only.
Explanation
Exclusions-based investment approaches remain the largest portion of dedicated, ESG-screened AUM, although it is possible to
organise exclusions across four basis categories: universal; conduct-related; faith-based; idiosyncratic exclusions.
Question 97
[4048492] Which of the following offer more than 1,000 ESG indices with a methodology based on ESG ratings with screening
criteria available on tobacco, weapons, coal, fossil fuel, Catholic and Islamic values?
A
FTSE Russell.
B
FTSE4Good.
C
JP Morgan ESG EMD.
D
MSCI ESG
You answered : A - FTSE Russell.
The correct answer is: D - MSCI ESG
Explanation
The MSCI ESG offer more than 1,000 ESG indices with a methodology based on ESG ratings with screening criteria available
on tobacco, weapons, coal, fossil fuel, Catholic and Islamic values.
Question 98
[4048493] For asset owners and multi-asset managers, strategic asset allocation may account for how much of the variability in
investment returns of a typical fund over time?
A
Strategic asset allocation may account for 95% of the variability in investment returns of a typical fund over time.
B
C
D
You answered : B - Strategic asset allocation may account for 90% of the variability in investment returns of a typical fund
over time.
The correct answer is: B - Strategic asset allocation may account for 90% of the variability in investment returns of a typical
fund over time.
Explanation
For asset owners and multi-asset managers, strategic asset allocation represents the most important, top-down decision that
will carry wide-ranging implications depending on exposure to asset classes and investment strategy types. Indeed, the
strategic asset allocation policy may account for as much as 90% of the variability in investment returns of a typical fund over
time.
Question 99
[4048494] What may be defined as the risks represented by legal, regulatory, policy, technology and market change in the
move towards a low carbon economy?
A
Environmental risks.
B
Physical risks.
C
Transition risks.
D
Compliance risks.
You answered : C - Transition risks.
The correct answer is: C - Transition risks.
Explanation
Transition risks are the risks represented by legal, regulatory, policy, technology and market change in the transition to a low
carbon economy. Stranded asset risk, for example, would qualify as a transition risk for a portfolio.
Question 100
[4048496] Which of the following may be defined as describing firm- or stock-specific risk?
A
Variance.
B
Idiosyncratic risk.
C
Systematic risk.
D
VaR
You answered : B - Idiosyncratic risk.
The correct answer is: B - Idiosyncratic risk.
Explanation
Idiosyncratic risk describes firm- or stock-specific risk. In an ESG context, a portfolio manager may diversify the portfolio to
dilute an ESG exposure or divest to eliminating the risk.

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investment managers to do which of the following?

into their investment decision?

i. How does the fund manager vote in general.

ii. How did the manager vote on specific controversial matters.

iii. By what process does the manager reach its decisions.

paid by local businesses and residents.

i. Sustainable transport by switching to electric vehicles;

ii. Construction of flood defences;

iii. Protection of coastlines;

iv. Retrofit of buildings.

into a circular economy?

iii. Flooding and droughts;

iv. Emissions limits.

future. She discusses her concerns with her team.

future. She discusses her concerns with her team.

future. She discusses her concerns with her team.

future. She discusses her concerns with her team.

future. She discusses her concerns with her team.

i. Boards should never include directors whose independence is questioned.

iii. With respect to diversity, gender diversity is of primary importance.

previous decision-making at the company.

first and how should they escalate engagement if necessary?

Which company appears to score better on environmental performance indicators?

and improving side-by-side comparisons?

ii. Work-related injuries;

iii. Alignment of CEO remuneration;

average score (not shown) for each country.

Category Factor Country Country Country Country

to two different sovereigns are shown below.

Category Factor Country Country Country Country

to two different sovereigns are shown below.

Category Factor Country Country Country Country

and employment) and the attractiveness of the sovereign bonds.

to two different sovereigns are shown below.

Which of the following is most likely to be considered for inclusion?

to two different sovereigns are shown below.

Category Factor Country Country Country Country

Which of the following are typical objectives of sovereign wealth funds?

ii. Strategic development.

iii Securing wealth for future generations.

III Judgements on ESG materiality may differ between analysts.

term opportunity to prosper.

II. The process is based on clear objectives, focused on effecting change.

Exchange and the

Caparo and Polly Peck scandals.

Reference: Chapter 5 section 2

emerging markets by 2025.

Which sustainability megatrend does this relate to?

IV. Algorithmic and news-based.

ii. Systematic exclusions

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