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Sustainable-Investing Test Topics Pdf | Sustainable-Investing Pdf Pass Leader

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CFA Institute Sustainable-Investing Exam Syllabus Topics:

Topic
Details

Topic 1

ESG Analysis, Valuation, and Integration: This domain measures the capabilities of Portfolio Managers and Equity Analysts to integrate ESG factors into investment decision-making. It addresses challenges of integration, the impact on industry and company performance, security valuation, and approaches to ESG data analysis across asset classes.

Topic 2

Engagement and Stewardship: Designed for Asset Managers and Stewardship Professionals, this domain covers investor engagement strategies and stewardship principles. It highlights the purpose, importance, key principles, and practical application of engagement tactics within responsible investing frameworks.

Topic 3

Introduction to ESG Investing: This section of the exam measures skills of Investment Analysts and Portfolio Managers and covers the foundational concepts of environmental, social, and governance (ESG) investing. It focuses on defining ESG investment, different responsible investment approaches, sustainability concepts, benefits and challenges of ESG integration, and key global initiatives in ESG.

Topic 4

The ESG Market: This domain targets Financial Analysts and Institutional Investors, examining the size, scope, relevance, and key drivers of the ESG market. It also discusses risks and opportunities within the ESG investment landscape, helping candidates understand market dynamics and trends.

Topic 5

Environmental Factors: This section measures skills of Environmental Analysts and Sustainability Specialists by exploring environmental issues such as climate change, resource management, biodiversity, and pollution. It covers systematic relationships, material impacts, and methodologies for environmental analysis at country, sector, and company levels.

Topic 6

Social Factors:Focused on Social Analysts and Corporate Social Responsibility (CSR) Professionals, this domain reviews social factors impacting investments. It includes systemic relationships and material impacts related to labor practices, diversity, equity, inclusion, and social opportunities at multiple levels.

CFA Institute Sustainable Investing Certificate(CFA-SIC) Exam Sample Questions (Q513-Q518):

NEW QUESTION # 513
If a company has significant cash on its balance sheet, investors are most likely to prefer that the company:

A. operates in multiple businesses.
B. has some debt.
C. has a low dividend payout ratio.

Answer: B

Explanation:
When a company holds significant cash, investors generallyprefer a balanced capital structure-meaning a mix ofequity and debt-becausesome debtcanimprove the company's return on equityandenhance capital efficiency. A company with significant cash and no debt may be seen as underutilizing capital, which could be more productively allocated to growth initiatives or returning value to shareholders.

NEW QUESTION # 514
Carbon intensity is calculated as Scope 1 plus Scope 2 emissions divided by:

A. profit
B. market capitalization
C. revenue

Answer: C

Explanation:
Carbon intensity is calculated as Scope 1 plus Scope 2 emissions divided by revenue.
Revenue (B): Carbon intensity is a measure of a company's carbon emissions relative to its economic output, typically calculated as the sum of Scope 1 and Scope 2 emissions divided by revenue. This provides a standardized way to compare the carbon efficiency of companies across different sizes and industries.
Profit (A): Using profit for this calculation is less common and would not provide a consistent measure of carbon intensity, as profits can vary widely due to factors unrelated to emissions.
Market capitalization (C): Market capitalization reflects the company's market value, which is influenced by investor perceptions and market conditions, rather than the direct economic output of the company.
References:
CFA ESG Investing Principles
Standard methodologies for calculating carbon intensity

NEW QUESTION # 515
Regime switching strategic asset allocation models are:

A. used to model abrupt changes in financial variables due to shifts in regulations and policies
B. widely utilized by investment practitioners
C. typically based on historical data

Answer: A

Explanation:
Regime switching models are used in finance to account for changes in the behavior of financial variables under different regimes or states. These models help in capturing the effects of abrupt shifts due to various factors, including economic changes, policy shifts, or market conditions.
Step 2: Key Characteristics
Historical Data: While historical data may be used, these models are not typically based solely on it.
Usage by Practitioners: Although useful, they are not the most widely used models among practitioners.
Abrupt Changes: They are specifically designed to model abrupt changes in financial variables, which can result from shifts in regulations, policies, or other macroeconomic changes.
Step 3: Verification with ESG Investing References
Regime switching models are crucial for understanding and modeling the impact of sudden regulatory or policy changes on financial variables: "These models are effective in capturing the shifts in market dynamics caused by changes in regulations and policies, providing a robust framework for strategic asset allocation".
Conclusion: Regime switching strategic asset allocation models are used to model abrupt changes in financial variables due to shifts in regulations and policies.

NEW QUESTION # 516
The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both:

A. prohibit investments in fossil fuels
B. impose green-to-brown ratios to restrict "brown" investments
C. use a relative approach by comparing a company's performance to its sector average

Answer: C

Explanation:
Step 1: Understanding EU Paris-Aligned and Climate Transition Benchmarks The EU Paris-Aligned Benchmarks (PAB) and EU Climate Transition Benchmarks (CTB) were established to help investors align their portfolios with the Paris Agreement goals. They aim to guide investments towards a low-carbon economy and provide standards for climate-related financial products.
Step 2: Key Characteristics of the Benchmarks
Paris-Aligned Benchmark (PAB): Designed to align with a 1.5°C temperature rise scenario.
Climate Transition Benchmark (CTB): Allows for a broader alignment with climate transition objectives, aiming for a less stringent pathway than the PAB.
Step 3: Common Features
Both benchmarks:
Require reductions in carbon intensity compared to a standard benchmark.
Aim to support the transition towards a low-carbon economy.
Use a sector-relative approach, meaning companies' performances are compared to their sector averages to account for differences in sectoral emission profiles.
Step 4: Verification with ESG Investing References
Both the EU PAB and CTB use a relative approach to compare a company's performance to its sector average, ensuring that high-emission sectors still contribute to the transition: "These benchmarks use sector-relative decarbonization approaches, comparing companies within the same sector to ensure fair and achievable targets across different industries".
Conclusion: The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both use a relative approach by comparing a company's performance to its sector average.

NEW QUESTION # 517
Which of the following challenges is most likely related to the attribution of returns to ESG factors?

A. Difficulty to demonstrate the value added by a programme of engagement
B. Difficulty to assess the performance drag that comes from excluding an industrial sector
C. Performance attribution to ESG factors is still in its early stages and may well need further assurance and consistency for it to have real power

Answer: C

Explanation:
One of the main challenges in attributing returns to ESG factors is the early stage of performance attribution methodologies. It is difficult to isolate the impact of ESG factors from other investment decisions due to the broad and integrated nature of ESG investing. Additionally, the need for consistent and assured methodologies is crucial for demonstrating the value added by ESG considerations in investment performance.

NEW QUESTION # 518
......

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