QUESTION: 105

A bond issued to fund projects that provide a clear benefit to the environment best describes a:

green bond.
transition bond.
sustainability-linked bond.

Answer(s): A

Explanation:

A green bond is a fixed-income instrument specifically earmarked to raise money for climate and environmental projects. These bonds can fund various projects that contribute to environmental sustainability, such as renewable energy, energy efficiency, pollution prevention, sustainable agriculture, and biodiversity conservation.

According to the CFA ESG Investing curriculum, green bonds are designed to help investors fund projects that have positive environmental benefits. These bonds have specific criteria and often come with verification or assurance from third-party organizations to ensure that the funds are used appropriately and meet the defined environmental objectives.

Reference:

"Typically a green bond is a fixed income instrument tied to projects that create an environmental benefit. Issuers use proceeds for activities aimed at contributing to climate change mitigation,

adaptation, or other environmental benefits such as conservation or pollution control".

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QUESTION: 106

Which of the following is most likely a reason for concern regarding the quality of a company's ESG disclosures?

The inclusion of audited ESG data
Competitors have stronger disclosure standards
There is written commitment to improve future ESG disclosure

Answer(s): B

Explanation:

One of the main concerns regarding the quality of a company's ESG disclosures is the comparison to competitors' standards. If a company's competitors have stronger and more transparent disclosure standards, it can indicate that the company may be lagging in its ESG practices and reporting quality. This can affect investors' perception of the company's commitment to ESG principles and may highlight potential risks associated with the company's operations.

According to the CFA ESG Investing curriculum, ESG data can often be incomplete, unaudited, and incomparable between companies due to different reporting methodologies. The lack of standardized reporting can make it challenging for investors to assess and compare ESG performance accurately.

Reference:

"ESG data can be incomplete, unaudited, unavailable, or incomparable between companies due to different reporting methodologies. This makes assessment of ESG factors impossible in certain situations".

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QUESTION: 107

Which of the following investor types most likely has the shortest investment time horizon?

Foundations
General insurers
Defined benefit pension schemes

Answer(s): B

Explanation:

General insurers typically have the shortest investment time horizon among the three investor types listed. Here's a detailed explanation:

Nature of Liabilities: General insurers deal with short-term liabilities, such as claims arising from accidents, natural disasters, or other events that can happen frequently and require prompt payment. This necessitates a relatively liquid and short-term investment portfolio to ensure that funds are readily available to cover claims.

Investment Strategies: Due to the need to maintain liquidity and manage risk, general insurers often invest in short-duration assets. These might include short-term bonds, money market instruments, and other liquid assets that can be quickly converted to cash.

Comparison with Other Investors:

Foundations: Foundations typically have longer-term investment horizons as they aim to support their missions over an extended period. Their endowment funds are managed to generate returns that can sustain operations and grant-making activities in perpetuity.

Defined Benefit Pension Schemes: These pension schemes also have long-term horizons, as they need to ensure that funds are available to meet the retirement benefits of employees over many years, often several decades.

CFA ESG Investing

Reference:

The CFA Institute explains that general insurers have shorter investment horizons due to the nature of their liabilities and the need for liquidity to pay out claims promptly (CFA Institute, 2020).

The institute also notes that the investment strategies of general insurers are designed to align with their short-term liabilities, making their investment horizon shorter compared to foundations and pension schemes.

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QUESTION: 108

Which of the following was established by the United Nations Environment Programme Finance Initiative (UNEP FI)?

Principles for Sustainable Insurance (PSI)
Climate Disclosure Standards Board (CDSB)
Global Sustainable Investment Alliance (GSIA)

Answer(s): A

Explanation:

The Principles for Sustainable Insurance (PSI) were established by the United Nations Environment Programme Finance Initiative (UNEP FI). Here's a detailed explanation:

UNEP FI and PSI: The United Nations Environment Programme Finance Initiative (UNEP FI) launched the Principles for Sustainable Insurance in 2012. The PSI aims to promote sustainability within the insurance industry by encouraging insurers to integrate environmental, social, and governance (ESG) factors into their business strategies and operations.

Objectives of PSI: The PSI provides a global framework for the insurance industry to address ESG risks and opportunities. It helps insurers improve risk management and decision-making processes, enhance their reputation, and contribute to sustainable development.

Not the Other Options:

Climate Disclosure Standards Board (CDSB): The CDSB is an international consortium of business and environmental NGOs. It was not established by UNEP FI but aims to provide a framework for companies to report environmental information with the same rigor as financial information.

Global Sustainable Investment Alliance (GSIA): The GSIA is a collaboration of the world's largest sustainable investment membership organizations. It was also not established by UNEP FI but works to deepen the impact and visibility of sustainable investment organizations.

CFA ESG Investing

Reference:

According to the CFA Institute, the PSI was developed by UNEP FI to promote the integration of ESG factors in the insurance industry, enhancing the industry's role in sustainable development (CFA Institute, 2020).

The PSI is highlighted as a key initiative under UNEP FI to advance sustainable insurance practices globally.

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Free ESG-Investing Exam Braindumps (page: 27)

QUESTION: 105

Explanation:

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QUESTION: 106

Explanation:

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QUESTION: 107

Explanation:

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QUESTION: 108

Explanation:

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