QUESTION: 137

In the ESG rating process, an assessment of risk, policies, and preparedness is best categorized as part of a(n):

operational assessment.
fundamental assessment.
disclosure-based assessment.

Answer(s): B

Explanation:

In the ESG rating process, an assessment of risk, policies, and preparedness is best categorized as part of a fundamental assessment. This type of assessment evaluates how well a company is managing its material ESG risks, which includes examining the company's risk exposure, the policies it has in place to manage those risks, and its preparedness to handle potential ESG-related issues. This holistic approach provides a comprehensive view of a company's ESG performance and its ability to sustain long-term value creation.

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QUESTION: 138

When integrating ESG analysis into the investment process, deriving correlations on how ESG factors might impact financial performance over time is an example of a:

passive approach.
thematic approach.
systematic approach.

Answer(s): C

Explanation:

When integrating ESG analysis into the investment process, deriving correlations on how ESG factors might impact financial performance over time is an example of a systematic approach. This approach involves incorporating ESG data into financial models and investment strategies in a structured and consistent manner. It enables investors to systematically assess the impact of ESG factors on financial performance and make informed investment decisions based on these insights.

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QUESTION: 139

An unfavorable corporate governance assessment would most likely be incorporated in valuation through reduced:

discount rates.
risk premia in the cost of capital.
levels of confidence in the valuation range.

Answer(s): B

Explanation:

An unfavorable corporate governance assessment would most likely be incorporated in valuation through increased risk premia in the cost of capital. Poor governance practices can increase the perceived risk of a company, leading investors to demand higher returns for taking on that risk. This results in a higher cost of capital for the company, which can negatively affect its valuation. Adjusting the discount rate to reflect governance risks is a common practice in valuation models.

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QUESTION: 140

Increased investment crowding into more ESG-friendly sectors is most likely to increase:

valuations.
expected returns.
materiality thresholds.

Answer(s): A

Explanation:

Increased investment crowding into more ESG-friendly sectors is most likely to increase valuations. As more investors seek to allocate capital to sectors or companies with strong ESG performance, the demand for these investments rises, which can drive up their market prices and, consequently, their valuations. This trend reflects the growing recognition of the long-term value associated with sustainable business practices.

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QUESTION: 137

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QUESTION: 138

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QUESTION: 139

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QUESTION: 140

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