QUESTION: 213

Using surface water in a business activity is best characterized as a:

direct impact on biodiversity
positive indirect impact on biodiversity
negative indirect impact on biodiversity

Answer(s): A

Explanation:

Surface Water Usage:

Using surface water in business activities directly affects the local ecosystem and biodiversity.

It can alter water levels, temperature, and flow patterns, impacting aquatic life and surrounding habitats.

Direct Impact Characteristics:

Direct impacts are those that occur as a direct result of the company's operations.

For example, drawing water from a river for industrial use can reduce water availability for fish and other aquatic organisms.

CFA ESG Investing

Reference:

The Global Reporting Initiative (GRI) outlines that activities such as using surface water directly affect biodiversity, making it a direct impact.

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QUESTION: 214

An analyst reads the following statements about wastewater treatment plants:

Statement I: Wastewater treatment plants are capital intensive.

Statement II: Wastewater treatment plants are difficult to maintain.

Which of the following is correct?

Statement I only
Statement II only
Both Statement I and Statement II

Answer(s): C

Explanation:

· Statement I - Capital Intensive:

Wastewater treatment plants require significant upfront investment for construction and infrastructure.

This makes them highly capital intensive projects.

· Statement II - Difficult to Maintain:

The operation and maintenance of wastewater treatment plants involve complex processes and specialized skills.

This adds to the difficulty and cost of maintaining these facilities.

· Verification:

Both statements are correct as they describe the significant financial and operational challenges associated with wastewater treatment plants.

· CFA ESG Investing

Reference:

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QUESTION: 215

The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both:

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

Answer(s): 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 Reference

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.

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QUESTION: 216

Regime switching strategic asset allocation models are:

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

Answer(s): C

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 Reference

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.

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QUESTION: 213

Explanation:

Reference:

QUESTION: 214

Explanation:

Reference:

QUESTION: 215

Explanation:

QUESTION: 216

Explanation: