QUESTION: 253

With respect to the current state of ESG disclosure globally, issuer reporting frameworks for ESG information are:

mandatory
fragmented
harmonized

Answer(s): B

Explanation:

With respect to the current state of ESG disclosure globally, issuer reporting frameworks for ESG information are fragmented.

Fragmentation of Frameworks: There are numerous ESG reporting frameworks globally, including the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), and others. These frameworks have different scopes, metrics, and guidelines.

Lack of Standardization: The lack of a unified global standard leads to inconsistencies in ESG reporting, making it challenging for investors to compare ESG performance across companies and regions.

Efforts Toward Harmonization: While there are ongoing efforts to harmonize ESG reporting standards, such as initiatives by the International Financial Reporting Standards (IFRS) Foundation, the current state remains fragmented.

CFA ESG Investing

Reference:

The CFA Institute's reports on ESG disclosure highlight the fragmented nature of current reporting frameworks and the challenges this poses for investors seeking consistent and comparable ESG information. The institute advocates for greater standardization to improve the quality and utility of ESG disclosures.

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QUESTION: 254

In the European Union, publicly listed firms are obliged to change auditors at least every:

5 years
10 years
20 years

Answer(s): B

Explanation:

In the European Union, publicly listed firms are required to change their auditors at least every 10 years. This regulation is part of the EU's statutory audit reform, which aims to enhance the independence of auditors and the quality of audits. The rotation requirement is intended to prevent long-term relationships between auditors and clients that could compromise the auditor's objectivity.

Regulatory requirement: The EU Audit Regulation (Regulation (EU) No 537/2014) mandates that public-interest entities, including publicly listed firms, must rotate their statutory auditors or audit firms after a maximum of 10 years.

Objective: This measure is designed to reduce the risk of conflicts of interest and ensure a fresh perspective on the firm's financial statements.

Reference:

EU Audit Regulation (Regulation (EU) No 537/2014)

CFA ESG Investing Principles

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QUESTION: 255

All else equal, which of the following companies would most likely have a lower price-to-earnings (P/E) ratio than industry average?

A company with lower employee turnover than industry average
A company with higher climate-related risk than industry average
A company with higher scores on independent surveys of employee satisfaction and engagement than industry average

Answer(s): B

Explanation:

All else being equal, a company with higher climate-related risk than the industry average would most likely have a lower price-to-earnings (P/E) ratio. This is because higher climate-related risks can affect a company's future profitability and stability, leading investors to apply a higher discount rate to its future earnings, thus lowering its valuation.

Higher climate-related risk (B): Companies facing significant climate-related risks may encounter regulatory costs, physical damage to assets, and shifts in market demand, which can adversely impact their financial performance. Investors might anticipate these potential negative impacts and thus assign a lower P/E ratio to such companies.

Lower employee turnover (A) and higher employee satisfaction (C): These factors generally indicate better management practices and a more engaged workforce, which are often viewed positively by investors and may lead to a higher P/E ratio, reflecting confidence in the company's stability and growth potential.

Reference:

CFA ESG Investing Principles

MSCI ESG Ratings Methodology (June 2022)

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QUESTION: 256

Interest by retail investors in responsible investing has:

been declining over time
remained stable over time
been growing over time

Answer(s): C

Explanation:

Interest by retail investors in responsible investing has been growing over time. This trend is driven by increased awareness of ESG issues and the recognition that sustainable investing can align with both personal values and financial goals.

Growth in interest: Surveys and market data consistently show that more retail investors are considering ESG factors in their investment decisions. This trend is supported by the increasing availability of ESG-related investment products and greater transparency from companies regarding their ESG practices.

Drivers: Factors contributing to this growth include heightened awareness of environmental and social issues, the impact of regulatory changes promoting ESG disclosures, and the perception that ESG investing can mitigate risks and uncover opportunities.

Reference:

CFA ESG Investing Principles

Market surveys and reports on trends in responsible investing

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Free ESG-Investing Exam Braindumps (page: 64)

QUESTION: 253

Explanation:

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QUESTION: 254

Explanation:

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QUESTION: 255

Explanation:

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QUESTION: 256

Explanation:

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