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Free ESG-Investing Exam Braindumps (page: 15)

Page 14 of 118
PDF with 468 Questions

Which of the following statements about the Green Claims Directive (GCD) is most accurate? The GCD:

  1. applies to mandatory green claims made by businesses towards consumers
  2. aims to make green claims reliable, comparable, and verifiable across the world.
  3. requires verification by independent auditors before green claims can be made and marketed

Answer(s): B

Explanation:

The Green Claims Directive (GCD) aims to make green claims reliable, comparable, and verifiable across the world. This directive addresses the need for consistency and transparency in the way businesses communicate their environmental claims to consumers.

Reliability: The GCD ensures that green claims made by businesses are based on accurate and substantiated information, preventing misleading claims.

Comparability: By standardizing the criteria and methodologies for green claims, the GCD enables consumers to compare the environmental benefits of different products and services effectively.

Verifiability: The directive requires that green claims be verifiable, meaning that businesses must provide evidence and undergo scrutiny to support their claims, enhancing trust and accountability.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the importance of reliability, comparability, and verifiability in ESG disclosures and claims.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the role of regulatory frameworks like the GCD in ensuring transparent and trustworthy green claims.



When incorporating ESG factors into valuation inputs, which of the following would most likely require the lowest discount rate?

  1. A company with strong ESG practices
  2. A high-growth technology company operating in emerging markets
  3. A company that is judged to have a negative environmental impact

Answer(s): A

Explanation:

When incorporating ESG factors into valuation inputs, a company with strong ESG practices would most likely require the lowest discount rate. This is because strong ESG practices are associated with lower risks, which can lead to more stable and predictable cash flows.

Lower Risk Premium: Companies with robust ESG practices are often perceived as less risky due to better governance, risk management, and sustainability practices. This lowers the risk premium and, consequently, the discount rate.

Stable Cash Flows: Strong ESG practices contribute to long-term sustainability and can lead to more reliable and stable cash flows. This stability justifies a lower discount rate in valuation models.

Positive Market Perception: Companies with strong ESG credentials may enjoy a better reputation and greater investor confidence, which can reduce the cost of capital and support a lower discount rate.


Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the relationship between strong ESG practices and lower financial risk.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses how ESG factors are integrated into valuation models and their impact on discount rates.



Excluding investment in companies with a history of labor infractions is best categorized as a(n):

  1. universal exclusion.
  2. idiosyncratic exclusion.
  3. conduct-related exclusion

Answer(s): C

Explanation:

Excluding investment in companies with a history of labor infractions is best categorized as a conduct-related exclusion. This type of exclusion focuses on the behavior and practices of companies,

particularly in relation to their treatment of employees and adherence to labor standards.

Behavioral Criteria: Conduct-related exclusions target specific behaviors or practices that are deemed unacceptable, such as labor infractions, human rights violations, or environmental harm.

Ethical Considerations: These exclusions are based on ethical and social considerations, aiming to avoid investing in companies that do not meet certain standards of conduct.

Impact on Valuation: By excluding companies with poor labor practices, investors aim to reduce exposure to risks associated with legal liabilities, reputational damage, and operational disruptions.


Reference:

MSCI ESG Ratings Methodology (2022) - Explains different types of exclusion criteria, including conduct-related exclusions, and their rationale.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the importance of considering company behavior in ESG investment strategies.



According to the Active Ownership study, which of the following statements regarding ESG engagement is most accurate?

  1. Unsuccessful engagements often have adverse impacts on returns
  2. Success is typically achieved within 12 months of the initial engagement
  3. Successful engagement activity was followed by positive abnormal financial returns

Answer(s): C

Explanation:

According to the Active Ownership study, successful engagement activity was followed by positive abnormal financial returns. This indicates that engaging with companies to improve their ESG practices can lead to better financial performance.

Improved Performance: Companies that respond positively to ESG engagements often improve their ESG practices, which can enhance their operational efficiency, reduce risks, and improve profitability.

Market Recognition: Successful engagements can also lead to positive market perception and investor confidence, which can drive up stock prices and result in positive abnormal returns.

Long-term Value Creation: Effective ESG engagements contribute to long-term value creation by addressing material ESG issues that can impact a company's financial performance and sustainability.


Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the link between successful ESG engagements and improved financial performance.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the findings of the Active Ownership study and the impact of ESG engagements on financial returns.






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