QUESTION: 57

Which of the following statements about voting is most accurate?

Voting is a necessary but not a sufficient element of good stewardship
Concerns about the diversity of a company's board cannot be reflected in voting decisions
If there are concerns about the financial viability of a business, investors need to pay close attention to voting decisions on the reappointment of members of the audit committee

Answer(s): C

Explanation:

Importance of Voting in Governance:

Voting is a critical tool for shareholders to influence corporate governance. It allows them to approve or reject decisions that can impact the company's long-term viability.

According to the CFA Institute, effective voting practices are a fundamental aspect of good stewardship, ensuring that companies are managed in the best interests of shareholders and other stakeholders.

Role of the Audit Committee:

The audit committee plays a crucial role in overseeing the integrity of financial reporting, compliance with legal and regulatory requirements, and the effectiveness of internal controls.

The CFA Institute emphasizes that the audit committee's effectiveness is vital for maintaining investor confidence, particularly in companies with financial viability concerns.

Investor Attention to Audit Committee Reappointments:

When there are concerns about a company's financial health, it is essential for investors to scrutinize the reappointment of audit committee members. These members are responsible for ensuring that financial statements are accurate and that there is adequate oversight of the auditing process.

Investors should consider voting against the reappointment of audit committee members if they believe that these individuals have not adequately fulfilled their responsibilities or if there are significant issues with financial reporting.

Voting as a Stewardship Tool:

Voting decisions related to the audit committee can reflect broader concerns about governance practices and financial transparency. By exercising their voting rights, investors can signal their expectations for higher standards and accountability.

The CFA Institute notes that voting against certain board members or committees can be a powerful way to drive improvements in corporate governance and financial oversight.

Reference:

CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals."

MSCI ESG Ratings Methodology, which highlights the importance of voting in addressing governance concerns.

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QUESTION: 58

In which country is the proposal of shareholder resolutions most common?

UK
US
Australia

Answer(s): B

Explanation:

Prevalence in the US:

Shareholder resolutions are a prominent feature of the corporate governance landscape in the United States. They allow shareholders to propose changes or raise concerns about a company's policies, practices, and governance.

According to the CFA Institute, the US has a well-established tradition of shareholder activism, with a significant number of resolutions submitted annually on various issues, including ESG matters.

Regulatory Framework:

The regulatory framework in the US, particularly the rules enforced by the Securities and Exchange Commission (SEC), provides shareholders with the right to propose resolutions and ensures that these proposals are included in the company's proxy materials if they meet certain criteria.

The CFA Institute notes that the US regulatory environment is conducive to shareholder activism,

facilitating the submission and consideration of shareholder resolutions.

Engagement and Influence:

Shareholder resolutions are an important engagement tool for investors in the US, allowing them to influence corporate behavior and advocate for changes in policies related to environmental, social, and governance issues.

The MSCI ESG Ratings Methodology highlights that shareholder resolutions can drive significant changes in company practices, particularly when they garner substantial support from investors.

Comparison with Other Countries:

While shareholder resolutions are also used in other countries such as the UK and Australia, the frequency and impact of these resolutions are more pronounced in the US.

The CFA Institute indicates that the shareholder resolution process in the US is more formalized and widely used compared to other jurisdictions, making it the most common country for the proposal of shareholder resolutions.

Reference:

CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals."

MSCI ESG Ratings Methodology, which discusses the role of shareholder resolutions in corporate governance.

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QUESTION: 59

Which of the following emphasizes that short-term investment performance will be of limited significance in evaluating the manager?

Brunel Asset Management Accord
International Corporate Governance Network (ICGN) Model Mandate
Principals for Responsible Investment's (PRI) Practical Guide to ESG Integration for Equity Investing

Answer(s): B

Explanation:

ICGN Model Mandate:

The ICGN Model Mandate is designed to align the interests of asset owners and asset managers with a focus on long-term value creation rather than short-term performance metrics.

According to the CFA Institute, the ICGN Model Mandate sets out principles and practices that encourage long-term investment strategies and de-emphasize the significance of short-term performance.

Focus on Long-Term Performance:

The Model Mandate highlights that evaluating investment managers based on short-term performance can lead to suboptimal investment decisions and may encourage behaviors that are not aligned with the long-term interests of asset owners.

The CFA Institute notes that the ICGN Model Mandate promotes a longer-term perspective in investment evaluation, which is crucial for sustainable value creation.

Investment Principles:

The ICGN Model Mandate includes guidelines for performance assessment, stating that short-term underperformance should not be a primary concern if the investment process and long-term strategy are sound.

The Brunel Asset Management Accord echoes this sentiment by emphasizing that short-term performance will be of limited significance in evaluating the manager, aligning with the principles set forth by the ICGN.

Implementation:

Asset owners are encouraged to adopt the ICGN Model Mandate to ensure that their investment mandates and manager evaluations reflect a commitment to long-term performance and sustainable investing.

The CFA Institute suggests that integrating these principles into investment mandates helps mitigate the risks associated with short-termism and supports the alignment of investment strategies with long-term goals.

Reference:

CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment

Professionals."

ICGN Model Mandate documents, which outline the emphasis on long-term performance over short- term metrics.

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QUESTION: 60

One of the mam principles of stewardship codes calls for institutional investors to:

regularly monitor investee companies
avoid considering conflicts of interest regarding stewardship matters.
act independently of other investors when escalating stewardship activity

Answer(s): A

Explanation:

Principle of Monitoring:

Regular monitoring of investee companies is a fundamental principle in stewardship codes, ensuring that institutional investors remain informed about the companies in which they invest and can effectively engage with them on ESG and performance issues.

According to the CFA Institute, continuous monitoring allows investors to identify potential risks and opportunities, engage with company management, and advocate for improvements in governance and practices.

Stewardship Codes:

Stewardship codes, such as the UK Stewardship Code and the International Corporate Governance Network (ICGN) Global Stewardship Principles, emphasize the importance of regular monitoring as part of responsible investment practices.

The CFA Institute highlights that these codes provide frameworks and guidelines for institutional investors to follow, promoting transparency, accountability, and proactive engagement with investee companies.

Engagement and Escalation:

Regular monitoring enables investors to engage with companies on a continuous basis, addressing issues as they arise and escalating concerns if necessary. This ongoing engagement is crucial for effective stewardship and long-term value creation.

The Principles for Responsible Investment (PRI) also advocate for regular monitoring and engagement, encouraging investors to take an active role in improving corporate behavior and sustainability practices.

Examples of Monitoring Activities:

Monitoring activities include reviewing financial statements, ESG reports, meeting with company management, and participating in shareholder meetings. These activities help investors stay informed and influence corporate strategies and practices.

The CFA Institute notes that effective monitoring involves a comprehensive approach, integrating financial analysis with ESG considerations to provide a holistic view of investee companies.

Reference:

CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals."

UK Stewardship Code and ICGN Global Stewardship Principles documents, which outline the principles of regular monitoring and engagement.

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Free ESG-Investing Exam Braindumps (page: 16)

QUESTION: 57

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QUESTION: 58

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QUESTION: 59

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QUESTION: 60

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