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Free ESG-Investing Exam Braindumps (page: 20)

Page 19 of 118
PDF with 468 Questions

Which of the following increases pressure on natural resources?

  1. Population growth
  2. Economic recession
  3. Declining life expectancy

Answer(s): A

Explanation:

Population growth increases pressure on natural resources. As the population grows, the demand for resources such as water, food, energy, and land intensifies, leading to greater exploitation and potential depletion of these resources.

Increased Demand: A growing population requires more resources to meet its needs. This includes more agricultural land for food production, more water for consumption and irrigation, and more energy for household and industrial use.

Resource Depletion: Higher demand for natural resources can lead to over-extraction and depletion. For example, excessive groundwater withdrawal can lead to aquifer depletion, while overfishing can deplete fish stocks.

Environmental Impact: Population growth can lead to environmental degradation, including deforestation, loss of biodiversity, and increased greenhouse gas emissions. The expansion of human activities often encroaches on natural habitats, leading to a decline in ecosystem health.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the impact of population growth on natural resource demand and environmental sustainability.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the pressures on natural resources due to increasing population and the associated environmental challenges.



Which of the following is an example of shareholder engagement? Institutional investors:

  1. responding to policy consultations
  2. making ESG recommendations to policy makers
  3. discussing ESG issues with an investee company's board

Answer(s): C

Explanation:

An example of shareholder engagement is institutional investors discussing ESG issues with an investee company's board. Shareholder engagement involves active dialogue between investors and company management to address and influence ESG practices and performance.

Direct Interaction: Engaging directly with the board allows institutional investors to communicate their ESG concerns and expectations. This can lead to more informed decision-making by the board on ESG matters.

Influence and Accountability: By discussing ESG issues with the board, investors can hold the company accountable for its ESG performance. This can drive improvements in areas such as governance, environmental impact, and social responsibility.

Long-term Value: Effective engagement on ESG issues can enhance long-term value creation for both the company and its shareholders. It encourages sustainable business practices that mitigate risks and capitalize on ESG opportunities.


Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the role of shareholder engagement in influencing corporate ESG practices.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the importance of direct dialogue between investors and company boards in improving ESG performance.



Which of the following statements about quantitative ESG analysis is most accurate?

  1. Quantitative ESG analysis is only based on third-party data
  2. The length of the timeseries for ESG data is shorter than for financial data
  3. Application programming interfaces (APIs) are used to bring structure to the ESG dataset

Answer(s): B

Explanation:

The most accurate statement about quantitative ESG analysis is that the length of the timeseries for ESG data is shorter than for financial data. ESG data is relatively newer compared to traditional financial data, resulting in shorter historical datasets.

Historical Data: Financial data has been collected and reported for many decades, providing long timeseries that are essential for trend analysis and financial modeling. In contrast, comprehensive ESG reporting is a more recent development, leading to shorter timeseries.

Data Availability: The availability of ESG data has increased significantly in recent years as companies and regulators have placed greater emphasis on ESG disclosures. However, this data typically does not extend as far back as financial data.

Analysis Implications: Shorter timeseries for ESG data can limit the ability to perform long-term trend analysis and may impact the robustness of certain quantitative models. Analysts need to account for this limitation when incorporating ESG factors into their analyses.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the challenges of shorter timeseries in ESG data compared to financial data.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the relatively recent focus on ESG data collection and its implications for analysis.



Performance materiality:

  1. is usually higher than overall materiality
  2. is set lower when financial controls are strong.
  3. can indicate the auditor's level of trust in a company's financial systems.

Answer(s): A

Explanation:

Performance materiality is usually higher than overall materiality. Performance materiality is a threshold set below the overall materiality level to reduce the risk that the aggregate of uncorrected and undetected misstatements exceeds overall materiality.

Risk Mitigation: Performance materiality is set higher to provide a buffer that helps ensure that the risk of undetected misstatements that are individually immaterial but collectively significant is minimized.

Audit Strategy: By setting performance materiality at a higher level, auditors can perform more targeted and effective audit procedures. This helps in identifying and addressing potential misstatements that might otherwise go unnoticed.

Compliance and Trust: Higher performance materiality enhances the reliability of the financial statements, ensuring compliance with accounting standards and increasing stakeholders' trust in the financial reporting process.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the concept of performance materiality and its role in audit risk management.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the importance of performance materiality in ensuring accurate and reliable financial reporting.






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