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Free ESG-Investing Exam Braindumps (page: 30)

Page 29 of 118
PDF with 468 Questions

Which of the following challenges is most likely related to the attribution of returns to ESG factors?

  1. Difficulty to demonstrate the value added by a programme of engagement
  2. Difficulty to assess the performance drag that comes from excluding an industrial sector
  3. Performance attribution to ESG factors is still in its early stages and may well need further assurance and consistency for it to have real power

Answer(s): C

Explanation:

One of the main challenges in attributing returns to ESG factors is the early stage of performance attribution methodologies. It is difficult to isolate the impact of ESG factors from other investment decisions due to the broad and integrated nature of ESG investing. Additionally, the need for consistent and assured methodologies is crucial for demonstrating the value added by ESG considerations in investment performance.



Which of the following countries is most likely to use a two-tier board structure?

  1. USA
  2. Japan
  3. Germany

Answer(s): C

Explanation:

Germany is most likely to use a two-tier board structure. Here's a detailed explanation:

Two-Tier Board Structure: A two-tier board structure consists of a management board and a supervisory board. The management board is responsible for day-to-day operations, while the supervisory board oversees the management board and represents the interests of shareholders.

Germany's Corporate Governance: Germany is well-known for its two-tier board system, which is a legal requirement for many large companies, especially those listed on the stock exchange. The supervisory board includes employee representatives, which is a unique feature of the German system.

Comparison with Other Countries:

USA: The USA typically uses a single-tier board structure where a single board of directors oversees the company's management. This board often includes a mix of executive and non-executive directors.

Japan: Japan has traditionally used a single-tier board structure but has been increasingly incorporating elements of a two-tier system, such as appointing outside directors. However, it does not predominantly use a two-tier structure like Germany.

CFA ESG Investing


Reference:

The CFA Institute highlights that Germany's corporate governance is characterized by the two-tier board system, which separates management and supervisory functions (CFA Institute, 2020).

This structure aims to improve oversight and accountability, aligning with Germany's emphasis on stakeholder engagement and corporate responsibility.



Which of the following statements is least accurate? Compared to social and environmental factors, governance has a:

  1. greater link to financial performance.
  2. greater consideration in traditional investment analysis.
  3. greater materiality for private companies than for public companies.

Answer(s): C

Explanation:

Compared to social and environmental factors, governance has a greater materiality for public companies than for private companies. Here's a detailed explanation:

Governance and Financial Performance: Governance factors, such as board composition, executive compensation, and shareholder rights, have been shown to have a strong link to financial performance. Good governance practices can enhance a company's transparency, accountability, and decision-making, which in turn can lead to better financial outcomes.

Traditional Investment Analysis: Governance factors have traditionally been given greater consideration in investment analysis compared to social and environmental factors. Investors have long recognized the importance of governance in assessing the risk and return profile of companies.

Materiality for Public vs. Private Companies:

Public Companies: Governance is particularly material for public companies due to the need for transparency, regulatory compliance, and the scrutiny of a larger pool of investors. Public companies are subject to more rigorous reporting requirements and shareholder engagement practices.

Private Companies: While governance is important for private companies, it is generally considered less material compared to public companies because private companies are not subject to the same level of public scrutiny and regulatory requirements.

CFA ESG Investing


Reference:

The CFA Institute notes that governance factors are crucial for public companies, impacting their financial performance and investor confidence (CFA Institute, 2020).

The emphasis on governance in traditional investment analysis reflects its critical role in ensuring sound management and oversight practices, which are essential for public companies.



Under which perspective did the Freshfields Report argue that integrating ESG considerations was necessary in all jurisdictions?

  1. Economic
  2. Fiduciary duty
  3. Impact and ethics

Answer(s): B

Explanation:

The Freshfields Report argued that integrating ESG considerations was necessary in all jurisdictions under the perspective of fiduciary duty. Here's a detailed explanation:

Fiduciary Duty: Fiduciary duty refers to the obligation of investment professionals to act in the best interests of their clients. This includes considering all factors that could materially impact investment performance, which encompasses ESG factors.

Freshfields Report: The Freshfields Report, published by the UNEP Finance Initiative, concluded that failing to consider ESG factors could be a breach of fiduciary duty. It argued that ESG considerations are integral to the risk and return profile of investments, and therefore, must be included in the fiduciary duty of investment managers.

Global Relevance: The report emphasized that this perspective applies across all jurisdictions,

meaning that investment managers worldwide must integrate ESG factors into their investment processes to fulfill their fiduciary responsibilities.

CFA ESG Investing


Reference:

According to the CFA Institute, the Freshfields Report was a landmark publication that established the importance of ESG integration as part of fiduciary duty (CFA Institute, 2020).

This perspective underscores the necessity for investment professionals to consider ESG factors to protect and enhance long-term investment returns, thereby fulfilling their fiduciary obligations.






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