QUESTION: 9

The concept of double-agency in society refers to the conflict of interest between

corporate CEOs and shareholders
money managers and asset owners.
corporate CEOs and money managers

Answer(s): B

Explanation:

The concept of double-agency in society refers to the conflict of interest between money managers and asset owners. This concept arises when there are two levels of agency relationships, each with potential conflicts of interest.

Principal-Agent Relationship: In the first level, asset owners (principals) delegate the management of their assets to money managers (agents). The money managers are expected to act in the best interests of the asset owners, but their own interests might not always align with those of the asset owners.

Secondary Agency: The second level involves the relationship between the corporate CEOs (agents) and the company's shareholders (principals). Here, the CEOs are supposed to act in the best interests of the shareholders, but again, there might be conflicts of interest.

Double-Agency Conflict: The double-agency conflict occurs because the money managers, who are agents of the asset owners, also act as principals when dealing with corporate CEOs. This dual role can lead to conflicts where the money managers' decisions may benefit themselves or the CEOs rather than the asset owners.

Reference:

MSCI ESG Ratings Methodology (2022) - Explains the principal-agent relationships and how conflicts of interest can arise at multiple levels, leading to the double-agency problem.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the importance of aligning interests between asset owners, money managers, and corporate executives to mitigate the double-agency issue.

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QUESTION: 10

In France, shareholders eligible for being awarded double voting rights are

founding shareholders during an IPO
long-standing shareholders of at least two years.
minority shareholders that are employee representatives

Answer(s): B

Explanation:

In France, shareholders eligible for being awarded double voting rights are long-standing shareholders of at least two years. This policy aims to encourage long-term investment and shareholder loyalty.

Loyalty Incentive: The double voting rights are granted to shareholders who have held their shares for at least two years. This incentivizes long-term holding and aligns shareholders' interests with the company's long-term success.

Strengthening Governance: By rewarding long-term shareholders with additional voting power, companies can strengthen their governance structures. Long-term shareholders are more likely to be interested in sustainable growth and responsible governance.

Legal Framework: This practice is embedded in the French legal framework under the Florange Act, which automatically grants double voting rights to shares held for at least two years unless the company's articles of association specify otherwise.

Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the mechanisms in place in different jurisdictions to promote long-term investment through measures such as double voting rights.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the importance of shareholder engagement and long-term investment incentives in corporate governance.

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QUESTION: 11

Which of the following asset classes has the lowest degree of ESG integration?

Sovereign debt
Investment grade corporate debt
Emerging markets corporate debt

Answer(s): A

Explanation:

Sovereign debt has the lowest degree of ESG integration compared to investment-grade corporate debt and emerging markets corporate debt. This is due to several factors:

Limited ESG Data: There is generally less ESG data available for sovereign issuers compared to corporate issuers. Sovereign ESG assessments rely on country-level indicators, which may not be as detailed or specific as corporate ESG disclosures.

Complexity of ESG Factors: The ESG factors affecting sovereign debt are more complex and broader in scope, encompassing issues like political stability, governance, human rights, and environmental policies. This complexity makes it challenging to integrate ESG factors effectively.

Market Practices: The integration of ESG factors into sovereign debt investment processes is less advanced compared to corporate debt markets.
While there is growing interest, the methodologies and frameworks for assessing sovereign ESG risks are still developing.

Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the challenges and current state of ESG integration across different asset classes, highlighting the relative lag in sovereign debt.

ESG-Ratings-Methodology-Exec-Summary (2022) - Provides insights into the varying degrees of ESG integration in different asset classes and the factors contributing to these differences.

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QUESTION: 12

A company reduces water usage and increases usage of more expensive resources after regulations become more stringent. This most likely impacts:

revenues
provisions
operating expenditure

Answer(s): C

Explanation:

When a company reduces water usage and increases the use of more expensive resources due to more stringent regulations, this directly impacts its operating expenditure (OPEX). Here's a detailed breakdown:

Regulatory Compliance:

As regulations become stricter, companies often need to adopt new technologies or practices that may be more costly. This increase in cost is directly related to the day-to-day operations of the company, affecting operating expenditures.

For example, implementing water-saving technologies or switching to sustainable raw materials that are more expensive than traditional ones will raise the ongoing costs associated with production.

Impact on Revenues:

While reducing water usage and adhering to stricter regulations can have long-term benefits for the company, such as improved sustainability ratings and possibly higher market valuation, these changes do not typically have an immediate direct impact on revenues. Revenues are more directly influenced by sales and market demand.

Impact on Provisions:

Provisions are set aside for future liabilities or losses, such as environmental remediation costs or legal disputes.
While stricter regulations might eventually lead to increased provisions, the immediate impact of switching to more expensive resources affects operating expenditure first.

CFA ESG Investing

Reference:

The CFA ESG Investing curriculum highlights the importance of understanding how regulatory changes can affect various aspects of a company's financials. Operating expenditure is often highlighted as the most immediately impacted area when companies adapt their operations to comply with new environmental standards.

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Free ESG-Investing Exam Braindumps (page: 4)

QUESTION: 9

Explanation:

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QUESTION: 10

Explanation:

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QUESTION: 11

Explanation:

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QUESTION: 12

Explanation:

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