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CFA Sustainable-Investing Exam
Sustainable Investing Certificate(CFA-SIC) (Page 16 )

Updated On: 9-Feb-2026
Page 16 of 162
PDF with 802 Questions

To fall in scope of mandatory compliance with the EU's Corporate Sustainability Reporting Directive (CSRD), companies would need to meet which of the following conditions?

Condition 1EUR40 million in net turnover

Condition 2EUR20 million in assets

Condition 3250 or more employees

  1. Any one of these conditions
  2. Any two of these conditions
  3. All three of these conditions

Answer(s): B

Explanation:

The EU's Corporate Sustainability Reporting Directive (CSRD) mandates that companies need to meet at least two of the following three criteria to fall under its scope of mandatory compliance:

EUR 40 million in net turnover

EUR 20 million in assets

250 or more employees

This requirement is designed to ensure that significant entities are subject to sustainability reporting, reflecting their potential impact on and responsibility towards environmental, social, and governance (ESG) factors.


Reference:

The CSRD directive outlines the scope and criteria for mandatory sustainability reporting within the EU.



Which of the following is most likely an example of a negative externality?

  1. Impairment costs incurred by a company due to regulatory changes
  2. Direct costs incurred by a company in reducing environmental damages
  3. Indirect costs incurred by third parties due to environmental damages caused by a company

Answer(s): C

Explanation:

Negative externalities refer to the adverse effects or costs that are incurred by third parties due to the actions or activities of a company, without these costs being reflected in the company's financial statements. These are costs borne by society or the environment rather than the company itself. Examples include pollution, health costs due to emissions, and environmental degradation.


Reference:

MSCI ESG Ratings Methodology emphasizes understanding externalities, including environmental impacts, as significant ESG risks that can translate into financial risks over time.



For a board to be successful the most important type of diversity needed is:

  1. age
  2. gender
  3. thought

Answer(s): C

Explanation:

Diversity of thought is crucial for a board's success as it brings in varied perspectives, innovative ideas, and a holistic approach to problem-solving.
While age and gender diversity are important, diversity of thought ensures that the board benefits from a range of experiences and viewpoints, leading to better decision-making and governance.


Reference:

Emphasizing the importance of diverse perspectives in governance and decision-making is consistent with principles found in ESG and sustainable investing frameworks.



Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the:

  1. sector level
  2. country level.
  3. company level

Answer(s): B

Explanation:

Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the country level. This type of analysis involves evaluating the legal and regulatory frameworks of a specific country to determine how well they adhere to international labor standards.

National Legislation: Social analysis at the country level examines the extent to which a country's labor laws comply with ILO principles, such as freedom of association, the right to collective bargaining, and the elimination of forced labor, child labor, and discrimination in employment.

Regulatory Environment: Understanding the alignment of local labor laws with ILO standards helps assess the regulatory environment's effectiveness in protecting workers' rights and promoting fair labor practices.

Implications for Investment: For investors, this analysis provides insights into the social risks and opportunities associated with operating in or investing in a particular country. It helps identify potential compliance issues and social impacts that could affect investment decisions.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the importance of evaluating labor laws at the country level to understand social risks and regulatory compliance.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the role of country-level social analysis in assessing adherence to international labor standards and its impact on investment strategies.



An asset manager considering environmental risks would most likely use:

  1. qualitative analysis only
  2. quantitative analysis only
  3. both qualitative and quantitative analyses

Answer(s): C

Explanation:

An asset manager considering environmental risks would most likely use both qualitative and quantitative analyses. Combining these approaches provides a comprehensive understanding of the environmental risks associated with investments.

Qualitative Analysis: This involves evaluating non-numerical information, such as company policies, management practices, and environmental impact reports. It helps assess the company's approach to managing environmental risks and its commitment to sustainability.

Quantitative Analysis: This involves analyzing numerical data, such as carbon emissions, energy consumption, water usage, and waste generation. It provides measurable metrics that can be compared over time and against industry benchmarks.

Holistic Assessment: Using both qualitative and quantitative analyses allows asset managers to gain a complete picture of a company's environmental performance. It helps identify potential risks and opportunities, leading to more informed investment decisions.


Reference:

MSCI ESG Ratings Methodology (2022) - Highlights the importance of integrating both qualitative and quantitative analyses in evaluating environmental risks.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the benefits of a holistic approach to environmental risk assessment using diverse analytical methods.






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