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CFA Sustainable-Investing Exam
Sustainable Investing Certificate(CFA-SIC) (Page 21 )

Updated On: 9-Feb-2026
Page 21 of 162
PDF with 802 Questions

Which of the following statements about the decoupling of economic activities from resource usage is most accurate?

  1. Moving to a circular economy boosts decoupling
  2. The Jevons paradox explains why decoupling happens
  3. Absolute long-term decoupling is more common than relative decoupling

Answer(s): A

Explanation:

Decoupling refers to the ability of an economy to grow without corresponding increases in environmental pressure. There are two types of decoupling:

Relative decoupling: Resource use grows at a slower rate than economic growth.

Absolute decoupling: Resource use declines while the economy grows.

Moving to a circular economy is a key strategy to enhance decoupling, as it focuses on reusing, recycling, and minimizing waste, thereby reducing the consumption of virgin resources and environmental impact. This approach helps in achieving relative and, in some cases, absolute decoupling.

While the Jevons paradox describes a scenario where increased efficiency leads to increased resource consumption, it does not explain decoupling. Additionally, absolute long-term decoupling is rare compared to relative decoupling, making option A the most accurate statement.



Which of the following social factors most likely impacts a company's external stakeholders?

  1. Working conditions, health, and safety
  2. Employment standards and labor rights
  3. Product liability and consumer protection

Answer(s): C

Explanation:

Social factors that impact a company's external stakeholders include those that affect customers, local communities, and governments. Product liability and consumer protection directly influence external stakeholders by ensuring the safety, quality, and reliability of products, which in turn affects consumer trust and regulatory compliance. Working conditions, health and safety, and employment standards primarily impact internal stakeholders, such as employees.



The adoption of ESG investing by retail investors has generally been:

  1. slower than its adoption by institutional investors.
  2. at the same pace as its adoption by institutional investors.
  3. faster than its adoption by institutional investors.

Answer(s): A

Explanation:

The adoption of ESG investing by retail investors has generally been slower than its adoption by institutional investors. Institutional investors have led the way in integrating ESG factors into their investment decisions due to their larger resources and regulatory pressures. In contrast, retail investors have been slower to adopt ESG investing, though interest is growing, especially among younger generations.



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.






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