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CFA Sustainable-Investing Exam
Sustainable Investing Certificate(CFA-SIC) (Page 24 )

Updated On: 9-Feb-2026
Page 24 of 162
PDF with 802 Questions

In response to policy changes, several of the world's largest automakers made pledges to halt producing cars with internal combustion engines by 2035.
Which of the following would an asset manager most appropriately use to address this trend?

  1. Factor risk asset allocation model
  2. Liability-driven asset allocation model
  3. Regime switching asset allocation model

Answer(s): C

Explanation:

The regime switching asset allocation model is most appropriate for addressing the trend of major automakers pledging to halt the production of internal combustion engine cars by 2035. This model allows asset managers to adapt to different market regimes, which is crucial given the significant shift in the automotive industry due to policy changes and the transition to electric vehicles. The ability to switch between different allocation strategies based on prevailingeconomic and market conditions helps manage risks and capitalize on emerging opportunities related to the automotive industry's transformation.



Which of the following would most likely see its estimate of intrinsic value increased by analysts?

  1. A company with high climate-related risk
  2. A company facing significant environmental regulations
  3. A company having launched a service that reduces customers' electricity usage

Answer(s): C

Explanation:

A company that has launched a service to reduce customers' electricity usage is likely to see its intrinsic value increased by analysts. This is because such a service directly addresses the growing demand for energy efficiency and sustainability. The MSCI ESG Ratings Methodology highlights that companies which can capitalize on opportunities related to environmental efficiency and innovation are likely to benefit from a better risk and return profile. This aligns with the broader trend towards sustainability and the reduction of energy consumption, making the company more attractive to investors focused on long-term value creation.



Organizing companies according to their sustainability attributes, such as resource intensity, sustainability risks, and innovation opportunities, best describes the:

  1. Morningstar sustainability rating.
  2. Sustainable Industry Classification System (SICS).
  3. Task Force on Climate-related Financial Disclosures (TCFD).

Answer(s): B

Explanation:

The Sustainable Industry Classification System (SICS) organizes companies according to their sustainability attributes such as resource intensity, sustainability risks, and innovation opportunities. SICS is specifically designed to highlight the sustainability aspects of industries and companies, allowing for better comparison and analysis of their ESG performance. The Morningstar sustainability rating and the Task Force on Climate-related Financial Disclosures(TCFD) serve different purposes, with Morningstar providing ratings and TCFD focusing on climate-related financial disclosures.



A hurdle to adopting ESG investing is most likely a:

  1. lack of suitable benchmarks.
  2. focus on short-term performance.
  3. lack of options outside of equities.

Answer(s): A

Explanation:

A significant hurdle to adopting ESG investing is the lack of suitable benchmarks. Investors often need benchmarks to measure performance relative to specific goals or standards. The development of appropriate benchmarks for ESG investing is challenging due to the diverse and evolving nature of ESG factors. According to the MSCI ESG Ratings Methodology, integrating ESG factors into investment processes requires robust benchmarks that accurately reflect ESG risks and opportunities. Without these benchmarks, it is difficult for asset managers to gauge performance and make informed investment decisions.



Negative screening for ESG factors in portfolios:

  1. results in static exclusions.
  2. can exclude an entire country.
  3. is commonly applied to all asset classes.

Answer(s): B

Explanation:

Negative screening in ESG portfolios involves excluding certain sectors, companies, or countries based on specific ethical guidelines or ESG criteria. This approach can result in the exclusion of entire countries if they do not meet the predefined ESG standards. For example, countries with poor human rights records, high levels of corruption, or severe environmental degradation might be excluded from investment portfolios to align with investors' ESG objectives.






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