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CFA Sustainable-Investing Exam
Sustainable Investing Certificate(CFA-SIC) (Page 5 )

Updated On: 7-Feb-2026
Page 5 of 162
PDF with 802 Questions

The triple bottom line accounting theory considers people, profit, and:

  1. planet
  2. efficiency.
  3. licence to operate

Answer(s): A

Explanation:

The triple bottom line accounting theory considers people, profit, and planet. This framework expands the traditional financial bottom line to include social and environmental dimensions, emphasizing sustainable and responsible business practices.

People: This dimension focuses on the social aspects of business, including employee welfare, community engagement, and human rights. It assesses the impact of business activities on stakeholders and society at large.

Profit: The profit dimension includes the traditional financial performance of the business. It measures the economic value generated by the company and its contribution to shareholders and the economy.

Planet: The planet dimension addresses the environmental impact of business operations. It considers factors such as resource use, waste management, carbon emissions, and overall environmental sustainability.


Reference:

MSCI ESG Ratings Methodology (2022) - Explains the principles of the triple bottom line and its importance in comprehensive ESG assessment.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the integration of social, economic, and environmental factors in sustainable business practices.



With respect to ESG integration, adjusting financial model inputs based on an evaluation of a company's ESG risk factors is an example of a:

  1. hybrid approach
  2. qualitative approach.
  3. quantitative approach

Answer(s): C

Explanation:

Adjusting financial model inputs based on an evaluation of a company's ESG risk factors is an example of a quantitative approach. Here's why:

Quantitative Approach:

This involves the use of numerical data and mathematical models to assess ESG risks and incorporate them into financial models. Adjusting financial inputs like revenue forecasts, cost projections, or discount rates based on ESG factors quantifies the impact of these factors on financial performance.

By integrating ESG risk factors into financial metrics, investors can better understand the potential financial implications of ESG issues and make more informed investment decisions .

Qualitative vs. Hybrid Approaches:

A qualitative approach relies more on subjective judgment and narrative assessments, such as analyst opinions or case studies, without necessarily converting these insights into numerical data.

A hybrid approach combines both qualitative and quantitative methods, using narrative assessments alongside numerical data. However, directly adjusting financial model inputs is a clear application of quantitative analysis .

CFA ESG Investing


Reference:

The CFA Institute's ESG curriculum emphasizes the importance of integrating ESG factors into financial models quantitatively to provide a comprehensive view of a company's financial health and potential risks .



Which of the following is an example of a just' transition with regards to climate change?

  1. A company issues a first transition bond to finance a gas-fired power utility project
  2. A manufacturer designs products that are more reusable and recyclable to support the circular economy
  3. A government works with labor unions to develop a social package for displaced workers due to closure of coal mines

Answer(s): C

Explanation:

A just transition with regards to climate change refers to ensuring that the shift to a low-carbon economy is fair and inclusive, particularly for workers and communities that are adversely affected by this transition. Here's why option C is correct:

Just Transition:

A just transition involves measures that support workers and communities who are impacted by the transition to a sustainable economy. This includes creating new job opportunities, providing retraining programs, and ensuring social protections for those affected by changes such as the closure of coal mines.

Collaborating with labor unions to develop a social package for displaced workers is a clear example of this approach, as it directly addresses the social and economic challenges faced by workers during the transition .

Other Options:

Option A (financing a gas-fired power utility project) does not address the social aspects of the transition and is more focused on the financial and infrastructural changes.

Option B (designing reusable and recyclable products) is aligned with the circular economy but does not specifically address the social justice aspect of the transition .

CFA ESG Investing


Reference:

The CFA Institute's ESG curriculum includes discussions on the importance of a just transition, emphasizing the need for policies and initiatives that protect workers and communities during the shift to a sustainable economy .



The divergence of ratings among ESG providers most likely.

  1. enhances the credibility of empirical research
  2. ensures that ESG performance is reflected in asset prices.
  3. hampers the ambition of companies to improve their ESG performance

Answer(s): C

Explanation:

The divergence of ratings among ESG providers most likely hampers the ambition of companies to improve their ESG performance. Here's why:

Mixed Signals:

Companies receive mixed signals from different ESG rating agencies due to the lack of standardization in ESG ratings. This can create confusion and uncertainty about which actions will be valued by the market, making it challenging for companies to prioritize and implement effective ESG strategies .

The inconsistency in ratings can demotivate companies from pursuing ESG improvements if they are unsure which criteria to meet.

Challenges in Empirical Research:

While divergence in ratings poses challenges for empirical research and can affect the reflection of ESG performance in asset prices, the primary issue for companies is the confusion and lack of clear guidance on how to improve their ESG performance effectively .

CFA ESG Investing


Reference:

The CFA Institute's ESG curriculum addresses the challenges posed by the lack of standardization in ESG ratings, emphasizing the need for consistent and clear criteria to guide companies in their ESG efforts and ensure meaningful improvements .



The United Nations Sustainable Development Goals (SDGs) are particularly aimed at

  1. investors
  2. corporations.
  3. governments

Answer(s): C

Explanation:

The United Nations Sustainable Development Goals (SDGs) are particularly aimed at governments. The SDGs provide a comprehensive framework for countries to address global challenges and promote sustainable development.

Policy and Regulation: Governments are responsible for creating and implementing policies and regulations that align with the SDGs. They play a central role in setting national priorities and strategies to achieve these goals.

Resource Allocation: Achieving the SDGs requires significant investment in various sectors, such as healthcare, education, infrastructure, and environmental protection. Governments allocate resources and funding to support these initiatives.

International Cooperation: The SDGs encourage governments to collaborate internationally, sharing knowledge, resources, and best practices to address global challenges such as poverty, inequality, and climate change.


Reference:

MSCI ESG Ratings Methodology (2022) - Emphasizes the role of governments in driving sustainable development and aligning national policies with the SDGs.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the importance of government action and international cooperation in achieving the SDGs.






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