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CFA Sustainable-Investing Exam
Sustainable Investing Certificate(CFA-SIC) (Page 6 )

Updated On: 7-Feb-2026
Page 6 of 162
PDF with 802 Questions

Which of the following is an environmental megatrend that has a severe social impact?

  1. Urbanization
  2. Globalization
  3. Mass migration

Answer(s): C

Explanation:

Mass migration is an environmental megatrend that has a severe social impact. Environmental changes, such as climate change, natural disasters, and resource depletion, can force large populations to migrate, leading to significant social consequences.

Displacement and Refugees: Environmental degradation and climate-related events can displace millions of people, creating large numbers of refugees and internally displaced persons. This leads to humanitarian crises and puts pressure on host communities and countries.

Social and Economic Strain: Mass migration can strain social and economic systems in both the areas people migrate from and to. It can lead to increased competition for jobs, housing, and resources, and can also cause social tensions and conflicts.

Cultural Impact: Migration can impact cultural dynamics, leading to changes in community structures and potential conflicts over cultural integration and identity. The social fabric of both sending and receiving regions can be significantly affected.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the social impacts of environmental megatrends, including mass migration, highlighting the challenges and risks associated with large-scale human displacement.

ESG-Ratings-Methodology-Exec-Summary (2022) - Provides insights into the social and economic implications of environmental changes and the resulting migration patterns.



The investor initiative FAIRR focuses on screening out companies

  1. mining ancestral lands.
  2. using suppliers that do not pay a living wage.
  3. exhibiting poor antibiotic stewardship in animal farming

Answer(s): C

Explanation:

The FAIRR initiative focuses on screening out companies exhibiting poor antibiotic stewardship in animal farming. Here's why:

FAIRR Initiative:

FAIRR (Farm Animal Investment Risk & Return) is an investor network that aims to address risks related to intensive livestock production. One of its key focus areas is antimicrobial resistance, which includes poor antibiotic stewardship in animal farming.

CFA ESG Investing


Reference:

The CFA ESG Investing curriculum highlights the FAIRR initiative's role in promoting responsible investment by addressing issues like antibiotic use in animal farming, emphasizing the health and environmental risks associated with poor practices in this area.



An ESG scorecard for sovereign debt issuers has the following information:

Country 1No carbon policy and high corruption risk

Country 2High-level carbon policy and low corruption risk

Country 3Detailed carbon policy and low corruption risk

Based only on this information, the country with the lowest ESG risk is:

  1. Country 1.
  2. Country 2
  3. Country 3

Answer(s): C

Explanation:

Based on the provided information, Country 3, with a detailed carbon policy and low corruption risk, has the lowest ESG risk. Here's the reasoning:

Carbon Policy and Corruption Risk:

A high-level or detailed carbon policy indicates a strong commitment to addressing climate change, which reduces environmental risk.

Low corruption risk indicates good governance, which further reduces overall ESG risk.

Therefore, Country 3, which has both a detailed carbon policy and low corruption risk, presents the lowest ESG risk compared to the others.

CFA ESG Investing


Reference:

The CFA ESG Investing curriculum emphasizes the importance of robust carbon policies and low corruption risks in assessing the ESG profiles of sovereign debt issuers. Strong environmental and governance practices are key indicators of low ESG risk.



In ESG integration, which of the following best describes a data-mformed analytical opinion designed to support investment decision-making?

  1. ESG screening
  2. Integrated research
  3. Voting and governance advice

Answer(s): B

Explanation:

In ESG integration, a data-informed analytical opinion designed to support investment decision- making is best described as integrated research. Integrated research involves the incorporation of ESG data and analysis into the traditional financial analysis to form a comprehensive view of an investment's potential risks and opportunities.

Holistic Analysis: Integrated research combines ESG factors with traditional financial metrics to provide a more complete assessment of an investment. This approach helps in identifying both financial and non-financial risks and opportunities.

Informed Decision-Making: By integrating ESG data into the investment analysis, investors can make more informed decisions that consider the long-term sustainability and impact of their investments.

Enhanced Due Diligence: Integrated research enhances the due diligence process by evaluating how ESG factors may affect the financial performance and risk profile of an investment.


Reference:

MSCI ESG Ratings Methodology (2022) - Emphasizes the importance of integrating ESG data into investment research to support decision-making.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the role of integrated research in comprehensive ESG analysis and its impact on investment strategies.



Which of the following ESG investment approaches would most appropriately be used to construct a balanced and diversified portfolio?

  1. Thematic investing
  2. Screening on a relative basis
  3. Screening on an absolute basis

Answer(s): B

Explanation:

Screening on a relative basis would most appropriately be used to construct a balanced and diversified portfolio. This approach involves comparing companies within the same industry or sector and selecting those that perform better on ESG criteria relative to their peers.

Relative Comparison: Screening on a relative basis allows investors to identify the best-performing companies within each sector or industry, ensuring a balanced approach across different segments of the market.

Diversification: By selecting top ESG performers from various industries, investors can maintain a diversified portfolio while still adhering to ESG principles. This helps in spreading risk across different sectors.

Sector-Neutral: This approach ensures that the portfolio is not overly concentrated in specific sectors, which can happen with thematic investing or absolute screening. It allows for sector-neutrality, maintaining exposure to a broad range of industries.


Reference:

MSCI ESG Ratings Methodology (2022) - Discusses the benefits of relative ESG screening for constructing diversified portfolios.

ESG-Ratings-Methodology-Exec-Summary (2022) - Highlights the importance of maintaining diversification while applying ESG criteria in portfolio construction.






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