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CFA Institute Sustainable Investing Certificate (CFA-SIC) Exam Sample Questions (Q467-Q472):NEW QUESTION # 467
Which of the following is part of the ASEAN Taxonomy for an economic activity to be considered environmentally sustainable?
- A. Contributing substantially to at least one of the six environmental objectives
- B. A principles-based Foundation Framework, which is applicable to all ASEAN member states
- C. Complying with minimum, ASEAN-specified social and governance safeguards
Answer: A
Explanation:
For an economic activity to be considered environmentally sustainable under the ASEAN Taxonomy, it must contribute substantially to at least one of the six environmental objectives.
ASEAN Taxonomy: The ASEAN Taxonomy for Sustainable Finance provides a classification system to determine which activities can be considered environmentally sustainable.
Environmental Objectives: These six environmental objectives typically include areas such as climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
Contribution Requirement: An activity must make a significant contribution to at least one of these objectives to be classified as sustainable. This ensures that the activity aligns with broader environmental goals and promotes sustainability across the region.
CFA ESG Investing Reference:
The CFA Institute's materials on sustainable finance frameworks highlight the importance of substantial contributions to specific environmental objectives to classify an activity as sustainable. This approach ensures clarity and consistency in sustainable finance across different regions.
NEW QUESTION # 468
Which of the following countries have a joint audit requirement that all public interest entities must engage at least two independent accounting firms to perform an annual audit?
- A. Germany
- B. United Kingdom
- C. France
Answer: C
Explanation:
France has a joint audit requirement where public interest entities must engage at least two independent auditors, increasing transparency and reducing audit risk. (ESGTextBook[PallasCatFin], Chapter 5, Page 252)
NEW QUESTION # 469
A globally aging population has resulted in the ratio between the active and inactive parts of the workforce to:
- A. remain about the same.
- B. increase.
- C. decrease.
Answer: C
Explanation:
As the global population ages, the proportion of the workforce that is active has decreased, with more people retiring. This has significant implications for economic growth, pensions, and healthcare systems. (ESGTextBook[PallasCatFin], Chapter 4, Page 190)
NEW QUESTION # 470
When undertaking an ESG assessment of a private equity deal ESG screening and due diligence will most likely take place during:
- A. deal sourcing
- B. exit
- C. ownership
Answer: A
Explanation:
When undertaking an ESG assessment of a private equity deal, ESG screening and due diligence are most likely to take place during the deal sourcing phase. Here's why:
Initial Evaluation: ESG screening at the deal sourcing stage allows investors to evaluate potential investments against their ESG criteria before committing significant resources. This helps in identifying any red flags or areas of concern early in the process.
Risk Management: Conducting ESG due diligence early helps in managing risks associated with environmental, social, and governance issues. By understanding these risks upfront, investors can make more informed decisions and potentially avoid costly issues later.
Integration into Investment Strategy: ESG considerations integrated during deal sourcing ensure that these factors are part of the overall investment strategy and decision-making process. This alignment is crucial for achieving long-term sustainable returns.
Regulatory Compliance and Reputation: Early ESG assessments help in ensuring compliance with relevant regulations and standards, and in protecting the investor's reputation by avoiding investments in companies with poor ESG practices.
References:
MSCI ESG Ratings Methodology (2022) - Highlights the importance of early ESG assessments in identifying risks and opportunities, ensuring that ESG factors are integrated into the investment process from the beginning.
ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the role of ESG screening in the initial stages of investment to manage risks and enhance long-term value creation.
NEW QUESTION # 471
Which of the following statements regarding ESG ratings in the credit area is most accurate?
- A. Smaller companies may obtain higher ratings because of their willingness to dedicate more resources to non-financial disclosures
- B. Rating providers tend to overcomplicate industry weighting and company alignment
- C. There is a geographical bias towards companies in regions with high reporting standards
Answer: C
Explanation:
ESG ratings in the credit area can be influenced by various factors, and one of the most significant is geographical bias.
Geographical bias towards companies in regions with high reporting standards (B): Companies in regions with stringent and well-established reporting standards are more likely to receive higher ESG ratings. This is because these companies are required to provide more comprehensive and transparent disclosures, which can positively impact their ESG scores. This bias can disadvantage companies in regions with less rigorous reporting requirements, even if their ESG practices are sound.
Overcomplication of industry weighting and company alignment (A): While the process of determining industry weighting and company alignment can be complex, this statement does not address the main issue of geographical bias in ESG ratings.
Smaller companies obtaining higher ratings due to non-financial disclosures (C): Smaller companies often lack the resources to dedicate to comprehensive non-financial disclosures compared to larger companies. Therefore, this statement is less accurate than the geographical bias issue.
Reference:
CFA ESG Investing Principles
Analysis of ESG rating methodologies and regional reporting standards
NEW QUESTION # 472
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