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CFA Institute Sustainable Investing Certificate (CFA-SIC) Exam Sample Questions (Q552-Q557):NEW QUESTION # 552
The European Union (EU) Ecolabel:
- A. targets explicit claims made on a voluntary basis by businesses towards consumers
- B. is the official EU voluntary label for environmental excellence
- C. flags products that have a guaranteed, independently verified, high environmental impact
Answer: B
Explanation:
The European Union (EU) Ecolabel is the official EU voluntary label for environmental excellence.
EU Ecolabel Overview: The EU Ecolabel is a recognized certification that indicates a product or service has a reduced environmental impact throughout its lifecycle.
Voluntary Participation: Businesses can voluntarily apply for this label, demonstrating their commitment to environmental excellence and compliance with rigorous environmental criteria set by the EU.
Consumer Trust: The label helps consumers identify products and services that are environmentally friendly and meet high environmental standards, promoting sustainable consumption.
CFA ESG Investing References:
The CFA Institute's discussions on environmental labels and certifications highlight the role of the EU Ecolabel as a voluntary but stringent standard for environmental excellence, helping consumers and investors make informed, sustainable choices.
NEW QUESTION # 553
By 2030, the European Strategy for Plastics in a Circular Economy will require:
- A. All plastic packaging to be reusable or recyclable
- B. A voluntary agreement to ban plastic packaging
- C. Member countries to impose taxes on plastic packaging
Answer: A
Explanation:
By 2030, the European Strategy for Plastics in a Circular Economy aims to ensure that all plastic packaging is reusable or recyclable. This initiative is part of the EU's broader efforts to reduce plastic waste and promote sustainable materials management.ESG Reference: Chapter 3, Page 176 - Environmental Factors in the ESG textbook.
NEW QUESTION # 554
Are the following statements relating to investor engagement accurate?
Statement 1: Investors need to frame the engagement topic into a broader discussion around strategy and long-term financial performance with the management team.
Statement 2: Active investment houses are working to ensure that their portfolio managers can deliver stewardship alongside their regular monitoring of investee companies.
- A. No, only Statement 2 is accurate
- B. No, only Statement 1 is accurate
- C. Yes, both statements are accurate
Answer: C
Explanation:
Both statements are accurate. Effective engagement with companies often requires framing the discussion around strategy and long-term performance. Active investment houses are also focusing on integrating stewardship activities with ongoing portfolio management. (ESGTextBook[PallasCatFin], Chapter 6, Page 285)
NEW QUESTION # 555
When optimizing a portfolio for ESG factors, as constraint parameters are tightened, the deviation from an optimal portfolio most likely:
- A. increases.
- B. decreases.
- C. is not affected.
Answer: A
Explanation:
When optimizing a portfolio for ESG factors, as constraint parameters are tightened, the deviation from an optimal portfolio most likely increases. Here's a detailed explanation:
Portfolio Optimization and Constraints: Portfolio optimization aims to maximize returns for a given level of risk or minimize risk for a given level of return. Introducing ESG constraintsmeans the optimization process must adhere to additional criteria, such as limiting investments in companies with poor ESG scores.
Tightening Constraints: Tightening ESG constraints means imposing stricter rules on the selection of assets.
For example, excluding a broader range of companies based on their ESG performance. This reduces the universe of eligible investments, which limits the choices available to the optimizer.
Deviation from Optimal Portfolio: The optimal portfolio in a traditional sense (without ESG constraints) is one that lies on the efficient frontier, offering the highest expected return for a given level of risk. Adding constraints typically moves the portfolio away from this frontier because the optimizer can no longer select the combination of assets that would have provided the best risk-return trade-off without considering ESG factors.
Impact of Tightened Constraints: As constraints are tightened, the selection of assets becomes more limited, and the ability to fully optimize the risk-return balance decreases. This results in a greater deviation from the traditional optimal portfolio because the optimizer is forced to work with a smaller, potentially less efficient set of investments.
CFA ESG Investing References:
According to the CFA Institute, "Tightening constraints in portfolio optimization generally results in a less efficient portfolio due to the reduced number of investment opportunities" (CFA Institute, 2020).
The CFA Institute's ESG investing framework explains that while ESG constraints can lead to improved sustainability outcomes, they may also result in deviations from the traditional optimal portfolio due to limited asset selection.
NEW QUESTION # 556
A bond issued to fund projects that provide a clear benefit to the environment best describes a:
- A. transition bond.
- B. green bond.
- C. sustainability-linked bond.
Answer: B
Explanation:
A green bond is a fixed-income instrument specifically earmarked to raise money for climate and environmental projects. These bonds can fund various projects that contribute to environmental sustainability, such as renewable energy, energy efficiency, pollution prevention, sustainable agriculture, and biodiversity conservation.
According to the CFA ESG Investing curriculum, green bonds are designed to help investors fund projects that have positive environmental benefits. These bonds have specific criteria andoften come with verification or assurance from third-party organizations to ensure that the funds are used appropriately and meet the defined environmental objectives.
Reference:
"Typically a green bond is a fixed income instrument tied to projects that create an environmental benefit. Issuers use proceeds for activities aimed at contributing to climate change mitigation, adaptation, or other environmental benefits such as conservation or pollution control".
NEW QUESTION # 557
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