ESG-Investing Exam Dumps - Certificate in ESG Investing

A fund that invests in the best ESG performers across industries uses both positive screening to select companies with strong ESG performance and norms-based screening to ensure they meet international norms and standards. (ESGTextBook[PallasCatFin], Chapter 7, Page 325)

Engagement teams focusing on governance issues are often organized by sector because governance practices and challenges can vary significantly across industries, making a sector-based approach more effective. (ESGTextBook[PallasCatFin], Chapter 6, Page 283)

Social issues impact different sectors uniquely, affecting investment risks and opportunities.

Why A is correct:

Examples of sector-specific social risks:

Retail & Apparel → Supply chain labor conditions, human rights.

Tech Industry → Data privacy, employee diversity.

Healthcare → Access to medicine, ethical drug pricing.

Why not B?

B is incorrect because not all companies in a sector face the same social risks—for example, some may have stronger supply chain policies than others.

Why not C?

C is incorrect because social materiality often starts at an industry level first, then narrows down to the company level.

References:

SASB (Sustainability Accounting Standards Board) Materiality Framework

World Economic Forum: Social Risks in Sustainable Investing (2022)

Human rights violations are most prevalent deep within supply chains, where oversight is weakest.

Why B (Deep in supply chains) is correct:

First-tier suppliers are often audited, while deeper tiers have less transparency.

Forced labor, child labor, and unsafe working conditions are more common in third-tier and informal supply chains.

Example: Textile industry abuses in subcontracted factories.

Why not A or C?

A is incorrect—first-tier suppliers face more scrutiny from brands.

C is incorrect—violations are even more likely in third-tier suppliers and beyond.

References:

UN Guiding Principles on Business and Human Rights (2023)

KnowTheChain: Global Supply Chain Risk Report (2022)

Stewardship (Option A) is a core regulatory theme in ESG investing, focusing on how investors influence corporate behavior through active ownership (voting, engagement, and dialogue). Regulatory frameworks such as the UK Stewardship Code, Japan Stewardship Code, and EUSustainable Finance Disclosure Regulation (SFDR) emphasize investor stewardship responsibilities.

Scenario analysis (Option B) is used for risk assessment, particularly in climate stress testing (e.g., TCFD recommendations), but is not the primary focus of ESG regulations.

Green bond issuance (Option C) is regulated under ICMA Green Bond Principles and EU Green Bond Standards, but ESG investing regulations are broader than just bond issuance.

References:

UK Stewardship Code 2020

EU Sustainable Finance Disclosure Regulation (SFDR)

Japan FSA: Principles for Responsible Institutional Investors

The discount rate adjustment for ESG risks (Option A) depends on:

The severity of company-specific ESG risks, such as exposure to climate risk, governance failures, or social controversies.

Higher ESG risks → Higher discount rate → Lower valuation.

Option B (Cash flow magnitude) does not determine risk-adjusted discount rates.

Option C (Risk management effectiveness) matters but is secondary to the company’s inherent ESG risk exposure.

References:

PRI ESG Discount Rate Adjustments Guide

S&P Global Sustainable Valuation Framework

CFA Institute: ESG and Cost of Capital Research

One of the biggest challenges in ESG integration is the subjective nature of ESG analysis due to varying methodologies, inconsistent reporting, and differing interpretations of materiality.

ESG factors are qualitative and require judgment to assess their financial impact.

Different ESG rating agencies (e.g., MSCI, Sustainalytics, Refinitiv) use different scoring models, leading to low correlation among ESG scores (not high correlation).

There is no single standardized ESG dataset, making it difficult for managers to compare companies objectively.

References:

MIT Sloan Management Review (2021) on ESG Rating Disparities

Harvard Business Review: "Why ESG Ratings Vary So Much"

The carbon offset market allows companies and individuals to purchase carbon credits to compensate for their emissions.

Why C (voluntary and regulated aspects) is correct:

Regulated markets: Compliance-based (e.g., EU Emissions Trading System, California Cap-and-Trade Program).

Voluntary markets: Used by companies seeking to offset their carbon footprints (e.g., via Verra, Gold Standard projects).

Why not A or B?

A (Very transparent) is incorrect—voluntary carbon markets often lack transparency and face greenwashing risks.

B (Rigorous scientific process) is partly true but varies widely between high-quality and low-quality offsets.

References:

Taskforce on Scaling Voluntary Carbon Markets (TSVCM) Report (2023)

World Bank’s State and Trends of Carbon Pricing (2023)