Sustainable-Investing Exam Dumps - Sustainable Investing Certificate (CFA-SIC) Exam

The OTM emphasizes the importance ofdata triangulationin ESG integration, noting the variability and inconsistency among ESG data providers. It states:

“Asset managers should seek tocorroborate ESG data across multiple independent sourcesto mitigate bias, data gaps, and methodological divergence.”

It adds that while audited ESG data are preferred, much of the information remains self-reported or estimated; thus, verification through comparison of multiple datasets (e.g., MSCI, Sustainalytics, Refinitiv) improves reliability.

The manual warns that relying solely on a single provider can lead to “material misrepresentation of risk exposure or sustainability performance.” Option C (multi-decade backtesting) is rarely feasible due to limited historical ESG data. Hence, optionBis the best verified practice consistent with professional ESG integration standards.

📘Reference:2021-Final-Book.pdf, Chapter 7 — ESG Data Quality and Integration (Triangulation and Validation Techniques section).

ThePrinciples for Responsible Investment (PRI)identifies three keyengagement dynamicsthat can create long-term value during ESG-focused corporate engagements:

Communicative dynamics– exchange of information

Learning dynamics– enhancing mutual knowledge

Political dynamics– building relationships

“In a 2018 report the Principles for Responsible Investment (PRI) highlighted three ESG engagement dynamics that it believes create value: communicative dynamics, learning dynamics, and political dynamics.”

Cultural dynamicsarenotamong the value-creating engagement types identified by the PRI, making it the correct answer.

Stewardship codes were first developed with a focus onpublic equity investments, where investors havevoting rights and shareholder engagement opportunities. Over time, stewardship expectations have expanded to include other asset classes, but public equities remain the core area of engagement and governance focus.

“Stewardship codes… tend to reveal an initial focus in practice on public equity investment. The stewardship thought process both by regulators and by investors is most developed in public equities.”

This reflects the strong tradition ofshareholder activismandproxy votingin public markets, which provide direct mechanisms for investors to influence corporate behavior.

The OTM’sNatural Capital and Resource Managementsection details how biodiversity loss and deforestation create financial and operational risks. It states:

“Companies with exposure to deforestation in their supply chains—for example, in palm oil, soy, or timber—face cost volatilitydue to regulatory tightening, supply disruption, and reputational backlash.”

It explains that ESG analysis must assess these dependencies because “resource depletion translates directly into margin pressure and long-term profitability risk.” The manual clarifies that the “green economy” involves broader sustainability goals beyond oceans (invalidating B) and that downturns generallyreduce, not increase, resource consumption (contradicting A).

Therefore,option Cis accurate and verified as per the OTM extract.

📘Reference:2021-Final-Book.pdf, Chapter 3 — Environmental Factors (Natural Resources, Deforestation, and Biodiversity Risk section).

In theESG Data Sourcessection, the OTM differentiates between primary and secondary ESG data:

“Primary datacome directly from companies—reports, disclosures, or surveys—whereassecondary dataare derived from third-party processing and analysis of that information, such asESG ratings or scores.”

This means ESG ratings are considered secondary since they are synthesized from existing data rather than newly collected information. A survey of employees (C) would be primary, and a news article (A) is tertiary (media-based).

Therefore,option Bis the correct and verified classification.

📘Reference:2021-Final-Book.pdf, Chapter 7 — ESG Analysis, Valuation, and Integration (Data Quality and Sources section).

The Official Training Manual (OTM) explains that investor psychology affects ESG adoption and portfolio decision-making. It references behavioral finance evidence:

“Individual investorsexhibit the strongestloss aversion, tending to overreact to downside risk and short-term volatility. This behavioral bias often leads to under-diversification and lower risk-adjusted returns.”

In contrast, institutional investors such as sovereign wealth funds and foundations usually have structured mandates, longer investment horizons, and lower behavioral biases, making them less loss-averse. The OTM further highlights that individual investors’ sensitivity to short-term losses can influence their ESG preferences — often favoring values-based exclusions rather than long-term integration.

This clear differentiation aligns withoption B, identifying individual investors as the most loss-averse investor group.

📘Reference:2021-Final-Book.pdf, Chapter 9 — Investment Mandates, Portfolio Analytics, and Client Reporting (Investor Behaviour and ESG Preferences section).

The OTM clarifies thatESG application differs by asset classand notes the specific limitations for sovereign debt investors:

“Unlike equity, sovereign bond investors have limited capacity for engagement… therefore, ESG integration is typically achieved viascreening or an ESG tilt, not through direct dialogue.”

This reflects the fundamental difference between company-level and country-level analysis. Engagement is possible in private equity (option C) and is documented in the manual, though it is usually undertaken collaboratively by both limited and general partners. Option A is incorrect since several studies indicate ESG can positively affect real estate value through energy efficiency and sustainability certifications.

Thus, the verified correct answer isoption B.

📘Reference:2021-Final-Book.pdf, Chapter 8 — ESG Integrated Portfolio Construction and Management (Asset Class Applications section).

The manual distinguishes firm-specific (idiosyncratic) risk from systematic (market/sector) risk: “Risk also appears as either idiosyncratic or systematic risk:▶Idiosyncratic risk describes firm- or stock-specific risk.”

It also notes sector-wide environmental risks “may affect the discount rate used,” showing that systematic (sector/market) risks can be reflected in the discount rate.

For company-specific assessments, the manual’s DCF case study explains the team “prefers DCF and explicit model scenarios for sales, margins and asset turns … rather than an adjustment to a discount rate … for a company specific assessment.”

Together, these extracts support that company-specific (idiosyncratic) ESG risk is not well suited to be embedded in the discount rate, whereas sector- or market-wide risks are.