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

TheUnited Nations Guiding Principles on Business and Human Rights (UNGPs)are built upon three foundational pillars:

Thestate duty to protecthuman rights,

Thecorporate responsibility to respecthuman rights, and

Access to remedyfor victims of business-related abuses.

“The UNGPs encompass three pillars outlining how states and businesses should implement the framework: 1. the state duty to protect human rights; 2. the corporate responsibility to respect human rights; and 3. access to remedy for victims of business-related abuses.”

These principles provide the global standard for responsible business conduct in relation to human rights.

The OTM outlines key expectations from theICGN Model Mandate, which sets global standards for responsible investment and stewardship transparency. It explains:

“TheICGN Model Mandatedistinguishesengagement activityfromvoting activityand recommends that these be disclosedseparatelyto ensure clarity over investor intentions and outcomes.”

The manual adds that engagement involves dialogue and long-term relationship building, while voting records represent formal governance actions. Combining them risks conflating stewardship objectives.

This approach aligns with global best practice under the UK Stewardship Code and PRI reporting requirements, both of which call for separate reporting of engagement outcomes and voting rationales.

Therefore,option Bcorrectly reflects the ICGN framework as referenced in the manual.

📘Reference:2021-Final-Book.pdf, Chapter 6 — Engagement and Stewardship (Stewardship Reporting and ICGN Standards section).

The Taskforce on Nature-related Financial Disclosures (TNFD) adopts a definition aligned with theNatural Capital Protocol, describingnatural capitalas the totalstock of natural resources—both renewable and non-renewable—that deliver ecosystem services.

“Natural capital is defined as the stock of renewable and non-renewable natural resources (e.g. plants, animals, air, water, soils, minerals) that combine to yield a flow of benefits to people.”

This definition clearly supports option C. It reflects how nature contributes economic value to societies and businesses through ecosystem services such as clean air, fertile soil, and water regulation.

Credit rating agencies analyze how ESG risks and opportunities affect a company’screditworthiness, which is directly linked to itscost of capital. The CFA UK ESG Investing Training Manual explains that ESG factors can materially affect an issuer's ability to meet financial obligations and thus alter the perceived credit risk. This risk perception translates into the rate at which the company can borrow — its cost of capital.

"Credit rating agencies incorporate ESG into their analysis by assessing how environmental, social, and governance factors might influence the issuer’s ability and willingness to meet financial obligations. For example, material environmental risks could impact a firm’s future cash flows, which would in turn influence its cost of capital."

There is no indication in the CFA UK ESG curriculum that ESG credit scoring is used to test for credit default swaps or green bond eligibility directly. These instruments may reflect ESG risks indirectly, but they are not the focus of ESG credit scoring.

The manual explicitly notes: “One can deduce that individual companies in the same market-defined sector may be judged to have different material ESG factors impacting their business.” It illustrates this with examples within insurance.

More broadly, it stresses that identifying “issues which are genuinely material to a sector and company is one of the most active challenges within ESG investment… there are also differences between what is most material to individual companies within a single sector.”

“There are many types of diversity needed for a board to be successful,though the most important is diversity of thought. The other types include diversity of gender, race, age, culture, nationality and experience….”

TheOfficial Training Manual (OTM)highlights significant limitations and inconsistencies in ESG ratings across providers. It notes:

“Theinformation provided by ESG rating agencies is relatively noisy, reflecting differences in methodologies, data sources, and weighting systems.”

This “noise” leads to low correlation among ESG scores from major providers (e.g., MSCI, Sustainalytics, Refinitiv), often as low as 0.3–0.6. The manual attributes these discrepancies to variations in materiality frameworks, sector weightings, and subjective analyst adjustments.

It further emphasizes that despite growing sophistication, ESG ratings remain “estimates rather than absolute measures,” making them an input—rather than a determinant—of investment decision-making.

Hence,option Bis verified as the correct choice, since the data’s inconsistency (noise) is a key theme in ESG analytics.

📘Reference:2021-Final-Book.pdf, Chapter 7 — ESG Ratings and Data Methodologies (Limitations of ESG Ratings section).

TheFixed Income Integrationsection of the OTM explains that CRAs assess management quality and operational efficiency through the company’s ability to convert assets into earnings. It specifies:

“Credit rating agencies focus onprofitability and cash flow metricsas indicators of management effectiveness in utilizing resources and assets to generate returns.”

These metrics—such as EBITDA margins, free cash flow, and return on assets—demonstrate how effectively management controls operational risk and allocates capital. Efficiency ratios (A) are supplementary, while capital structure (B) analysis relates to solvency and leverage, not asset utilization efficiency.

Thus, optionCis correct, as it captures the most direct analytical approach used by CRAs to evaluate managerial capability.

📘Reference:2021-Final-Book.pdf, Chapter 8 — Fixed Income ESG Integration (Credit Rating Agency Methodology section).