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

Water scarcity is recognized as amajor global risk. Corporations that consume large volumes of water—especially in water-stressed areas—can severely limitaccess to clean and affordable waterfor local communities.

“Water scarcity is present on every continent… a decision to allocate more water to any one sector implies that less water will be available for other economic uses or for environmental protection.”

Wastewater treatment technology is not a complete solution, andmelting Arctic icedoesnotcontribute to usable freshwater supply.

Conduct-related exclusionsrefer to situations where companies are excluded from investmentbased on specific behaviorsthat are unethical or violate fundamental standards, such as labor rights, corruption, or environmental abuse.

“When evaluating a company for investment, both social risks and the level of mitigation and management should be considered. When such issues persist, a consumer boycott or divestment by investors is possible…”

In this case, thesurveillance of employees to block union formationis a violation of social and labor standards. Divestment due to this conduct qualifies as aconduct-related exclusion.

Indiscounted cash flow (DCF) valuation models, theterminal growth rateis the rate at which a company’s free cash flows are expected to grow indefinitely beyond the forecast period. This rate is critical in estimating theterminal value, which often accounts for a substantial portion of the company’s total valuation.

“Valuation-model variables such as cost of capital or terminal growth rates in discounted cash flow analysis… are adjusted based on ESG assessments.”

It is distinct from thediscount rate(used to discount cash flows back to present value) and therequired rate of return(expected by investors). The terminal growth rate specifically refers topost-forecast period assumptions.

The OTM explains theKyoto Protocolas a foundational global climate agreement under the UNFCCC framework. It states:

“The Kyoto Protocol (1997) legally binds developed countries tolimit and reduce their greenhouse gas emissions in accordance with individual country targets, representing the first implementation mechanism under the UNFCCC.”

Option C refers instead to theParis Agreement (2015), which succeeded Kyoto and introduced the “well below 2°C” goal. Option A describes portfolio-level commitments, not the obligations of Kyoto signatories.

Hence, the verified and historically accurate answer isB, which directly matches the Protocol’s text.

📘Reference:2021-Final-Book.pdf, Chapter 3 — Environmental Factors (Climate Frameworks and International Agreements section).

TheGovernance Factorschapter of the OTM outlines that:

“Corporate governance codes in most jurisdictions are based on the principle of‘comply or explain’, where companies must either follow recommended governance practices or publicly explain deviations.”

This approach promotes flexibility while maintaining transparency and accountability. It contrasts with rules-based systems, emphasizing market discipline and investor judgment. The manual further references theUK Corporate Governance Code, the archetype of the “comply or explain” framework, influencing global standards in the EU, Australia, and Asia.

Therefore,option Caccurately reflects the widely accepted governance principle underpinning ESG frameworks.

📘Reference:2021-Final-Book.pdf, Chapter 5 — Governance Factors (Corporate Governance Codes section).

According to the OTM, secondary ESG data sources “are derived from bothcommercial providersandnonprofit or multilateral institutions.” It specifies:

“Secondary data sources include databases and analytical tools from commercial data vendors, research houses, NGOs, and international bodies such as the UN, OECD, and World Bank.”

This description confirms that the ESG ecosystem includes both for-profit data services (e.g., MSCI, Sustainalytics, Refinitiv) and nonprofit organizations (e.g., CDP, PRI, UNEP FI). These entities supply supplemental ESG information used by analysts for scoring, benchmarking, and qualitative analysis.

The OTM further distinguishes primary data (directly from companies) and secondary data (aggregated and interpreted by others). Therefore, optionCis correct, as both sectors play complementary roles in the ESG data landscape.

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

One of the main challenges incollective engagementis ensuring compliance with legal and regulatory boundaries, particularly rules around"acting in concert"ormarket abuse regulations. Investors working together risk being seen as trying to influence control over a company, which can triggerregulatory scrutinyor require disclosures.

“Many investors see such market abuse rules as limiting their ability to carry out collective engagement effectively.”

Organizations like theInvestor Forumin the UK have created frameworks to facilitate engagement without breaching these regulations, underscoring the seriousness of this issue.

One of the most cited issues in ESG data is thelow correlationbetween ESG ratings from different providers. This inconsistency arises from differing methodologies, weightings, and data sources.

“ESG ratings from different providers often show low correlation… making it difficult for investors to compare ratings and for companies to respond to a unified set of ESG expectations.”

Thus,option A is least accurate, while B and C reflect common observations.