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

Carbon footprinting allows emissions data to be aggregated across geographies, supply chains, and business units,providing a holistic view of carbon impact.

It is typically backward-looking rather than forward-looking (A).

There are multiple carbon accounting methodologies (B), but they are not always standardized.

Income inequality oftenreduces access to education, particularly for lower-income individuals who may struggle withtuition costs, lack of resources, and unequal schooling quality. This, in turn, canreduce upward social mobilityand widen wealth disparities over time.

Option C (tax optimization strategies) is a separate corporate governance issue and not adirectresult of income inequality. Option A (increase in social mobility) is incorrect ashigher inequality often reduces social mobility.

ESG integration is complex because materiality—the relevance of ESG factors—varies by investor type, region, and sector.

Materiality thresholds differ among investors due to varying investment objectives, risk tolerance, and fiduciary duties.

ESG disclosures are not uniform across asset classes—different asset classes (e.g., equities, fixed income, private equity) have distinct disclosure requirements.

Regulatory ESG disclosure requirements differ globally, with frameworks like EU SFDR, SEC climate disclosure rules, and ISSB standards having unique criteria.

Engagement (Option B) is a key component of responsible stewardship, with the objective of preserving and enhancing long-term value in investee companies. Investors engage with companies on ESG issues such as climate risk, diversity, and governance to improve performance and reduce long-term risks.

Option A is incorrect because smaller asset owners often rely on collaborative engagement or delegate stewardship activities to investment managers rather than engaging directly.

Option C is incorrect because reactive engagement (triggered by share price declines) is generally less effective than proactive, long-term engagement strategies focused on sustainability improvements.

An Emissions Trading System (ETS), also known as a cap-and-trade system, is designed to control and reduce greenhouse gas (GHG) emissions by setting a total emissions cap and allowing participants to trade allowances.

How it works:

A government or regulator sets a cap on total emissions.

Companies receive or buy carbon allowances (permits to emit a certain amount of COâ‚‚).

Companies can trade allowances—if they emit less, they can sell excess permits; if they emit more, they must buy additional permits.

Key examples:

EU Emissions Trading System (EU ETS) (largest globally)

California Cap-and-Trade Program

China’s National Carbon Market (launched in 2021)

Why not A or B?

A is incorrect because an ETS does not directly set a price on carbon—it allows the market to determine the price based on supply and demand.

B is incorrect because an ETS does not involve direct investment in renewable energy (that would be carbon offset programs).

Bonuses (Option A) are often linked to short-term key performance indicators (KPIs), including financial, operational, and ESG performance metrics. Many companies now include ESG-related KPIs (e.g., carbon footprint reduction, diversity targets, safety records) in executive bonus structures.

Option B (Pension benefits) are generally not tied to annual KPIs but rather long-term service and contribution levels.

Option C (Share-linked incentives) are usually linked to long-term performance metrics, not annual targets.

A healthcare company’s ESG-contingent asset (Option C) arises when its data analytics division enables cost-effective healthcare solutions for governments, leading to:

Long-term value creation through cost savings.

A competitive ESG advantage due to social impact.

Option A (Custodian of medical details) is an ESG responsibility but not a contingent asset.

Option B (Lagging recruitment strategies) is an ESG weakness, not an asset.

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)