CFA Institute Updated Sustainable-Investing Exam Questions and Answers by merryn

Strong governanceis foundational for effectively addressingenvironmental and social riskswithin a company, as highlighted in CFA’s ESG materials. Good governance practices create structures and accountability mechanisms that improve oversight of E&S issues. Statement B is incorrect because direct board involvement in private equity doesn’t eliminate governance risks entirely. Statement C is misleading because negative governance signals actuallyreduce confidencein future earnings, not increase it.

Fordefined benefit pension plans, the key priority is tomeet future obligations to beneficiaries—which is afiduciary duty. CFA materials emphasize that thislong-term dutyincreasingly requires considering ESG risks and opportunities, as these can materially affect financial performance and liabilities over decades. While reputational and ethical factors may play a role, the ultimate driver is thefiduciary obligation to secure retirement benefits.

CFA’s sustainable investing materials recommend adual approachwhen evaluating environmental risks:

Qualitative assessmentscapture strategic and governance-related insights, including the company’s environmental policies, disclosures, and commitment to sustainability.

Quantitative data(e.g., carbon intensity, water use, waste management metrics) provide measurable, comparable indicators of environmental performance.Usingbothensures acomprehensive pictureof environmental risk exposure and management.

ESGscorecardsareflexible toolsused toassess ESG performanceacross bothpublic and private markets. They help investors identify ESG risks and opportunities regardless of ownership structure. While third-party data can inform scorecards, in practice they also includeproprietary data and company-specific engagement outcomes. These scorecards are typically designed to remain consistent in evaluating performance across different ownership structures.