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

CFA’s materials highlight thatstart-up companiestypically haveless formalized social risk management systems, given their rapid growth and resource constraints. However, these same start-ups oftenadapt more quicklyto disruptive competition because they are more agile and less locked into legacy business models.

ESG benchmarks and indexesare designed tomirror broader market segmentsbut with adjustments for ESG performance or sustainability factors. They offer a comparative performance baseline that includes or excludes certain ESG considerations across amarket or sector, making them distinct from company-specific ESG ratings or targeted exclusion screens.

This definition directly aligns with the CFA’s explanation ofdigital disruption—the process wherenew digital innovations or business models challenge and displace existing market players or product/service value propositions. Automation and AI are specific tools within digital disruption but do not encompass the broader concept.

CFA’s guidance emphasizes thatselling a legacy business operationcan often enhance a company’sstrategic focusandvalue creationfor shareholders, especially if the legacy asset is not core to future growth. Forming conglomerates often dilutes focus, and a zero-debt balance sheet can be seen as inefficient if growth opportunities exist.