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

The ICGN Model Mandate provides guidelines for institutional investors on governance, ESG integration, and stewardship practices.

Why B (Disclose ESG risks in portfolios) is correct:

The ICGN Model Mandate states that investment managers should assess and disclose ESG risks that affect their portfolios.

This ensures transparency and helps asset owners understand risk exposures.

Why not A or C?

A is incorrect—disclosing voting activity alone does not fulfill the full engagement disclosure requirement.

C is incorrect—while long-term themes are relevant, ESG risk assessment is a more explicit requirement.

Secondary ESG data refers to information collected from sources other than official company disclosures, often from external third-party sources.

Primary ESG data: Directly provided by companies in sustainability reports, regulatory filings, or financial statements.

Secondary ESG data: Derived from third-party sources such as news articles, employee reviews, external surveys, or social media analysis.

Why is B correct?

Glassdoor employee satisfaction surveys provide insights into workplace culture, labor rights, and social issues—all key ESG aspects.

This is not direct company disclosure but rather third-party, externally collected data.

Why not A or C?

A (Bloomberg ESG Score) is primary data because Bloomberg compiles ESG disclosures directly from companies.

C (Interview transcript with CFO) is primary data because it comes directly from company leadership.

The Corporate Governance Committee (Option C) ensures the board:

Has diverse, skilled, and independent directors.

Follows best practices in governance, ethics, and oversight.

Option A (Audit committee) focuses on financial reporting and risk management.

Option B (Compensation committee) oversees executive pay and incentives.

ESG factors can impact credit risk at both issuer and industry levels by influencing financial stability, regulatory compliance, and reputational risks.

Issuer level: A company's ESG risk exposure (e.g., environmental violations, governance scandals) can lead to downgrades or higher borrowing costs.

Industry level: Sectors like coal mining, oil & gas, and tobacco face systemic ESG risks (e.g., climate regulations, social opposition).

Credit rating agencies (e.g., Moody’s, S&P, Fitch) integrate ESG risks into credit assessments.