CFA Institute Updated ESG-Investing Exam Questions and Answers by alexandros

Tipping elementsareEarth system components (e.g., ice sheets, rainforests, ocean currents) that can undergo irreversible changeswhen pushed past a critical threshold.

Planetary boundaries (B)set safe limits for human environmental impacts.

Environmental externalities (C)are economic costs imposed on society.

References:

Stockholm Resilience Centre Tipping Points Report

IPCC Climate Change Tipping Elements Analysis

UNFCCC Climate Risk Framework

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Berg, Koelbel, and Rigobon (2022) found thatESG ratings from different providers (e.g., MSCI, Sustainalytics, FTSE) have low correlation, makingcomparisons difficult. This inconsistencyhinders empirical researchandleads to investor confusion.

References:

Berg, Koelbel & Rigobon (2022) “Aggregate Confusion: The Divergence of ESG Ratings”

MSCI vs. Sustainalytics ESG Ratings Methodology Comparison

CFA Institute ESG Data Inconsistency Report

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Thecircular economyfocuses onreducing waste and maximizing resource efficiency.Sustainable resource use (B)aligns directly with circular economy principles, as it promotesrecycling, renewable materials, and closed-loop production systems.

Pollution (A) and climate change (C) are environmental risks but do notdirectlysupport the transition to a circular economy.

References:

Taskforce on Nature-Related Financial Disclosures (TNFD) Framework

Ellen MacArthur Foundation – Circular Economy Principles

UN Sustainable Development Goal 12 (Responsible Consumption & Production)

Brown divestmentrefers topublicly traded firms selling off polluting assets (e.g., coal mines, oil refineries) to third partiesrather than shutting them down.

Screening out fossil fuels (A) is part of exclusionary ESG investing but does not define brown divestment.

Investing only in positive-impact firms (B) is more aligned with green or impact investing.

References:

Principles for Responsible Investment (PRI) ESG Divestment Strategies

CFA Institute Guide to Carbon-Intensive Asset Divestment

MSCI Research on Brown-to-Green Transition Strategies

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