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

Excluding tobacco from the investment universe is an example of a conduct-related exclusion. This approach involves excluding industries or companies that are deemed to engage in unethical or harmful activities, such as tobacco production, based on their conduct or the nature of their business.ESG Reference: Chapter 7, Page 325 - ESG Analysis, Valuation & Integration in the ESG textbook.

If a company faces significant environmental litigation, an analyst would likely increase the discount rate to account for the higher risk and uncertainty. Litigation can result in financial penalties, operational disruptions, and reputational damage, all of which could negatively impact future cash flows.ESG Reference: Chapter 7, Page 361 - ESG Analysis, Valuation & Integration in the ESG textbook.

Including ESG constraints in portfolio optimization models often leads to increased tracking error because the constraints limit the pool of available investments, making it more challenging to match the benchmark exactly. (ESGTextBook[PallasCatFin], Chapter 8, Page 463)

Supply chain sustainability management encompasses the entire lifecycle of production, including sourcing, manufacturing, and end-use. It evaluates environmental, social, and governance (ESG) factors across all stages. This includes how raw materials are sourced, the environmental footprint of production, and labor conditions in the supply chain. (ESGTextBook[PallasCatFin], Chapter 3, Page 114)