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

Wastewater treatment infrastructurerequireshigh upfront capital investmentfor planning, permitting, construction, and maintenance. CFA’s sustainable infrastructure modules highlighthigh capital intensityas a major challenge to financing such projects, despite ongoing demand for clean water treatment and environmental standards.

Share-linked incentives—such as restricted stock units or stock options—are explicitly designed toalign executives’ interests with long-term shareholder value. Because the value of these awards is tied to the long-term stock price, they motivate executives tofocus on sustainable performance and strategic decisions. In contrast, bonuses typically reward short-term annual performance, and salaries are fixed cash payments unrelated to long-term performance.

TheWorld Bank’s Worldwide Governance Indicators (WGI)cover governance dimensions such as:

Voice and accountability

Political stability

Government effectiveness

Regulatory quality

Rule of law

Control of corruptionThese indicators provide aglobal benchmark for governance qualityand help investors incorporate governance risks into ESG assessments. They do not include climate change (A) or financial stability scores (C).

CFA sustainable investing materials explain that after settingupper and lower boundsfor ESG constraints (like carbon intensity or ESG scores), optimization can be carried out either:

On an absolute basis: minimizing absolute risk/return outcomes while meeting ESG limits, or

On a benchmark-relative basis: minimizing tracking error to a benchmark while meeting ESG constraints.Thus, ESG constraints do notrequireeither approach—theypermitboth.