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

The UK Stewardship Code and the European Fund and Asset Management Association (EFAMA) Code both aim to enhance the quality of stewardship and engagement by institutional investors. However, there are some differences in the principles they address.

1. UK Stewardship Code Principles: The UK Stewardship Code outlines several principles for institutional investors, including monitoring investee companies, managing conflicts of interest, and reporting on stewardship and voting activities.

2. EFAMA Code Principles: The EFAMA Code, while similar in many respects, does not explicitly address all the principles covered by the UK Stewardship Code. One of the key differences is the requirement for institutional investors to report periodically on their stewardship and voting activities.

3. Reporting on Stewardship and Voting Activities: The UK Stewardship Code emphasizes the importance of transparency and accountability by requiring institutional investors to report periodically on their stewardship and voting activities. This principle is not explicitly addressed in the EFAMA Code, making it a notable difference between the two frameworks.

References from CFA ESG Investing:

Stewardship Codes: The CFA Institute highlights the importance of stewardship codes in promoting responsible investment practices. While both the UK Stewardship Code and the EFAMA Code encourage active engagement and monitoring of investee companies, the UK code places a stronger emphasis on reporting and transparency in stewardship activities.

Transparency in Stewardship: Reporting on stewardship and voting activities is crucial for ensuring that institutional investors are accountable to their beneficiaries and stakeholders. The UK Stewardship Code's focus on this principle underscores its commitment to enhancing the quality and transparency of stewardship practices.

In conclusion, the principle that institutional investors should report periodically on their stewardship and voting activities is not addressed in the EFAMA Code, making option B the verified answer.

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Stock exchanges can contribute to the growth of the ESG market by increasing the disclosure requirements on ESG data by listed companies. Enhanced disclosure requirements ensure that investors have access to comprehensive and comparable ESG information, which is critical for making informed investment decisions. This promotes transparency and encourages companies to improve their ESG practices​​​​.

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CDP (formerly known as the Carbon Disclosure Project) is a nonprofit organization that focuses on helping companies, cities, states, and regions disclose and manage their environmental impacts. It operates a global disclosure system that encourages transparency and accountability on climate change, water security, and deforestation.

Nonprofit Organization: CDP is structured as a nonprofit organization, meaning it operates for the public good rather than for profit. Its mission is to drive environmental disclosure and action among businesses and governments globally​​​​.

Global Environmental Disclosure: CDP runs a comprehensive environmental disclosure platform where thousands of entities report their environmental data. This data is used to assess and manage environmental risks and opportunities.

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Escalation of engagement refers to increasingly assertive actions taken by investors to address issues with investee companies that have not been resolved through initial engagement efforts.

1. Submitting Resolutions and Speaking at General Meetings: Submitting shareholder resolutions and speaking at general meetings are considered escalatory actions. These steps involve formal proposals that require a vote by shareholders and public statements at shareholder meetings, indicating a higher level of activism and pressure on the company to address the concerns raised by investors.

2. Other Engagement Actions:

Meeting with Investor Relations Team (Option A): This is a routine engagement action where investors seek information and dialogue but do not exert significant pressure.

Engaging Management through Operational Site Visit (Option B): While visiting operational sites and engaging management is important, it is generally seen as part of regular due diligence rather than an escalation of engagement.

References from CFA ESG Investing:

Escalation Strategies: The CFA Institute outlines various engagement and escalation strategies used by investors to influence corporate behavior. Submitting resolutions and speaking at general meetings are highlighted as more assertive actions taken when initial engagement efforts do not yield the desired results.

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