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

One of the primary challenges for asset managers integrating ESG issues is the lack of suitable benchmarks that adequately reflect ESG criteria, making it harder to measure performance accurately. (ESGTextBook[PallasCatFin], Chapter 8, Page 451)

The Freshfields Report argued that integrating ESG considerations is necessary from a fiduciary duty perspective, as failure to consider material ESG risks can undermine long-term financial performance. (ESGTextBook[PallasCatFin], Chapter 5, Page 236)

Quantitative ESG analysis involves numerical, measurable data that can be compared across companies and time periods.

Why A (Issuer-reported carbon emissions) is correct:

Carbon emissions data (Scope 1, 2, and 3) is measurable and numeric, often reported in metric tons of CO₂ equivalent (MTCO₂e).

This data can be used in financial models to assess climate risk.

Why not B or C?

B (Executive compensation policies) are qualitative, as linking pay to ESG goals involves policy assessments rather than hard data.

C (Investments and policies credibility) involves subjective judgment rather than numerical data.

In the shift to a low-carbon economy, a coal-powered utility without a mitigation strategy faces the highest risk to common shareholders (Option B) because:

Stock prices decline due to stranded asset risks, regulatory fines, and declining demand.

Common shareholders are last in the capital structure and bear the highest financial risk if the company struggles or faces bankruptcy.

Option A (Debtholders) face some risk, but they have priority in liquidation.

Option C (Preference shareholders) have fixed dividends and higher priority than common stockholders.