CESGA Exam

2. As part of the investment process chain, investment guidelines cover one of the following ESG considerations: 1.- Understand how ESG factors affect economic growth, macro themes, consumer preference and regulatory change 2.- Define the reference universe and ESG values 3.- Guideline checks (outside of Portfolio Management) whether exclusion restrictions, minimum ESG levels, carbon footprint levels, UN Global criteria are met 4.- Determine level of in-sourced ESG research and external ESG research provider selection, methodologies, indicators and weights

* 2.- Define the reference universe and ESG values

5. Which statement is correct? 1.- Modern ESG integration affects very few functions of an asset manager and does not require technical know-how. 2.- Modern ESG integration affects many functions of an asset manager and requires technical know-how. 3.- Modern ESG integration affects very few functions of an asset manager but requires technical know-how 4.- Modern ESG integration affects many functions of an asset manager but does not require technical know-how.

* 2.- Modern ESG integration affects many functions of an asset manager and requires technical know-how.

According to the 2015 meta-study on ESG and financial performance: 1.- 90% of the more than 2000 studies displayed a negative ESG-CFP relationship. 2.- 90% of the more than 2000 studies displayed a neutral ESG-CFP relationship. 3.- 90% of the more than 2000 studies displayed a positive ESG-CFP relationship. 4.- 90% of the more than 2000 studies displayed a positive or neutral ESG-CFP relationship.

* 4.- 90% of the more than 2000 studies displayed a positive or neutral ESG-CFP relationship.

Which answer is MORE correct..: Mainstreaming does define the trend toward ... 1.- Integration of environmental aspects in traditional investment process. 2.- Integration of environmental and company profitability aspects in traditional investment process. 3.- Integration of social and environmental aspects in traditional investment process. 4.- Integration of all sustainability aspects in traditional investment process.

* 4.- Integration of all sustainability aspects in traditional investment process.

Which statement is correct? 1.- The speed of ESG integration is low, as comprehensive commitment of investors is lacking. 2.- The speed of ESG integration is low, as high-level commitment of policy makers is lacking. 3.- The speed of ESG integration is high, due to the comprehensive and high-level commitment of investors and policy makers. 4.- The speed of ESG integration is low, despite the comprehensive and high-level commitment of investors and policy makers.

* 4.- The speed of ESG integration is low, despite the comprehensive and high-level commitment of investors and policy makers.

4. Portfolio and risk analytics represent one part of the investment process chain. In this context, a relevant ESG consideration relates to the: 1.- definition of the reference universe and ESG values. 2.- understanding of how ESG factors affect economic growth, macro themes, consumer preference and regulatory change. 3.- consideration of environmental and social megatrends at global, regional, country and sector level. 4.- monitoring and management of absolute and relative risks.

* 4.- monitoring and management of absolute and relative risks.

Which of the following comments are NOT true? 1. Asset allocations are quite homogenous across different countries within Europe. 2. The share of equities in asset allocation is much higher in the UK than in France. 3. The share of Bonds in asset allocation in Austria and France is much higher than on average. *4. The differences in asset allocations across European countries is mainly driven by ESG-specific differences in preferences and tastes.

*1. Asset allocations are quite homogenous across different countries within Europe.

3. As an analyst, materiality assessment is necessary for: 1.- Prioritizing ESG topics that would be important to analyze 2.- Qualifying the perimeter to analyse 3.- Knowing which ESG issues are already in the accounts 4.- Complying with regulation

*1.- Prioritizing ESG topics that would be important to analyze

As an analyst, materiality assessment is necessary for: 1.- Prioritizing ESG topics that would be important to analyze 2.- Qualifying the perimeter to analyse 3.- Knowing which ESG issues are already in the accounts 4.- Complying with regulation

*1.- Prioritizing ESG topics that would be important to analyze

The term "engagement(s)" refers to: 1.- all interactions between an investor and investees or policy makers to address ESG issues or business strategy. 2.- the investor's practice to actively exert the voting rights at the annual general meetings (AGM) of the companies .3.- the practice of taking environmental, social and corporate governance aspects into account throughout the investment decision-making process. 4.- the selection of companies with the best environmental, social and governance practices.

*1.- all interactions between an investor and investees or policy makers to address ESG issues or business strategy.

A materiality matrix is: 1.- A guide for investors 2.- A way to prioritize ESG topics for the company 3.- A guide for analysts 4.- A way to comply with regulations

*2.- A way to prioritize ESG topics for the company

4. For an advertising company, this is not a challenge that you have to analyse closely: 1.- Workforce diversity and inclusion 2.- On-line strategy 3.- Percentage of coal and nuclear producers in the client's portfolio 4.- Data privacy

*3.- Percentage of coal and nuclear producers in the client's portfolio

EU Action plan legislative package (4 most important reforms

1) A unified EU classification system (taxonomy) 2) investors duties and disclosures 3) low-carbon benchmarks 4) Better advice to clients on sustainability

Which are the core elements of the Recommended Climate-Related Financial Disclosures: (maximum three answers) 1. Governance: The organization's governance around climate-related risks and opportunities 2. Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning 3. Risk Management: The processes used by the organization to identify, assess, and manage climate-related risks 4. Metrics and targets: The key performance and risk indicators

1. Governance: The organization's governance around climate-related risks and opportunities(correct) 2. Strategy: The actual and potential impacts of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning (correct) 3. Risk Management: The processes used by the organization to identify, assess, and manage climate-related risks(correct)

Which of the following comments are true? 1. The strategic asset allocation should reflect all of the investor's ESG-related beliefs, objectives and intentions, and how all of these match with market opportunities and offerings. *2. The role of engagement is to create coherence between Integration and the two other ESG related investment objectives, Impact and Alignment. 3. In a strategic asset allocation, Integration and Alignment considerations, are typically visible at the asset class/asset category level, but not at the sectoral level. 4. Typically, alternative asset classes are underweighted in strategic asset allocations that take all three ESG-related investment objectives into account.

1. The strategic asset allocation should reflect all of the investor's ESG-related beliefs, objectives and intentions, and how all of these match with market opportunities and offerings.

What are the goals of climate non-financial disclosures (max two answers)? 1. To provide a narrative description of potential impacts 2. To provide a quantitative disclosure of potential impacts 3. To quantify potential risks in financial terms 4. To quantify potential risks in sustainability terms

1. To provide a narrative description of potential impacts 3. To quantify potential risks in financial terms

Which of the following comments are true? 1. Typically applied ESG integration approaches in the Sovereign Bonds space are norms-based exclusions. 2. Engagement is a common practice in Sovereign Bonds investments. 3. The Green Bond market has boomed in recent years. Pioneers in the market were sovereign and corporate issuers. 4. Green bonds are characterized by the fact that the proceeds of their issuance are not linked at all to their use.

1. Typically applied ESG integration approaches in the Sovereign Bonds space are norms-based exclusions.

5. The SASB develops sustainability accounting standards at the industry level because: (max. two answers) 1. companies operating in a specific industry have similar business models and use resources in similar ways. 2. risk management requires it 3. SASB easily categorizes sectors and industries in accordance with GICS classification systems 4. there are similar sustainability risks and opportunities

1. companies operating in a specific industry have similar business models and use resources in similar ways. 4. *there are similar sustainability risks and opportunities

KPIs indicated in the EU non-binding guidelines July 2017 section 4.6 - Thematic aspects are (maximum two answers): 1. energy performance and improvements in energy performance 2. energy consumption from non-renewable sources and energy intensity 3. carbon footprint 4. greenhouse gas intensity,

1. energy performance and improvements in energy performance, (correct) 2. energy consumption from non-renewable sources and energy intensity, (correct)

There are several main motives for investors joining initiatives in the sustainability area. Which of the following is NOT one of them? 1.- Complying with the Integrated Reporting initiative 2.- Active commitment 3.- Public awareness raising 4.- Competitive advantage

1.- Complying with the Integrated Reporting initiative

Considering the period between 2013 and 2017, which of the following ESG strategies was the leading one in Europe? 1.- Exclusions 2.- Impact Investing 3.- Best-in-Class 4.- ESG Integration

1.- Exclusions

For analysing a global IT services company, what would be more material: 1.- Percentage of national local managers 2.- Scope 1 GHG emissions 3.- GHG emissions from employees travels 4.- Percentage of computers that are reused, recycled and landfilled

1.- Percentage of national local managers

UN Sustainable Development Goals (SDGs)

17 goals: No Poverty, zero hunger, good health and well-being, quality education, gender equality, clean water and sanitation, affordable and clean energy, decent work and economic growth, industry, innovation, and infrastructure, reduced inequalities, sustainable cities and communities, responsible consumption and production, climate action, life below water, life on land, peace justice and strong institutions, and partnerships for the goals

1. Which is the right sequence for the engagement and voting process? 1.Monitor results of engagement interactions. 2.Indentify key issues to formulate in engagement policy and strategy. 3.Record and report on proxy votes and engagement interactions. 4.Structure engagement and voting. 1.- 4+2+3+1 2.- 4+1+2+3 3.- 2+4+1+3 4.- 2+4+3+1

2.- 4+1+2+3*

5. For this company, demographic transition is an opportunity: 1.- It complies with regulations 2.- 50% of its turnover is related to silver economy 3.- It hires disabled people 4.- 50% of its turnover is in food processing

2.- 50% of its turnover is related to silver economy

For a real estate company, major climate change risk lies in: 1.- Reduced possibility to travel 2.- Reduced value of the portfolio 3.- Reduced consumption of energy 4.- Reduced consumption of water

2.- Reduced value of the portfolio

Which statement is NOT correct? Corporate disclosure guidelines: 1.- help investors access data on ESG risk and opportunities. 2.- are always purely voluntary in nature. 3.- can be issued by governments or non-governmental authorities. 4.- can build on general principles or specific indicators.

2.- are always purely voluntary in nature.

One of the following aspects is not related to social or societal analysis: 1.- Efficiency of staff costs 2.- protection of biodiversity 3.- Customer satisfaction 4.- Employees' health & safety issues

2.- protection of biodiversity

Benefits obtained by developing an Integrated Report. Which answer is incorrect? 1. face external challenges and be more competitive 2. monitor the risks 3. always have a higher profit than those of companies that do not process an <IR> 4. better understand the connectivity between environmental, social and governance (ESG) performance with financial performance

3. always have a higher profit than those of companies that do not process an <IR>(correct)

4. The GRI Standards create a common language for organizations and stakeholders, with which the economic, environmental, and social impacts of organizations can be communicated and understood. The Standards are designed to enhance the comparability and quality of information on these impacts, thereby enabling greater transparency and accountability of organizations 1. in the European region 2. in the American region 3. in the OECD region 4. worldwide

4. *worldwide

Which of the following comments are NOT true? 1. The added value of integrating ESG factors into valuation models approaches decreases with the shortening investment horizons. 2. The materiality of ESG issues is different across sectors; e.g., carbon is more material to the oil & gas industry than it is for retail. 3. In principle, there are no geographic differences in terms of the usefulness of ESG integration. However, certain ESG issues may be more material in some regions/countries than in others. 4. Investment styles: With regard to the Value style, ESG integration most likely means to focus on the opportunity side by looking at sustainable products and services that benefit from global trends.

4. Investment styles: With regard to the Value style, ESG integration most likely means to focus on the opportunity side by looking at sustainable products and services that benefit from global trends

Which of the following comments are NOT true? 1. The Sustainable Development Goals (SDGs) comprise 17 goals, with a total of 169 targets and 230 indicators. 2. The SDGs can serve as a common framework for Alignment and Impact Investing. 3. Among the main drivers behind the Alignment objective are fiduciary duty considerations and transparency requirements. 4. With regard to the Alignment objective, the most common investment approach is exclusion/divestment. When it comes to Listed Equity, one of the advantages of this approach is the loss of influence and control over company management.

4. With regard to the Alignment objective, the most common investment approach is exclusion/divestment. When it comes to Listed Equity, one of the advantages of this approach is the loss of influence and control over company management.

3. The investment process part "portfolio construction" can be implemented in three common ways. Which way does not belong to this list? 1.- Separation 2.- Integration 3.- Pure ESG 4.- Forecasting

4.- Forecasting

In March 2018, the European Commission adopted the action plan on sustainable finance. Which action of the following four is NOT part of the action plan? 1.- Establishing an EU classification system for sustainable activities. 2.- Creating standards and labels for green financial products. 3.- Incorporating sustainability when providing financial advice. 4.- Fostering sustainable corporate governance and attenuating long-termism in capital markets.

4.- Fostering sustainable corporate governance and attenuating long-termism in capital markets.

This company's business model can be at risk because: 1.- There is no sustainability leader on the board 2.- There is no sustainability division 3.- It is an industrial company 4.- There is no strategy regarding digital transition

4.- There is no strategy regarding digital transition

According to the World Economic Forum (2011), long term investing refers to: 1.- investing with the expectation of holding an asset for 5 years. 2.- investing with the expectation of holding an asset for 10 years. 3.- investing with the expectation of holding an asset for more than 10 years. 4.- investing with the expectation of holding an asset for an indefinite period of time by an investor with the capability to do so.

4.- investing with the expectation of holding an asset for an indefinite period of time by an investor with the capability to do so.

Which statement is correct? Globally, the relative Google search volume of "ESG" in the finance context experienced a: 1.- sharp decline. 2.- steady decline. 3.- fivefold increase in the last 10 years. 4.- tenfold increase in the last 5 years.

4.- tenfold increase in the last 5 years.

Investor Initiatives

Active Commitment Raising Public Awareness Competitive Advantage Gathering of Information and knowledge Prevent regulation

Barriers to ESG

Examples: Perceived lack of business case ( 74.1% of reports) ESG data (72.3%) Absence of clear standards and definitions (66.1%) Lack of investor education/knowledge (45.5%) Missing/Unclear regulation (39.3%)

EU Action Plan Regulatory Framework Players

High level expert group on sustainable Finance (HLEG) Technical Expert Group on Sustainable Finance (TEG) Sustainable Finance Platform

Market Drivers

Investor Demand Investor Initiatives Global Challenges Public Perception Regulatory Framework Data Availability

EU Action Plan (Ten Reforms in three areas)

Reorient capital flows toward sustainable investment, in order to achieve sustainable and inclusive growth: 1.Establishing an EU classification system for sustainable activities 2.creating standards and labels for green financial products 3.Fostering investment in sustainable projects 4. Incorporating sustainability benchmarks 5. Developing sustainability benchmarks Mainstreaming sustainability into risk management: 6.better integrating sustainability in ratings and market research 7.clarifying institutional investors and asset managers duties 8.incorporating sustainability in prudential requirements Foster transparency and long-termism in financial and economic activity: 9. Strengthening sustainability disclosure and accounting rule making 10. Fostering sustainable corporate governance and attenuating short-termism in capital markets

1. In the context of identifying promising companies from both a traditional valuation and sustainability perspective in the security selection process, which of the following comments is LESS true a) For an equity investor, the key target is to determine whether the company may be running in future additional risks that may worsen the credit rating and capacity to repay their bonds b) For an equity investor, the key target is to identify the companies that are better positioned to create long-term value. The analyst builds a model, incorporating the sustainability information in every part of the fundamental analysis c) For a Bond investor, the key target is to identify securities that are trading at a discount to other outstanding securities. The analyst determines whether the company or sovereign may be running in the future additional risks that may worsen the credit rating and capacity to repay the bonds.

a) For an equity investor, the key target is to determine whether the company may be running in future additional risks that may worsen the credit rating and capacity to repay their bonds

1. Which of the following statements is less true? a) Proxy voting is the term used to describe the means for shareholders to participate directly on the ground in a company's annual shareholders meeting. b) A shareholder resolution is a non-binding recommendation to the board of directors of a public corporation c) A shareholder resolution is presented and voted upon at the corporation's annual meeting and through the annual proxy vote.

a) Proxy voting is the term used to describe the means for shareholders to participate directly on the ground in a company's annual shareholders meeting.

Regarding the integration of ESG issues in the valuation of sovereign bonds, which of the following comments is less true a) The relevant ESG factors of advanced economies are very similar to developing economies b) It is key to identify specific ESG criteria that do have a material impact for a given level of development expressed in GDP/ Capita c) Selected ESG factors can be used as advanced signals of asymmetry

a) The relevant ESG factors of advanced economies are very similar to developing economies

1. In the assessment of Identifying the winners and losers in an economic sector, which is the right order of analysis. Please, choose the most correct order 1. Identify and define the range of scenarios 2.Assess the materiality of climate related risks and opportunities 3. Identify potential responses of the company 4.Evaluate business impacts a) 3+2+1+4 b) 1+4+3+2 c) 3+4+1+2

b) 1+4+3+2

1. Which of the following comments is less true in the context of integration of ESG factors in the valuation of securities? a) For fixed income instruments you should consider changes in materiality for different durations b) The management of certain ESG issues always has a material impact on the credit profile of a company c) Sector and geographical location play an important role in Fixed income and in equities

b) The management of certain ESG issues always has a material impact on the credit profile of a company

1. According to Caldecott, Howarth, and MacSharry (2013) what is not part of a typology for different environment related risks that could cause stranded assets? a) Societal b) Transitional c) Physical

b) Transitional

1. The materiality of ESG factors may be different based on... Please, choose the less correct answer a) if the credit risk assessment should be made for a bond issuer or a single issue b) the leverage of the company c) the investor's motivation

b) the leverage of the company

1. Please, choose the most correct answer. According to TCFD the financial impact of climate change can affect. a) Revenues and Reputation b) Resource efficiency c) Assets and liabilities

c) Assets and liabilities

1. In the context of integrating ESG in the portfolio construction process of fundamental strategies, which of the following comments is LESS true. a) The investable universe may determine part of the asset allocation of the active strategy. b) A possible strategy would be to eliminate from the investable universe the companies with the weakest sustainability performance c) In the case that strategy and policy focus on ESG integration, the security selection process would be determined initially by a reduced investment universe.

c) In the case that strategy and policy focus on ESG integration, the security selection process would be determined initially by a reduced investment universe.