Chapters 1 thru 9

How far does Mercer's strategic asset allocation model extend to?

2100

Steps for modelling the investment impacts of climate change?

1. climate change modelling and litterature review 2. risk factors and scenarios 3. asset sensitivity 4. portfolio implications

Why did the stewardship code go through a further iteration in 2012?

to clarify the distinction between the roles of asset owners (pension funds and the like) and their fund managers and other agents.

What is the Paris Agreement's long term goal?

to keep the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels, and to limit the increase to 1.5 degrees

What is an active quantitative approach to embed ESG within a portfolio?

weighting ESG as an idiosyncratic factor in a multi-factor stock selection algorithm

Universal exclusions?

represent exclusions supported by global norms and conventions like those from the UN and the World Health Organisation (WHO)

annual accounts of a company?

represent the formal process of the directors making themselves properly accountable to the shareholders (at the annual general meetings (AGMs))

In 2017, the CFA Institute's Financial Analysts Journal reported what proportion of firms consider ESG factors when making investment decisions? (a) Over 52%. (b) Over 62%. (c) Over 72%. (d) Over 82%.

(d) Over 82%.

Significant development of ESG indices due to which 2 factors?

1- A rise in passive investment through ETFs 2- An increased availability of ESG data and research

Universal investors tend to look at which ESG factor?

E - environmental factors

SDG 13

Take urgent action to combat climate change and its impacts

Groupthink in the boardroom can lead to:

a lack of questioning and challenge

Use-make-dispose economy is also called?

a linear economy

Policy Engagement

a natural extension of an investor's responsibility and fiduciary duty to act in the best interests of its beneficiaries

CDP (former Carbon Disclosure Project)

a non-governmental organisation (NGO) which supports companies, financial institutions and cities to disclose and manage their environmental impact.

what is the most powerful form of escalation?

collective engagement

what is the most resource-efficient method for engagement?

collective engagement - every investor is inevitably resource-constrained and pooling those limited resources should enable greater efficiency.

World Wildlife Fund's (WWF's) 2018 Living Planet Report shows an overall decline of what percentage in species' populations between 1970 and 2014?

decline of 60%

Pension Fund - Trustees?

hold the ultimate fiduciary responsibility. - can choose to add ESG or not. They act separately from the employer and hold the assets in the trust for the beneficiaries of the scheme.

What was the first country to develop stewardship codes?

the UK

What were the two major scandals in Europe in 2003 that led to a reassessment of the continent's approach to governance? (a) Ahold and Parmalat. (b) WorldCom and Tyco. (c) HIH and Satyam. (d) BCCI and Caparo.

(a) Ahold and Parmalat.

If a company wishes to ensure that executive remuneration is not excessive and that executives act in the best interests of shareholders, what is the best way in which this can be achieved? (a) Align executive pay to company key performance Indicators. (b) Align executive pay to industry standards. (c) Align executive pay to short-term profit growth. (d) Align executive pay to international standards.

(a) Align executive pay to company key performance Indicators.

According to the MSCI ESG Rating, ESG risks and opportunities are posed by: i Large scale trends. ii The nature of the company's operations. iii The quality of the company's management. (a) i and ii only. (b) i and iii only. (c) ii and iii only. (d) i, ii and iii.

(a) i and ii only.

Which of the following is NOT a way of assessing whether a fund manager effectively integrates ESG factors, according to the PLSA? (a) Examples of where and why the manager is prepared to take either stock or sector ESG risks or where it sees opportunities. (b) How much financial return is directly attributable to ESG factors. (c) Quantitative or qualitative examples of material ESG factors identified in fundamental analysis and stock valuation. (d) Identification of long-term ESG secular trends and themes and the extent to which they have influenced portfolio construction decisions.

(b) How much financial return is directly attributable to ESG factors.

What is the clearest risk from an asset owner leaving voting decision-making in the hands of its fund managers? (a) Fund managers will fail to align the votes with their investment thesis. (b) If a company is held by more than one fund manager, the asset owner's shares may be voted differently. (c) Votes are more likely to be lost in the voting system. (d) This reduces fund manager accountability for their decisions

(b) If a company is held by more than one fund manager, the asset owner's shares may be voted differently.

An analyst assesses a company as below average on ESG metrics. All other matters being equal, she is most likely to: (a) Give a P/E premium to the stock. (b) Increase the company's cost of capital. (c) Increase the terminal growth rate assumption in a DCF model. (d) Reduce the risk of default in her forecast models

(b) Increase the company's cost of capital.

How do Sustainalytics define materiality within the ESG risk rating? (a) Issues that may potentially have a substantial impact on the environment, society at large and corporate governance. (b) Issues that may potentially have a substantial impact on the economic value of a company. (c) Issues that may potentially have a substantial impact on the environment or the local society. (d) Issues that may potentially have a substantial impact on the environment.

(b) Issues that may potentially have a substantial impact on the economic value of a company.

What is the main challenge with policies that are 'comply or explain' regarding ESG? (a) It is an indication that the policy hasn't reached maturity. (b) It leads to investors challenging the assertion that ESG integration is a requirement. (c) It allows investors to explain. (d) It does not require investors to report on ESG practices

(b) It leads to investors challenging the assertion that ESG integration is a requirement.

The Stockholm Resilience Centre reported in 2015 that four of the nine planetary boundaries have now been crossed. Which of the following boundaries have been crossed: (a) Freshwater use. (b) Land system change. (c) Ocean acidification. (d) Stratospheric ozone depletion

(b) Land system change.

An ESG portfolio in government bonds is MOST likely to drive allocations towards? (a) High yielding, high volatility bonds (b) Low yielding, low volatility bonds (c) High yielding, low volatility bonds (d) Low yielding, high volatility bonds

(b) Low yielding, low volatility bonds

Which principle in the Principles of Responsible Investment (PRI) is the 'engagement principle'? (a) Principle 1. (b) Principle 2. (c) Principle 3. (d) Principle 4

(b) Principle 2.

Which of the following is NOT an escalation measure that can be used across all asset classes? (a) Formally adding the company to an exclusion list (b) Proxy voting at a general meeting (c) Making a public in advance of a general meeting (d) Seeking governance improvements through legal methods

(b) Proxy voting at a general meeting (NO PROXY VOTE IN FIXED INCOME)

Which of the following is NOT utilised by a fixed income practitioner when evaluating ESG aspects? (a) Bankruptcy risk. (b) Proxy voting. (c) Negative credit events. (d) Time horizons.

(b) Proxy voting.

Qualitative analysts and portfolio managers seek to integrate their qualitative investment opinion by incorporating: (a) Negative screening. (b) Quantitative adjustments to financial models and valuations. (c) Qualitative measures only. (d) None of the above

(b) Quantitative adjustments to financial models and valuations.

Why are investment mandates important for ESG investing? (a) They define the expectations of asset owners who are signatories of the PRI. (b) They are contracts which define the requirements of the asset manager with regards to ESG. (c) They require asset managers to report on the ESG rating of their funds. (d) They have limited the implementation of stewardship.

(b) They are contracts which define the requirements of the asset manager with regards to ESG

A qualified and independent audit is typically required within most corporate governance codes. What is the purpose of this audit? (a) To determine whether the directors have been running the business correctly. (b) To provide an independent review of financials prepared by the management. (c) To confirm that the accounting records are correct and free from any error. (d) To verify that there has been no fraud within the company.

(b) To provide an independent review of financials prepared by the management.

When might escalation NOT be the right step in an engagement that has made no progress? (a) When collective engagement is prevented by regulatory standards. (b) When no progress has been made and the objective does not warrant excess activity. (c) When divestment is the likely step should no change be made. (d) Pending a forthcoming shareholder resolution

(b) When no progress has been made and the objective does not warrant excess activity.

The UK's Investor Forum has a detailed collective engagement framework containing 10 key features. Which of the following fall within this framework? I Complementary to members' direct engagement. II Opt in/opt out. III Transparency. IV Trusted facilitator. (a) i, ii and iii only. (b) i, ii and iv only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(b) i, ii and iv only.

Which of the following data sources typically used by MSCI and Sustainalytics when determining their ESG ratings?i Macro data at the segmental level.ii Company disclosures.iii Investor disclosures.iv Macro data the geographic level. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv.

(b) i, ii and iv only.

You are discussing the relative merits of carbon taxes and emissions trading schemes (ETSs) with a colleague. Which of the following statements would be correct for you to make in this context? (a) A carbon tax is a market-based instrument. (b) A carbon tax is more effective in mitigating emission. (c) An ETS incentivises industries to reduce or limit emissions. (d) An ETS does not stimulate a reduction in energy consumption.

(c) An ETS incentivises industries to reduce or limit emissions.

Which of the following factors is generally considered the most important when evaluating ESG considerations around sovereign debt? (a) Environmental factors. (b) Social factors. (c) Governance factors. (d) Human capital factors.

(c) Governance factors.

Which of the following ESG factors is/are most often taken into consideration by investment analysts? (a) Environmental only. (b) Social and governance only. (c) Governance only. (d) Environmental and social only.

(c) Governance only.

The OECD Guidelines for Multinational Enterprises (MNEs) do not cover which of the following areas? (a) Combating bribery. (b) Information disclosure. (c) Government policies (d) Consumer interests.

(c) Government policies

The Bangladesh Investor Initiative is intended to address which social factor? (a) Labour standards. (b) Labour rights. (c) Health and safety. (d) Employee diversity.

(c) Health and safety.

During what period are annual general meetings most frequently held in Japan? (a) April to June. (b) June. (c) July. (d) September to November.

(c) July.

How long can an audit firm remain in the role at an EU public company? (a) 5 years. (b) 7 years. (c) 10 years. (d) 20 years

(d) 20 years

The World Wildlife Fund's (WWF's) 2018 Living Planet Report shows an overall decline of what percentage in species' populations between 1970 and 2014? (a) A decline of 20%. (b) A decline of 30%. (c) A decline of 50%. (d) A decline of 60%.

(d) A decline of 60%.

For business strategy or operational matters, who is the right company representative to work with? (a) The chair. (b) The board. (c) The non-executive directors. (d) The CEO.

(d) The CEO.

Broadly speaking, ESG factors can affect the price performance and credit risk of a bond at which of the following levels? i issuer level..ii industry level.iii geographic level. (a) i and ii only. (b) i and iii only. (c) ii and iii only. (d) i, ii and iii.

(d) i, ii and iii.

Sarbanes-Oxley Act (2002)

(was led by the Enron, Tyco and WorldCom scandals in the USA) - this lifted expectations for greater integrity in financial reporting and created the Public Company Accounting Oversight Board (PCAOB) as the country's audit standard setter and inspector, establishing a standard for auditor independence and challenge

2 factors affecting client demand for transparency?

1- Growing awareness of that ESG factors influence company value, returns and reputation 2- Increasing focus on the environmental and social impacts of the companies that they are invested into

2 databases created by GIIN?

1- IRIS+ (of metrics for measuring and managing impact), 2- ImpactBase (of impact investing funds).

What 4 Sectors have potential risk exposure to biodiversity loss?

1. Agriculture 2. the extractive industries 3. forestry 4. tourism

The 5 steps in the effective design of a mandate are:

1. Clarifying client needs and objectives 2. Aligning investment with clients' beliefs 3. Proposing ESG-aware investment mandates 4. Linking sustainable investing to the mandate 5. Defining the sustainable investment strategy

4 of the 9 planetary boundaries which have been crossed as a result of human activity are?

1. Climate change 2. loss of biosphere integrity 3. land-system change and 4. altered biogeochemical cycles (phosphorus and nitrogen).

What changes were made in the 2020 version of the UK Stewardship Code?

1. Growth in pages - 2020, includes twelve principles (plus an alternate six for service providers), where formerly there were seven, and a tripling of the number of pages as compared with the 2012 code 2. Increased ambition for practical delivery by signatories - investors are now expected to report annually on activity, and most importantly, on outcomes from that activity.

Most common types of carbon pricing?

1. The emission trading system (ETS) 2. Carbon tax

3 ways to assess environmental risks?

1. Understand factors that may pose a risk to financial assets and liabilities and how they may change 2. Translate environmental risk factors into quantitative measures of financial risk to inform decisions 3. Different levels of analysis need to be performed at macro, portfolio, company and project levels

What sectors rely on natural resources?

1. agriculture, fisheries, forestry and food 2. extractives and infrastructure 3. FMCC

If the Chair of the board is also the CEO, what could this lead to?

1. an excessive concentration of powers 2. hamper the board's ability to - a. exercise their oversight responsibilities b. challenge and debate performance and strategic plans c. set the agenda d. influence succession planning and e. debate executive remuneration

ESG indices do/are what 3 things?

1. are the building blocks for exchange-traded funds (ETFs), 2. help to set standards for categorising ESG, and 3. provide benchmarks for performance analysis.

2 possible approaches to respond to climate change?

1. climate change mitigation and 2. climate change adaptation

3 themes of regulation?

1. corporate disclosure 2. stewardship 3. asset owners

3 issues when trying to incorporate into typical financial models?

1. data availability 2. modelling 3. valuation techniques

3 societal implications of urbanisation?

1. economic 2. environmental 3. social

Given resource constraints, engagement strategies should be prioritized in what 2 ways?

1. identifying which company in a portfolio is most in need of engagement; and 2. determining which engagement issues should be prioritized in the dialogue between the investor and company (if change is to be delivered effectively, it is impossible for an investor to raise every issue with the company - not least as they risk creating confusion as to what issues are most in need of attention).

Aims and objectives of integrating ESG into an investment process?

1. meeting requirements under fiduciary duty or regulations; 2. meeting client and beneficiary demands; 3. lowering investment risk; 4. increasing investment returns; 5. giving investment professionals more tools and techniques to use in analysis; 6. improving the quality of engagement and stewardship activities; and 7. lowering reputational risk at a firm level and investment level

In most developed countries, in which of the following ways is domestic waste disposal typically funded?

1. national tax and 2. local tax

What are the 2 key guidance documents for investors created by ICGN?

1. on stewardship and 2. on investment mandates.

What sectors frequently negatively impact biodiversity?

1. pharmaceutical 2. tourism and hospitality 3. utilities

human rights include

1. right to life and liberty 2. freedom from slavery and torture 3. freedom of opinion and expression 4. right to work and education

Mass migration is caused by what 2 things?

1. scarcity of fresh water 2. desertification

Why are the mixed skillsets of directors important?

1. so that discussions and debate are appropriately informed from a range of perspectives 2. the risk of 'group-think' is avoided

Policy engagement creates a financial system that: (3)

1. sounds and stable 2. Creates a level playing field 3. Brings ESG more effectively into financial decision-making

3 climate change impacts on businesses?

1. the risk of stranded assets 2. Growing stress on water resources 3. The physical impacts of climate change

How much degree Celsius increase will 'disproportionately affect disadvantages and vulnerable populations' (according to IPCC)?

1.5

What are the 5 socioeconomic impacts of climate change?

1• Livability and workability 2• Food Systems 3• Physical Assets 4• Infrastructure Services 5• Natural Capital

ased on the CICERO shades of green methodology that determine how a bond aligns with a low-carbon resilient future, how would an entirely-electrified transit system be classified? A. Dark green. B. Blue. C. Brown. D. Light green.

A. Dark green

Which of the following correctly places the noted asset classes in the correct descending order by reference to ESG integration? A. Public equity, private equity, fixed income, real estate. B. Public equity, fixed income, private equity, real estate. C. Public equity, private equity, real estate, fixed income. D. Public equity, fixed income, real estate, private equity.

B. Public equity, fixed income, private equity, real estate.

Which of the following may most effectively be used to illustrate fixed income portfolio exposures to several macro factors or to governance indicators? A. Credit rating correlations. B. Spider charts. C. Bar charts. D. Histogram.

B. Spider charts.

Out of the following asset classes/investor types, which one has demonstrated the greatest level of ESG integration? A. Hedge funds. B. Infrastructure. C. Private equity. D. Real estate.

C. Private equity.

Which of the following is NOT one of the four key pillars of the Green Loan Principles (GLP)? A. There is clear green use of loan proceeds. B. The project's sustainability objectives have been clearly evaluated and communicated to lenders. C. Loan proceeds are strictly managed through project accounts. D. Reporting is mandated and detailed but offers some flexibility.

D. Reporting is mandated and detailed but offers some flexibility.

External collective vehicles

External collaboration with an investor with particular skill in an area

Who is reporting and transparency led by?

First, by the management team, and then by the audit committee and the board as a whole

A company has recently changed its policy on a certain ESG issue about which the fund manager has been engaging with them. What does this reveal about the effectiveness of the fund manager's engagement activities?

It reveals very little in relation to the effectiveness of the fund manager's engagement activities.

Which body has developed a framework that identifies material ESG issues by sector?

Sustainability Accounting Standards Board (SASB)

Corporate Reporting Dialogue (CRD)

a joint project led by the CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)

What is UNEP FI?

a partnership between UNEP and the global financial sector to mobilise private sector finance for sustainable development

unicorn?

a private company whose valuation is believed to be greater than US$1bn

What parts of a company's balance sheet does internalisation affect?

bottom line and valuations

What did the FSB identify as a systemic risk?

climate change

challenges of collective engagement?

coordinating a potentially disparate group of separate investors, and trying to maintain a consistent line.

What Fixed Income sub-asset classes is experiencing greater levels of ESG integration?

corporate debt

EU Paris-aligned Benchmark (EU PAB)?

excludes fossil fuel companies

Better Alignment Project

focused on promoting better alignment in the corporate reporting landscape, making it easier for companies to prepare effective and coherent disclosures that meet the information needs of capital markets and society.

The Mercer report - Investing in a Time of Climate Change?

formally extends its climate-informed asset allocation process to sustainability themed equity, private equity and real assets, including natural resources and infrastructure

According to the Stockholm Resilience Center, how many of the 9 planetary boundaries have now been crossed due to human activity?

four

What was the range of the 4 potential futures that the IPCC considered?

from a baseline scenario of 'business as usual' to varying degrees of climate scenarios that require different levels of mitigation

Which stakeholder - sets standards to award to investment vehicles after assessing its ESG process and performance?

fund labelers

Why is ESG engagement important to private debt, private equity and property and infrastructure investments?

investments are illiquid, relatively long-term and involve close partnership between the investor and investee.

If there are concerns about the capital structure and financial viability of the business, what should the voting decision be about?

investors need to give close consideration to votes in relation to dividends, share buybacks, share issuance or scope for further debt burden.

disinvestment?

is a form of engagement escalation This can only really escalate influence where it is done through a formal process so that the company is aware that it is approaching the point where the investor may feel obliged to sell its shares. An independent ethics council considers whether companies should be excluded from a fund because of business activities or breaches of behavioural norms.

UK's Investor Forum (2014)?

is a non-commercial operation offering collaborative vehicles to members; it was created as a response to the Kay Review call for such a vehicle.

Traceability?

is a useful practice to identify and trace the history, distribution, location, and application of products, parts and materials

Monitoring (dialogue)?

is data/information gathering to develop insight and knowledge

Sustainalytics' ESG Risk Rating?

measures the degree to which a company's economic value is at risk driven by ESG factors or, more technically speaking, the magnitude of a company's unmanaged ESG risks. The rating system gives points for specific risk factors. Points will add up across issues to create overall scores, which are then rated. The rating sorts companies into 5 risk categories. (assessment is absolute)

Investor Stewardship Group's (ISG) Corporate Governance Principles for US Listed Companies (2018)?

more about the relationship of US companies with their shareholders.

What is the most important way to bolster influence when escalating?

moving an engagement from the private sphere into the public

In the 17th & 18th centuries, religious groups such as the Quakers and Methodists laid out guidelines to their followers over the types of activities in which they should or should not invest - this led to?

negative screening

The largest sustainable investment strategy globally is

negative screening

what was the first ESG investing instrument?

norms-based exclusion

Impacts from the Megatrend - Emerging and Urban?

supply chain, workforce, expectation of the local community as well as where new consumers come from

What material financial risks could companies with exposure to deforestation in their supply chains face?

supply disruption, cost volatility and reputational damage

Who's role is vital in facilitating a balanced debate in the boardroom?

the chair of the board

What concept is now a core component of both the EU's 2050 long term strategy to achieve a climateneutral Europe and of China's 5-year plans?

the circular economy

What concept/ initiative can be the focus of a thematic investment strategy?

the circular economy

What is a useful model for companies to assess and manage their operations and resource management?

the circular economy

What was the starting point for the modern understanding of corporate governance and initially identified the 'agency problem'?

the publication of 'The Modern Corporation and Private Property' by Adolfe Berle and Gardiner Means in 1932

How does corporate governance mitigate the negative consequences of the 'agency problem'?

through incentives and appropriate chains of accountability

How should the analysis of corporate governance, specifically built into valuation models, be typically done?

through recognising negative governance characteristics by way of adding a risk premium to the cost of capital, or raising the discount rate applied.

In what ways are businesses becoming incentivised to help economies?

through recycling and by adopting a circular economy business model

How do Asset Managers influence the ESG characteristics of the portfolio?

through selection, as well as engaging with investee companies to improve their ESG performance

2010 Dodd-Frank Act

tightened standards for, and oversight of, banks

key challenges of incorporating ESG in the investment process?

time horizon

in recent studies, why do investors integrate ESG?

to lower investment risk (rather than enhance returns, but some firms do both)

concept of an auditor?

to provide an. independent pair of eyes assessing the financial reports prepared by management, and to provide some assurance that those reports fairly represent the performance and position of the business

Which engagement tends to align more closely with passive investments?

top-down engagement (a.k.a. issues-based)

What are the 2 risks of climate change?

transition and physical risks

What is the count and template of the principles of all the codes worldwide?

usually 6 or 7 principles 1. the first often requiring investors to have a public policy regarding stewardship, 2. regular monitoring of investee companies; 3. active engagement where relevant (sometimes termed "escalation", or sometimes escalation is deemed worthy of a separate principle of its own); 4. thoughtfully intelligent voting. 6/7. the last noting the need for honest and open reporting of stewardship activities.

Is Impact Investing direct or indirect?

usually direct investments -such as Private Equity, Private Debt and Real Estate

Challenges in data and research gathering?

▶ ESG data is not consistently reported across companies, geographies and sectors; ▶ most ESG data is not audited; and ▶ some ESG data is not easily available in public databases and is difficult to obtain.

the methodology behind a passive ESG strategy?

highly individualistic and interpretive

Principle N of the 2018 Corporate Governance code states?

"the board should present a fair, balanced and understandable assessment of the company's position and prospects."

'Exposure Draft on Primary Financial Statements' (December 2019)?

- published by the International Accounting Standards Board (IASB) via its IFRS Foundation - allows the disclosure of a management-preferred measure of performance on the face of the income statement but alongside the permitted standard measures and with full reconciliation between them

Indirect impact between natural resource and business (GRI)?

- the impact caused by parties in an organisation's supply chain(s)

The Platform Living Wage Financials (PLWF)

-established in 2018 - coalition of mainly Dutch financial institutions - encourage and monitor investee companies to address the non-payment of a living wage in their global supply chains

Free Prior Informed Consent (FPIC)

-establishes bottom-up participation -for a company that plans to develop on ancestral land or use resources of a territory owned by indigenous people

3 stakeholders included in Fund Promoters?

1. Investment consultants and retail financial advisers, 2. Investment platforms, 3. Fund Labelers

When was UNGC launched?

2000

By 2050, what % of the world population will live in an urban environment?

65%

PRI reporting frequency?

Annual

Meeting and Date that led to Paris Agreement?

COP21 and 2015

Challenge with Valuation techniques?

How to adjust the discount rate in a model in order to consider ESG risks

Overall median age trajectory

Rose from 28 (1950) to 40 (2010) to 44 (by 2050)

Which financial measure does ESG not translate to?

alpha

Three P's

profit, people, planet

MSCI rating range?

the best (AAA) and the worst (CCC) - not absolute

who would be most effected by a corporate structure transition?

the working class

Is outsourcing voting common?

yes; very common

Impact Investing invests in projects (that)?

- Offer access to basic services such as housing, healthcare and education - Promote availability to low-carbon energy - Support minority-owned businesses - Conserve natural resources

ESG integration within portfolio management requires embedding ESG considerations into:

- Portfolio exposure - Risk management - Performance attribution, and - Asset allocation decisions (at the highest level)

the Blue Economy Development Framework (BEDF)?

- created by The World Bank and the European Commission -is a new step in the area of international ocean governance -helps coastal states (developing) transition to diverse and sustainable blue economies while building resilience to climate change

Good governance?

- involves developing an appropriate culture that will underpin the delivery of strong business performance without excessive risk-taking and through appropriate conduct of business operations - should lead to strong business performance and long-term prosperity to the benefit of shareholders and the company's other stakeholders

4 categories of executive pay structures?

1. fixed salary (increased annually) 2. benefits, including pension 3. annual bonus 4. share-linked incentive (in the form of a long-term incentive plan (LTIP))

Labor rights include:

1. freedom of association and protection of the right to organise 2. right to organise and collective bargaining 3. forced labour and abolition of forced labour 4. minimum age 5. worst forms of child labour 6. equal remuneration 7. discrimination

2 types of labels?

1. general, looking at ESG as a whole; or 2. thematic, usually focused on environment or climate.

Accountability -people need to be:

1. given authority and responsibility for decision-making 2. held accountable for the consequences of their decisions and the effectiveness of the work they deliver

Munich Re produce climate risk assessments that model potential property impact scenarios based on a set of :

12 natural hazard types

How many climate change migrants will the world have by 2050?

150 to 200 million

How many universal Sustainable Development Goals (SDGs) that have been adopted by 150 UN member states by 2015?

17

Business Roundtable statement (August 2019) was signed by how many CEOs?

181 (including major investment banks and asset managers)

Year of The Brundtland Report inception?

1987

When was the UNEP FI founded?

1992

Length and location of the meetings?

1h and at the corporate head office or at the investment firm

3 challenges of material environmental analysis?

1• Definitions and classifications vary 2• There is no one common standard 3• Environmental factors are long-term

Uk life expectancy increased by how much between 2002 and 2010

2 years

Governments have recognized 3 main ways in which RI plays a part in creating positive outcomes for society - way 2?

2. Developed and developing countries need to restore or build infrastructure which can be costly

How many markets worldwide have a stewardship code?

20

When and how did the modern form of ESG investing begin?

2004 and when UN SecretaryGeneral, Kofi Annan, engaged financial institutions to take part in an initiative, under the authority of the UN Global Compact and with the support of the International Finance Corporation (IFC), to integrate ESG into capital markets.

when did the surge in policy intervention begin?

2008 - credit crisis

the AFOLU sector (agriculture, forestry and other land use) is responsible for what % of total net anthropogenic emissions?

23% - mainly from deforestation, and agricultural emissions from livestock, soil and nutrient management

According to a 2017 CFA Institute global ESG survey, what % of investment professionals still do not integrate ESG?

24% of equity investors, 55% of fixed income investors and between 79% and 92% of alternative asset investors (across private equity, real estate, infrastructure and hedge funds)

Governments have recognized 3 main ways in which RI plays a part in creating positive outcomes for society - way 3?

3. A transition to a low-carbon economy will require vast shift in capital

One study indicates that residential properties in the USA located in areas exposed to sea-level rises already reflect a XX% discount relative to unexposed, nearby homes

7%

Why was the Cadbury Committee created?

because of the perceived problems in accounting and governance that followed the Caparo takeover of Fidelity and Polly Peck scandal

Sullivan Principles

began the divestment movement (late 70s) which became increasingly globalised

Traditional investors?

believe ESG factors are not relevant and will not integrate ESG factors /believe that all ESG risks and opportunities are already priced into any potential investment, in accordance with modern portfolio theory

Broader goals investors?

believe that ESG factors are relevant to portfolio performance - They also feel that their duties to their beneficiaries include consideration of their long-term financial and non-financial well-being - They will accept some financial sacrifice in order to support ESG-related beliefs

Modern investors?

believe that ESG integration can enhance their analytical capabilities - They integrate ESG factors to the extent that they impact corporate financial valuations and subsequently, portfolio returns.

Universal Investors?

believe they have a financial responsibility to support global economic health and that ESG factors are drivers of future systemic risk - They fully integrate ESG factors into their investment governance and align their portfolios with ESG goals

Which investment approaches have a tendency to reduce the investment universe?

best-in class and exclusionary screening

Which investment class is often viewed as sitting between fundamental active and passive index tracking strategies?

beta (or smart beta) or factor strategies

United Nations Guiding Principles on Business and Human Rights (UNGPs)

set of guidelines implementing the UN's Protect, Respect and Remedy framework on the issue of human rights and transnational corporations and other business enterprises

Employee satisfaction is positively correlated with...?

shareholder returns.

single slate board?

shareholders have a vote on the board as a whole rather than votes on each individual proposed director (corporate governance in Sweden)

Friede, Busch and Bassen's 2015 study?

showed that 57% of equity studies showed a positive effect, but the positive share for bond studies was 64%, rising to 71% for real estate.

CDP's Global Supply Chain Report (2018)?

showed that greenhouse gas emissions in supply chains are, on average, four times as high as those from direct operations

2014 INREV study?

showed that there was a 2.8% difference in return spread between the top 10% and the bottom 10% of Global Real Estate Sustainability Benchmark (GRESB) rated properties.

What type of private equity companies are often capacity-challenged by ESG reporting requirements?

smaller private companies

For which asset class does the 'G' of Governance mean 'the effectiveness of the governance and robustness of the state and its institutions'?

sovereign debt

What Fixed Income sub-asset classes have lower levels of ESG integration?

sovereign debt and high yield credit (particularly in the unlisted credit market)

faith-based exclusions?

specific to religious institutional or individual investors

What did Carter, Simpkins and Simpson's 2003 study of Forbes 1,000 firms find?

statistically positive relationships between the presence of women or minorities on the board and firm value

Why is there a decline in the market share of sustainable investing for Europe?

stems from a shift to stricter standards and definitions for sustainable investing in that market.

What ESG feature is often overlooked in screening approaches for collective investment funds?

stewardship

When employing ESG integration, what should be the first stage in the portfolio construction process?

strategic asset allocation

What represents the prevailing means to approximate ESG risk in a portfolio?

subjective ESG scores and rankings

'Informed' - Free Prior Informed Consent (FPIC)?

suggest that the relevant indigenous people receive satisfactory information on the key points of the project (the most difficult of the 4 terms). Language use must be able to be understood

What is central to investors' ability to hold management and boards to account?

the integrity of the numbers that investors look at when assessing the business performance

Who currently determines ESG materiality for companies?

the investors in the company

Larry Fink's annual letter to CEOs is an example of what type of engagement approach?

the issue-based approach taken by passive investors

Water scarcity?

the lack of fresh water resources to meet water demand.

ESG integration in private equity faces several challenges:

the lack of public transparency, established reporting standards, regulatory oversight and public market expectations around ESG

What is the planet's largest carbon sink?

the ocean - producing over half of the world's oxygen and absorbing 50 times more carbon dioxide than the atmosphere

Corporate governance?

the process by which a company is managed and overseen.

What does the CFA Institute's ESG Integration Framework represent?

the process of 'classical ESG research and analysis', which is focused at the individual security level (research - security level - portfolio level)

Stewardship

the process of intervention to make sure that the value of the assets is enhanced over time, or at least does not deteriorate through neglect or mismanagement.

World Economic Forum's view on water?

water connects important sectors and industries into a broader economic system that must balance social development and environmental interests.

Natural resources primarily cover?

water, biodiversity and land use.

RFP process

way that consultants and clients seek to understand and test fund managers' capabilities and approaches

When to use best in class investing?

when attempting to maintain certain characteristics of an index e.g. regional or sectoral diversification, whilst also targeting companies with a higher ESG rating e.g. MSCI World SRI

What type of Private Equity companies would the Stewardship Codes most naturally extend to?

where the companies are early stage and the investor has a more substantial influence.

What was the 1st international convention to set targets for emissions of the 6 main greenhouse gases?

Kyoto Protocol (2005)

Zaibatsu

The large family-controlled banking and industrial groups that owned many companies in Japan before World War II.

What has academic research validated?

the business case for integrating ESG into the investment process.

What attempts to bring structure and numerical value to part of that unstructured ESG dataset?

AI and machine learning algorithms

Sullivan Principles

A 1977 code of conduct that required multinational corporations in South Africa to do business in a nondiscriminatory way.

SDG 1?

End poverty in all its forms everywhere

Is the Paris Agreement legally binding?

no

sector with high impact of cost of insurance?

oil and gas

Stewardship is all about?

the process (and is delivered via voting and engagement)

Climate scenario analysis?

• A forward-looking assessment of risks and opportunities • A process of evaluating how an organisation, sector, country or portfolio might perform in different future states

What does the Real Impact Tracker (RIT) assess to assess a company for ESG?

▶ culture; ▶ philosophy; ▶ process impact; and ▶ public policy efforts

What are the 5 risk categories that the ratings sort companies in (Sustainalytics' ESG Risk Rating process)?

▶ negligible; ▶ low; ▶ medium; ▶ high; and ▶ severe

Forests cover what % of the world's land area?

approx. 30% and are a vital part of the carbon cycle

idiosyncratic exclusions?

are exclusions that are not supported by global consensus (whale meat products)

What are the most material ESG factor for institutional investors to address within asset allocation strategies?

Climate change - and climate risk

Largest ESG investing strategy in Japan?

Corporate engagement and shareholder action

How is Materiality measured?

both in terms of the likelihood and magnitude of impact (of an ESG issue)

What engagement type fits most naturally with active investment approaches?

bottom-up engagement

What 2 stakeholders are considered the 'gatekeepers' for the expansion of ESG investing?

1. Investment consultants and retail financial advisers, and 2. Investment platforms

internal social factors?

1. human capital development 2. health and safety 3. human rights 4.labor rights

With regard to the competing ESG ratings providers, which of the following statements is correct? (a) There is limited consensus between the databases. (b) There is full consensus between the databases. (c) There is no consensus between the databases. (d) None of the above

(a) There is limited consensus between the databases.

How does MSCI consider an opportunity to be material?

An opportunity is material to an industry when it is likely that companies in a given industry could capitalise on it for profit (for example, opportunities in clean technology for the LED lighting industry)

For ESG operational matters, who is the right company representative to work with? (a) The sustainability/Investor Relations team (b) The board. (c) The non-executive directors. (d) The CEO.

(a) The sustainability/Investor Relations team

What did the Intergovernmental Panel on Climate Change (IPCC) 2018 say about climate change?

'Direct impact on GDP growth'

What is the largest sustainable investment strategy globally? (a) Impact investing. (b) Best-in-class. (c) ESG integration. (d) Negative screening

(d) Negative screening

What is the main reason governments intervene?

Externalities

What 5 climate change outcomes are manifested by "the physical risks"?

1- More extreme weather effects 2- Rising sea levels 3- The acidification of the oceans and degradation of marine life 4- The impacts on food and crops 5- All these impacts are set out in IPCC's Special Report: Global Warming of 1.5 degrees Celsius

Ecosystem services?

are the benefits that people, including businesses, derive from ecosystems

common sustainable themes in thematic investing?

- Clean energy - Water - Demographic change - Healthcare

Types of ESG-oriented bonds include:

- Green bonds - Social bonds - Sustainable bonds - Blue bonds

Examples of adaptation strategies?

- Protecting coastlines and adapting to sea-level rise - Building flood defences - Managing land use and forestry practices - Planning more efficiently for scarce water resources - Developing drought resilient crops - Protecting energy and public infrastructure - Developing clean cooling systems

4 drivers leading to the risk of resource scarcity?

1- Population growth 2- Health improvements leading to people living longer 3- Economic growth, and 4- The accompanying increased consumption in developed and emerging economies

Cities are exposed to what type of climate change risks?

- Sea level rise - Extreme weather events - Increase in the spread of tropical diseases

Who Cares Wins and Freshfields Report launched which 2 things?

1- Principles for Responsible Investment (PRI), at the New York Stock Exchange in 2006, and 2- the Sustainable Stock Exchange Initiative (SSEI), the following year.

What does the EU Non-Financial Reporting Directive recommend?

- Taking a set of transparent and credible data sources and assumptions - Applying recognisable, accepted methodologies - Focusing on materiality - Generating a set of outputs which can be measured in terms of KPIs

The macroeconomic impacts of climate-related events are becoming of increasing interest to institutions involved in:

1- Project finance 2- Corporate finance 3- Public finance initiatives 4- Investment

SLLP considerations?

- The eligibility of assets and criteria to meeting their green, ESG or SDG-related objectives - The use of proceeds effectively allocated to eligible projects - The transparency and reporting requirements and key measures of impacts - The issuer or borrower has a clear sustainability and ESG strategy

Due diligence focuses on establishing baseline metrics to valuate and compare managers. Metrics may include:

- The existence of an ESG policy - Affiliation with investor initiatives such as the PRI - Accountability in the form of dedicated personnel and committee oversight - The manner and degree to which ESG is integrated in the investment process - Ownership and stewardship activities, and - Client reporting capabilities

challenges in ESG credit scoring:

- Time horizon (3 month paper or 50 year bonds) - Lack of proxy vote - Different levels of management engagement - Unique qualities of sovereign credit

Corporate Human Rights Benchmark (CHRB)

-first open and public benchmark of corporate human rights performance -provides a comparative snapshot year-on-year of the largest companies on the planet, looking at the policies, processes, and practices they have in place to systematise their human rights approach

The correlation between the various ESG ratings from major data and service providers is an important consideration. One study by Krosinsky (2018) calculated a correlation of:

0.3

three ESG engagement dynamics that create value:

1 communicative dynamics (the exchange of information); 2 learning dynamics (enhancing knowledge); and 3 political dynamics (building relationships).

Shareholder Engagement depends on which 3 factors?

1- Scale of ownership as an individual or collective (concert party); 2- Quality of the engagement dialogue and method used; and 3- Whether divestment is identified as a possible sanction.

2 examples of the 10 UNGC principles?

1- Universal Declaration of Human Rights 2- International Labour Organization's Declaration on Fundamental Principles and Rights at Work.

2 statutes under the Dodd-Frank legislation?

1. 'say on pay' vote 2. 'access to the proxy' standard

In the UK, the average annual hours actually worked per person in employment decreased from what to what?

1,779h in 1970 to 1,506h in 2010

6 recommendations of the High-Level Expert Group (HLEG) on Sustainable Finance?

1- A classification system, or taxonomy 2- Clarifying the duties of investors 3- Improving disclosure by financial institutions and companies 4- An EU-wide label for green investment funds (the Ecolabel) 5- Making sustainability part of the mandates of the European Supervisory Authorities 6- A European standard for green bonds

what are the two intangibles of ESG analysis?

1. scale 2. timing

social factors impacting external stakeholders?

1.product impacts 2.sourcing local content 3.tax payments

What % of Germany's electricity now comes from renewable resources?

40%

How many people are estimated to have a problem with water scarcity?

40% of the population (2.3 billion people)

In recent years, the ethic council has recommended what number of disinvestments?

5 disinvestments based on a criterion established in 2016

What is the usual method of communication between the executive and members involved in engagements?

A bilateral model

Having clear objects helps set?

A clear agenda

Which of the following indices rates above 4,000 securities in developed and emerging countries on 300 ESG indicators? A. FTSE Russell. B. FTSE4Good. C. JP Morgan ESG EMD. D. MSCI ESG

A. FTSE Russell.

Plastic bag charge?

A financial mechanism through the use of hypothecated taxes

Which comment about a typical quantitative approach to ESG analysis is correct? A. Factors such as value and growth are integrated alongside ESG factors. B. The data set focuses on an individual company assessment. C. The research stage will only include internal proprietary data. D. The dataset tends to be smaller than that used by a fundamental adviser.

A. Factors such as value and growth are integrated alongside ESG factors.

How does The Investor Forum describe engagement?

as "active dialogue with a specific and targeted objective...the underlying aim...should always be to preserve and enhance the value of assets".

What causes globalisation

A rapid increase in cross-border movement of goods, services, technology and capital.

How does MSCI consider a risk to be material?

A risk is material to an industry when it is likely that companies in a given industry will incur substantial costs in connection with it (for example, a regulatory ban on a key chemical input)

Responsible Investment

A strategy and practice that incorporates ESG factors into investment decisions and active ownership.

What are the 3 frameworks and approaches to meet the first 2 material environmental analysis challenges?

A. Carbon footprinting B. Natural capital approach C. Climate scenario analysis

What 4 concepts and initiatives are driving efforts towards a low-carbon and more sustainable economy?

A. Circular economy B. Clean and technological innovation C. Green products D. The Blue economy

Steps in the research stage of integrated ESG assessment?

A. Gathering information B. Materiality assessments C. Evaluating different forms of tangible vs intangible factors D. Generating ideas E. Scorecards can be used to assess ESG risk and opportunity F. Materiality assessments and risk mapping G. Using SASB as a baseline framework for materiality assessment H. ESG risk mapping methodologies E. Quantitative, systematic and thematic approaches to integrated ESG analysis

What are the 4 types of Financial Materiality?

A. Reduced cost and increased efficiency B. Reduced risk of fines C. Reduced externalities D. Improved adaptability to sustainability megatrends

Within the ESG integration framework, which of the following is a security level component? A. Sensitivity and scenario analysis. B. ESG profile vs. benchmark. C. ESG and financial risk exposure and limits. D. Value-at-risk analysis.

A. Sensitivity and scenario analysis.

4 types of institutional investors (OECD report)?

A. Traditional investor B. Modern investor C. Broader goals investor D. Universal investor

3 stages of integrated ESG assessment?

A. a research stage; B. a valuation stage; and C. a portfolio construction stage, which leads to investment decisions.

Company implications of a high ESG score?

Able to anticipate ESG risks and opportunities; enjoy valuation premiums due to changing investor concerns and preferences; and are more disposed to longer term strategic thinking and planning.

shareholder engagement?

Active ownership by investors whereby the investor seeks to influence a corporation's decisions on matters of ESG

What are the 2 challenges of supply chain sustainability?

Addressing emissions in industry and the food system

What is the aim of EU Taxanomy?

Aim is to reduce the risk of 'green washing' of financial products

Ecolabel?

An EU-wide label for green investment funds

Who needs to demonstrate how they have used the taxonomy criteria?

Asset Managers

Regarding the impact of ESG factors on strategic asset allocation, one of the most promising approaches may well be :

Black-Litterman asset allocation model (BLM)

institutional investors apply 2 popular approaches towards decomposing performance attribution:

Brinson Attribution and Risk Factor Attribution.

which are metrics to measure the effectiveness of ESG integration?

Brinson attribution and risk factor attribution

SDG 9

Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

Meeting and Date that led to Kyoto Protocol?

COP3 and 1997

2 categories of Physical Risk?

Can be event driven (acute) or longer-term shifts (chronic)

What is the primary way in which investors assess the engagement performance of mutual fund managers?

Changes made by companies as engagement progresses expressed as either milestones or objectives (over the three or more years of the engagements)

What country will become the largest carbon market in the world with the launch of its own carbon pricing scheme?

China

Dependency

Countries become dependent on other countries for certain product sectors/industries

Better Life Index

Created by the OECD, which rates a wide range of developed and emerging economies in a number of areas including life satisfaction

How do active investors typically start engagement?

First with the company itself and its business issues and develop a tailored engagement approach cutting across a range of issues, often with the investment teams taking a leading role. The starting point is typically to seek a direct discussion with senior management and then the board.

In an ESG context, when integrating ESG to manage portfolio risk what are the characteristics of tail risk? A. Risks that are short-term in nature and describe a minor movement in the risk profile of an asset. B. Risks that are short-term in nature and describe a major movement in the risk profile of an asset. C. Risks that are long-term in nature and describe a minor movement in the risk profile of an asset. D. Risks that are long-term in nature and describe a major movement in the risk profile of an asset.

D. Risks that are long-term in nature and describe a major movement in the risk profile of an asset.

Which of these is not a common use for ESG data sets? A. To input into future scenario models. B. To guide practice at regulator level. C. To inform government decision making. D. To prepare company financial reports.

D. To prepare company financial reports.

An institutional investor believes that they have a financial responsibility to support global economic health and that ESG factors are drivers of future systemic risk. They fully integrate ESG factors into their investment governance and align their portfolios with ESG goals. This is most likely to be consistent with a: A. Traditional investor B. Modern investor C. Broader goals investor D. Universal investor

D. Universal investor

SDG 8

Decent Work and Economic Growth- Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

which of the following is a macro-economic climate consideration?

asset class sensitivity to interest rates; heterogeneity and wide-ranging risk/return profile; ability to add low or inverse correlation relative to market returns

You are running an ESG scored portfolio which has an E score lower than its benchmark. What will be the key issue for your client when reviewing fund performance?

Detractor companies in the portfolio with low E scores.

Who most commonly adopts and applies exclusionary preferences?

asset owners

Stranded assets are defined as?

assets whose value is significantly reduced because they are rendered obsolete or non-performing

Challenge with Data Availability?

Disclosure is still a significant challenge • Also limited by investors' understanding of the data and what is deemed material

EU Shareholders Rights Directive 2019 may supersede what?

EFAMA code (European funds and asset management association)

Who was the 1 st to launch a green bond in 2007?

EIB

Largest ESG investing strategy in USA, Canada, Australia and New Zealand?

ESG Integration

Elements of ESG integration include?

ESG factor tilts

Challenge with Modelling?

ESG factors are mostly long-term financial impacts making it hard to factor into models • Quantifying the impact of ESG factors is also a challenge

What ESG screening approach potentially prevents wholesale exclusions of poorly-rated industries like mining on absolute value-based data?

ESG screening premised on relative and peer-group datasets (vs absolute)

What 2 organizations are leading the benchmark for best practices to address the plastic waste and pollution system?

Ellen Mac Arthur Foundation and the UN Environment Programme (UNEP)

What were the top 'use of proceeds' for Green Bonds in 2019?

Energy (31%) and Buildings (28%)

SDG 7

Ensure access to affordable, reliable, sustainable and modern energy for all

SDG 3

Ensure healthy lives and promote well-being for all at all ages

SDG 12

Ensure sustainable consumption and production patterns

What are the 10 themes within the 3 ESG pillars that the MSCI ESG hierarchy identifies?

Environment: climate change, natural resources, pollution and waste, opportunities. Social: human capital, product liability, stakeholder opposition, social opportunities. Governance: corporate governance, corporate behaviour.

what factors are least considered by credit ratings agencies (CRAs)?

Environmental risk, religious / ethical risk

What does the new code in Principle 11 cover?

Escalation of engagement

2 regions with the highest proportions of ESG assets?

Europe (46%) and the USA (39%)

Which region has the proportion of sustainable investing relative to total managed assets not grown?

Europe (since 2014)

Who proposed that France ought to seek to create a similar organisation as the Investor Forum?

France's Club des Juristes in a November 2019 report called 'Activism Actionnarial'

For what vehicle is closing the agency gap harder and takes more effort?

Funds of funds

SDG 5

Gender equality: achieve gender equality and empower all women and girls

Where may employee satisfaction data and scores which have been directly sourced from employee surveys be sourced?

Glassdoor

Biggest social megatrend?

Globalisation

Which ESG factor is generally considered the most important when evaluating ESG considerations around sovereign debt?

Governance

Which factor remains more important to credit investors?

Governance

Which ESG factor counts for the majority of engagement cases?

Governance (and then Social)

Sectors that will be affected by AI

Healthcare, automotive, financial services & auditing, security (including military), and creative (advertising & video games)

When did the Maxwell/Mirror Group scandal emerge?

once the Cadbury Committee was founded and the Bank of Credit and Commerce International (BCCI) collapsed in the wake of money laundering and other regulatory breaches

Management gap (as a component of unmanaged risk)

it speaks to the manageable part of the material ESG risks a company is facing and reflects the failure of a company in managing these risks sufficiently, as reflected in the company's management score.

What type of impact can be relatively difficult to predict and manage?

Indirect impact - between natural resource and business (GRI)

What was the finding in PRI's 2018 report on how engagement adds value for investors and companies?

Individual engagement can be more statistically valuable, but that individual approaches can be time consuming and costly.

When is qualitative ESG analysis likely to be used in investment processes?

In investment processes that are based on company-specific research, fundamental analysis and stock-picking

When is quantitative ESG analysis likely to be used in investment processes?

In investment processes that use quant models to identify attractive investment opportunities (ESG data is typically aggregated into an ESG factor (an ESG score), which is added to the quant models)

An analyst assesses a company as below average on ESG metrics. All other matters being equal, she is most likely to:

Increase the company's cost of capital

What caused the decrease in UK's average annual hours worked

Increases in automation and part-time employment

What is responsible for more than 10% of all deaths globally each year (WHO)?

Indoor and outdoor air pollution together

Which Institutional Investor directly experiences the physical impacts of climate change and the damage that it causes?

Insurance companies

Which industry is the most affected by the macroeconomic impacts of climate-related events?

Insurance industry

Which stakeholder is advanced in their understanding of ESG?

Insurers

Globalisation

Integration of local and national economies into a global (and less regulated) market economy

Social Investment?

Investing into assets that address social challenges.

Impact Investment?

Investing into assets with the specific intent of generating positive, measurable social and environmental impact in conjunction with a financial return

Green investment?

Investment into assets that mitigate: - Climate change - Resource inefficiency - Biodiversity loss - Other environmental challenges

International Corporate Governance Network (ICGN)

Investor-led organisation established in 1995 to promote effective standards of corporate governance and investor stewardship to advance efficient markets.

What has been identified by the ICSA as a major impediment to effective engagement by asset managers?

Investors' resource constraints.

Best in class investing?

Involves choosing only the companies that overcome a defined ranking hurdle. The ranking hurdle is created using ESG criteria within each sector or industry, where the factors are weighted according to the sector.

The internet of things

Is the next frontier, where semi- intelligent appliances communicate directly with each other and with the internet, and make autonomous decisions

Largest social disadvantage of automation?

It displaces workers due to job replacement

Carbon footprinting?

Measures carbon emissions and intensity associated with companies in a portfolio

What is Mercer's ESG rating approach?

it will rate the ESG capabilities at a fund strategy level

Scope 3 carbon pollution impact?

It makes up more than 50% of the world's carbon pollution impact.

When did the High-Level Expert Group (HLEG) on Sustainable Finance make its recommendations?

January 2018

What is the latest country to propose changes to its stewardship code?

Japan

Executive pay long terms goals include?

KPIs related to business and share price performance

Who is most likely to disclose more ESG information and have the resources to generate more favourable reporting?

Large companies and companies in developed markets, especially Europe

United Nations Framework Convention on Climate Change (UNFCCC)?

Launched at the Rio de Janeiro Earth Summit in 1992, aims to stabilise greenhouse gas (GHG) emissions to limit man-made climate change.

Bangladesh Investor initiative

Led by the Interfaith Center on Corporate Responsibility, an investor coalition comprising of 250 institutional investors representing over US$4.5t (3.4tn pounds) in AUM, was formed in May 2013 to urge a strong corporate response to Rana Plaza including participation in the Accord

Social megatrends?

Long-term social changes that affect governments, societies and economies permanently over a long period of time.

What has underpinned the rise of wind and solar power?

Long-term subsidy regimes (i.e. Germany Energiewende)

What companies have the largest market share in company-focused ESG ratings?

MSCI and Sustainalytics

SDG 11

Make cities and human settlements inclusive, safe, resilient and sustainable

When and by who was the Circular Economy Action Plan created?

March 2019 by the EU Commission

What is the most significant difference between monitoring dialogues and engagement?

Monitoring is one-way information seeking, engagement two-way dialogue.

What % of the world's population live in areas with levels of air pollution that exceed WHO guidelines?

More than 90%

Which platform has started to integrate ESG ratings within its offering?

Morningstar

When was the High-Level Expert Group (HLEG) on Sustainable Finance established?

October 2016

Other name for The Brundtland Report?

Our Common Future

Which Principle charges signatories with identifying and responding to market-wide and systemic risks?

Principle 4 (of the code)

Most controversial term of the Kodex (German code)?

Principle 7: 'The Supervisory Board Chair should be available -within reasonable limits - to discuss Supervisory Board-related issues with investors

Which 5 Principles cover structural issues within the investment institution such as governance, culture and conflicts?

Principles 1 to 3 and 5-6 (of the code)

What was the landmark agreement reached to mobilise a global response to the threat of climate change?

Paris Agreement (2015)

Who are the ultimate Pension Fund Beneficiaries?

Pension Fund Members

Which 2 Principles integrate ESG factors into the investment process and include an effective oversight of service providers.

Principles 7 and 8 (of the code)

The intended outcome of these principles is to show substantive change at companies as a result of the engagement activity?

Principles 9 to 12 (of the code)

Correlation between severe weather events and claims for ensurers to deal with?

Positive - an increased frequency and severity of major weather events means a higher number of more costly claims for insurers to deal with

SDG 16

Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

SDG 15

Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

EU taxonomy?

Provides a classification system to determine whether an economic activity is environmentally sustainable

Natural Capital Protocol (NCP)?

Provides guidance for the apparel, food and beverage, and forest products sectors − Applied to the following business processes - risk mitigation, sourcing, supply chain management, and product design

Global Reporting Initiative (GRI)

Publishes the GRI Standards, which provide guidance on disclosure across environmental, social and economic factors for all stakeholders, including investors, whereas the other major frameworks are primarily investor focused.

What is the most effective methods of tackling climate change - 'polluter pays principle'?

Putting a price on carbon emissions

SDG 4

Quality education: ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

Describing ESG performance attribution at a portfolio level requires :

Quantifying ESG as a factor or risk premia in its own right

What approach will continue to represent the prevailing means to approximate ESG risk in a portfolio?

Quantitative ESG scores and risk measures

Qualitative analysts and portfolio managers seek to integrate their qualitative investment opinion by incorporating:

Quantitative adjustments to financial models and valuations

Shareholder Engagement is complementary to which other type of Investment?

Responsible investment

According to the GSIA Market Review, which type of investor has growing shares in sustainable investing assets?

Retail investors

Which group is increasingly interested in ESG investing?

Retail investors - Millenials

What was one of the earliest articles to provide a detailed academic analysis of engagement impact?

Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund

Sustainability Accounting Standards Board (SASB)

SASB has created standards that are focused on the key material sustainability issues which affect 70-plus industry categories.

'Urgent action to combat climate change and its impacts' is listed as which SDG?

SDG 13

Scope 1 of carbon footprinting?

Scope 1 of the GHG Protocol cover direct emissions sources, i.e. fuel combustion, company vehicles, and fugitive emissions.

For which type of ESG portfolios is data a particular challenge?

Screened portfolios

Red flag indicators?

Securities with high ESG risk are flagged and investigated further or excluded

Strategy used in Social Investment?

Social impact bonds

Materiality assessment?

Some ESG issues might be material for companies in a specific industry (e.g. water stress can disrupt the operations of mining or beverages companies, which rely heavily on clean water in their production processes), but not for other sectors (e.g. water stress has little impact on media or financial companies).

What is the 'Tilting' challenge?

Some institutional investors feel that 'Tilting' the portfolio towards desired ESG characteristics conflicts with their obligation to invest prudently: - Straying from established market benchmarks will lead to increases the tracking error

Sustainability-linked Loan Principles (SLLP) - launched in 2019?

Some of these loans have no specific green purpose, but the borrower is incentivised to drive ESG or SDG improvement by a margin ratchet linked to KPIs

SDG 17

Strengthen the means of implementation and revitalize the global partnership for sustainable development

Quantitative investing is also know as?

Systematic investing

What event initiated the stewardship code's development?

The 2008 financial crisis.

What led to the Rio de Janeiro Earth Summit (1992)?

The Brundtland Report

What led to the creation of the UN Commission on Sustainable Development?

The Rio de Janeiro Earth Summit of 1992

Who issued the first blue bond in 2018?

The Seychelles and the World Bank jointly

Who issued the first social bond in 2015?

The Spanish Instituto de Credito

What is the most influential international framework for disclosure of climate change risks and opportunities affecting companies and financial institutions.?

The TCFD

Many ESG focused sovereign debt investors begin by building and integrating an ESG framework based on :

The World Bank's world governance indicators

"Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund"?

The article looked at the early years of the Hermes Focus Fund business (which was launched in late 1998) and considered the first 41 investments by the fund. It studied the internal records of Focus Fund team activities.

key challenges of best-in class or positive alignment strategies?

The diversity of ESG ratings methodologies and lack of ratings convergence

How can you best describe the impact on the investment universe if integration is applied instead of exclusion?

The investment universe will be larger.

Findings of "Returns to shareholder activism: evidence from a clinical study of the Hermes UK Focus Fund"?

The majority of stated objectives were achieved, with a 65% success rate overall, with greatest success in restructuring and financial policies, and slightly less so with regard to board change. The lowest success rate was found in areas where shareholder engagement occurs more frequently, with only 25% of the remuneration policy changes sought achieved and only 44% of the sought improvements to investor relations. At the time, the overall performance of the fund was 4.9% net of fees a year in excess of the FTSE All- Share Performance, 90% of this excess return being estimated as due to activist outcomes.

What are the origins of the term 'stewardship'?

The steward left in charge of an absentee landlord's estate.

Automation

The technology by which a process or procedure is performed with minimal human assistance

History of the term 'Steward'?

The word 'steward' is derived from two Old English words ('stig' and 'weard') describing a guardian of a home - to protect the owner's assets.

Regarding the challenges to ESG integration at the individual security level:

There is widespread disagreement about what an ESG factor represents

At what point are Best Practices developed within an issues-based approach to engagement?

These may be developed in advance of the first engagement dialogues but more usually come out of the engagement process with those companies that are deemed to have leading practices.

In what sense are ESG considerations non-financial?

They are difficult to value precisely and difficult to time.

What are Nationally determined contributions (NDCs)?

They embody efforts by each country to reduce national emissions

What do the stewardship codes promote?

They encourage institutions to take stewardship responsibilities seriously.

Climate benchmarks' greenhouse gas intensity?

They start at -30% and -50% greenhouse gas intensity compared with the investable universe

Where a positive ESG factor generates positive Alpha, valid strategies include:

Tilting the portfolio such that exposures with positive ESG indicators are overweighted versus exposures with weak indicators; construct an ESG momentum portfolio by overweighting stocks with improving ESG scores; go long stocks with high ESG scores and short stocks with low ESG scores.

What climate-related risk poses financial and reputational risk to organisations?

Transition risk

Who proposed the development of the stewardship codes?

UK's Financial Reporting Council (FRC)

What is the largest corporate sustainability initiative in the world?

UNGC

Dual class shares

When one class of a firm's shares has superior voting rights over the other class

SDG 2

Zero Hunger- End hunger, achieve food security and improved nutrition and promote sustainable agriculture

What approach does Morningstar take to asses companies on ESG?

a 'holdings-based approach' - a weighted average of portfolio companies' ESG scores; usually backward looking

The Corporate Reporting Dialogue?

a collective effort among standard setters to try to establish a consistent approach/requirement in respect of corporate reporting in order to align metrics and frameworks for corporate reporting purposes to TCFD recommendations.

What is driving environmental growth opportunities?

a combination of policy and regulation, technology advances, and falling costs of renewable energy

The TCFD

a framework for companies and financial institutions to provide better information to support investors, lenders, insurers to identify, build and quantify climate related risks and opportunities into their decisions

McKinsey article from October 2017 provides:

a framework for considering how to develop a policy and philosophy, and then how it can practically be implemented.

climate change mitigation?

a human intervention that involves reducing the sources of greenhouse gas emissions or slowing down the process or enhancing the 'sinks' that store these gases, such as forests, oceans and soil

What is a common criticism of ESG screening?

its reductive approach (its quantitative measure does not consider softer forms of ESG, such as stewardship and engagement activities)

Principles for Responsible Banking (PRB)

launched with more than 130 banks collectively holding USD47tn (GBP37tn) in assets, or one-third of the global banking sector, on 22 September 2019.

Financial Stability Board (FSB) ?

an international body that monitors and makes recommendations about the global financial system. •

Global Sustainable Investment Alliance (GSIA)

an international collaboration of membership-based sustainable investment organisations. It is a forum itself for advancing ESG investing across all regions and asset classes.

Climate Disclosure Standards Board (CDSB)

an international consortium of business and environmental NGOs with the mission to create the enabling conditions for material climate change and natural capital information to be integrated into mainstream reporting.

Principles for Responsible Investment (PRI) is comprised of?

an international network of investors - signatories

Direct impact between natural resource and business (GRI)?

an organisation's activities directly affect biodiversity

UNFCCC hosts what meetings?

annual Conferences of the Parties (COP) meetings

How frequently are investment firms that are signatories to the PRI required to submit reports on their stewardship activities?

annually

International Labour Standards's aim?

at promoting opportunities for women and men to obtain decent and productive work, in terms of freedom, equity, security and dignity, and are included in the fundamental conventions of the International Labour Organization (ILO)

which social megatrends are important to consider within the investment analysis?

automation, globalisation, and longevity

primary ESG driver for a general insurer?

awareness of financial impacts of climate change

product liability

legal responsibility imposed on a business for the manufacturing or selling of defective goods

How do Asset Managers differentiate themselves?

by investing in ESG-related resources - i.e. using data science to produce inhouse scoring systems and dashboards

Which of the following statements applies to the Sustainalytics ESG risk rating methodology? (a) It measures the extent of a company's managed ESG risks. (b) It measures the extent of a company's disclosed ESG risks. (c) It measures the extent of a company's unmanaged ESG risks. (d) It measures the extent of a company's undisclosed ESG risks.

c) It measures the extent of a company's unmanaged ESG risks.

For mutual fund investors, voting often gets more attention in client assessments because the data points on voting are clearer. Which of the following are factors that they may wish to address?

i By what process does the manager reach their decisions. ii How the manager voted on controversial matters iii How the fund manager voted in general.

According to the PLSA, how is the investment philosophy shaped?

is often shaped by the overall purpose of the organisation, set by its founding documents.

Engagement

is one aspect of good stewardship; it is the individual interventions in specific assets to preserve and/or enhance value. In modern investment terms, this is the dialogue with the management and boards of investee companies and other assets.

What is the Cadbury Committee's core theme?

is that no individual should have 'unfettered powers of decision' (i.e. role of Chair and CEO should not be combined)

One of the least developed areas in ESG integration:

is the degree and means to which it can inform and shape the strategic asset allocation decision-making process

The most common criticisms of ESG investing?

is the difficulty for investors to correctly identify, and appropriately weigh, ESG factors in investment selection.

What is the key concern active shareholders have about a company's strategy?

capital allocation

What is the most important part in the transition to a decarbonised economy?

carbon pricing

Supply chain sustainability?

is the management of ESG impacts and practices throughout the lifecycles of goods and services

active ownership

is the use of the rights and position of ownership to influence the activities or behaviour of investee companies

OECD Guidelines for MNEs

comprehensive set of government-backed recommendations on responsible business conduct

Which principle contained within the UK Stewardship Code is often omitted in the stewardship codes of other countries?

conflicts of interest

Which principle, more typical in regulatory codes, is frequently neglected in codes developed by investor groups?

conflicts of interest

'Active ownership' article?

considered only US activity by the fund manager, it covered more than 2,000 engagements, involving over 600 investee companies, and had an overall success rate of 18%.

What drove the formalisation of corporate governance and the development codes?

corporate failures and scandals

the investor's interaction with corporate debt issuers is most commonly with?

corporate treasury

Scope 3 of carbon footprinting?

cover all indirect emissions, including from suppliers and consumers - Scope 3 would be the ideal way in which ESG data should be disclosed

the stewardship interaction with sovereign debt issuers?

is very limited

How much has the issuance of Green Bonds risen by?

issuance rising from $40bn 2014 to $160bn 2018

How do Sustainalytics define materiality within the ESG risk rating?

issues that may potentially have an impact on the economic value of a company

Why is the relationship between businesses and natural resources increasingly important?

due to the loss of biodiversity and access to natural resources being less secure

co-determination?

employee representation on corporate boards of directors

The alternatives to building specialist stewardship resource internally:

outsourcing and collective action.

what was the second largest asset class allocation in 2016?

public equities (33%)

Investees?

represents entities in which investments can be made

Green securitisation

represents the mutualisation of illiquid, green assets or a series of assets into a security

bottom of the pyramid (BOP)

represents the poorest two-thirds of the economic human pyramid. market-based model to alleviate poverty whilst providing growth and profits for businesses that serve these communities.

primary ESG driver for a sovereign wealth fund?

reputational risk

What is the biggest challenge for asset owners with funding constraints?

resource

Physical risks?

result from extreme weather events, either acute or chronic risks from longer-term shifts in climate patterns (i.e. high temperatures)

Transition risks?

result of changes in climate and energy policies, a shift to low-carbon technologies and liability issues

what industry limits employee's right to form a union?

retail industry

In applying social factors to the analysis of investments, which of the following steps would the analyst undertake?

risk assessment, quality of management, ratio analysis and financial modelling

What is the $$ contribution of ocean-based industries to global gross value added?

roughly €1.3 trillion - according to OECD

What technique in integrating ESG analysis is both qualitative and quantitative?

scorecards

What is the oldest and simplest approach to ESG investing?

screening

most common ESG approach used with sovereign debt?

screening (or an ESG tilt in the investment process rather than engagement)

What supply chain tier is forced labour under?

second tier or beyond

What type of securities are added to the watch list?

securities with high ESG risk added to a watch list for monitoring, or securities with high ESG opportunities which are put on a watch list for possible investment

Types of ESG score and ratings providers?

▶ 'Traditional' ESG data and research providers ▶ 'Non-traditional' ESG data and research providers ▶ AI or algorithm-driven ESG research

How is ESG integration best defined?

the explicit and systematic inclusion of ESG factors into investment analysis and investment decisions

Pax World Fund?

the first ethical mutual fund - that began the modern institutionalisation of ethical exclusions during the Vietnam War in 1971

What is the biggest change in the 2020 Code revisions?

the increased ambition for practical delivery by signatories

What should be taken into account when voting on the reappointment of the auditor, its pay and the reappointment of members of the audit committee?

the independence or effectiveness of the audit process

the International Integrated Reporting Council (IIRC) framework describes capital as?

▶ Financial capital ▶ Manufactured capital ▶ Intellectual capital ▶ Human capital ▶ Social and relationship capital ▶ Natural capital

How does Generation Investment Management describe a 'sustainable company'?

(1) one whose current earnings do not borrow from its future earnings; (2) one whose sustainability practices, products and services drive revenues, profitability and competitive positioning; and (3) one that provides goods and services consistent with a low-carbon, prosperous, equitable, healthy and safe society.

The largest and second largest asset classes, which implement responsible investment, are respectively... (a) ...public equities and fixed income. (b) ...passive equities and active equities. (c) ...fixed income and infrastructure. (d) ...hedge funds and commodities

(a) ...public equities and fixed income

Asset owner will often add responsible investment clauses in their contracts with their investment managers. Clauses based on which one of the following is the most common? (a) Acting in accordance with the asset owner's responsible investment policy (b) Voting requirements (c) Reporting on the impact of ESG characteristics of the portfolio (d) Reporting on the impact of ESG issues on the financial performance of the portfolio

(a) Acting in accordance with the asset owner's responsible investment policy

According to the OECD Centre for Opportunity and Equality (COPE) 2015 report, the average income of the richest 10% of the global population is how many times that of the poorest 10% across the OECD? (a) Almost 9 times. (b) Almost 14 times. (c) Almost 20 times. (d) Almost 30 times.

(a) Almost 9 times.

It is common for the information used for selecting ESG factors to come from the companies themselves. This complicates the ability to: (a) Analyse, assess and validate this information. (b) Believe, trust and rely on this information. (c) Disect, differentiate and describe this information. (d) Verify, compare and standardise this information.

(a) Analyse, assess and validate this information.

Which is the area of ethical corporate behaviour that is most likely to be subject to extraterritorial legislation? (a) Anti-corruption. (b) Employee health and safety. (c) Supplier payments. (d) Lobbying activities.

(a) Anti-corruption.

Which statement outlines the distinction between the auditor's role in relation to the financial statements and to the rest of the annual report and accounts? (a) Assurance on the financial statements, report on inconsistencies in narrative reporting. (b) Guarantee accuracy of the financial statements, report on inconsistencies in narrative reporting. (c) Assurance on the financial statements, and on narrative reporting. (d) Assurance on the financial statements and on numbers within narrative reporting

(a) Assurance on the financial statements, report on inconsistencies in narrative reporting.

Which of the following three elements must be included in the new enhanced auditor reports? (a) Audit scope, materiality, key audit matters. (b) Audit depth, substance, crucial audit matters. (c) Audit range, non-materiality, focused audit matters. (d) Audit breadth, quality, final audit matters.

(a) Audit scope, materiality, key audit matters.

Institutional investors aim to integrate ESG factors into investment decisions. Which of the following is not a typical method by which this may be achieved? (a) By engaging in public policy consultations on ESG issues. (b) By using ESG criteria as positive identifiers of investment opportunity. (c) By adjusting valuation models to reflect risk and cost assessments. (d) Through a threshold approach, whereby only certain companies meet necessary criteria, or by the inverse of this whereby some companies are screened out.

(a) By engaging in public policy consultations on ESG issues.

In what way can an investment consultant be a barrier to the growth of the ESG investing market? (a) By not considering ESG characteristics of the funds in their screening. (b) By setting poor standards for ESG fund labels. (c) By short-listing only ESG funds. (d) By helping trustees understand their fiduciary duties

(a) By not considering ESG characteristics of the funds in their screening.

What behavioural step needs to be taken to reinforce the length of the client mandate in order for fund manager time horizons to lengthen as intended? (a) Clients assess investment performance less frequently and predictably. (b) Clients assess investment performance more frequently and unpredictably. (c) Clients raise questions about the ESG characteristics of each company newly purchased by a fund manager. (d) Clients raise questions about the ESG characteristics of each company that is sold by a fund manager

(a) Clients assess investment performance less frequently and predictably.

What is the major constraint on collective engagement approaches? (a) Concert party rules. (b) Client best interests. (c) Maintaining discretion over institutional shareholding. (d) Investors are never in contact with each other

(a) Concert party rules.

Which principle, more typical in regulatory codes, is frequently neglected in codes developed by investor groups? (a) Conflicts of interest. (b) Reporting and transparency. (c) Stock lending (or securities lending) policies. (d) Voting.

(a) Conflicts of interest.

When integrating ESG into the investment process at the portfolio level, which of the following may be considered during the risk management stage? (a) ESG exposures and limits. (b) ESG profile versus the benchmark. (c) Tactical asset allocation. (d) Portfolio scenario analysis.

(a) ESG exposures and limits.

Elements of ESG integration include: (a) ESG factor tilts. (b) Red flag indicators. (c) Company questionnaires and management interviews. (d) Watch lists

(a) ESG factor tilts.

The transition to a low carbon economy is expected to open up significant investment requirements. What would likely have the most financial risk for investors? (a) Early stage technology for hydro based transportation. (b) Energy efficient automobile factories. (c) Power infrastructure with proven renewable energy technology. (d) Upgrades to buildings to bring them to suitable standards.

(a) Early stage technology for hydro based transportation.

the areas typically covered by the top-level principles of a stewardship code?

(a) Engagement and escalation. (b) Voting. (c) Reporting and transparency.

Which of the following most accurately describes what activities would be permissible for US pension funds under the Employee Retirement Income Security Act (ERISA)? (a) Engaging to achieve environmental and governance goals. (b) Engaging to achieve social policy and governance goals. (c) Engaging to achieve environmental and social policy goals. (d) Engaging to achieve environmental, social policy and governance goals.

(a) Engaging to achieve environmental and governance goals.

In which of the following countries or regions do companies typically have unitary boards? (a) France. (b) Scandinavia. (c) Netherlands. (d) China.

(a) France.

What does the Access to Medicine Index analyse? (a) How pharmaceutical companies are addressing access to medicine in low- to middle-income countries. (b) How affordable medicines are in the major developed markets. (c) The percentage of employees covered under a health insurance scheme. (d) How much time it takes to access medical assistance in developing countries.

(a) How pharmaceutical companies are addressing access to medicine in low- to middle-income countries

Green Bond Principles? (a) International Capital Markets Association and represent a voluntary set of guidelines (b) Sustainable Account Standards Board and represent a voluntary set of guidelines (c) International Capital Markets Association and represent a mandatory set of guidelines (d) Sustainable Account Standards Board and represent a mandatory set of guidelines

(a) International Capital Markets Association and represent a voluntary set of guidelines

Why was the US Department of Labor's clarification of fiduciary duty in 2015 welcomed by the ESG investing industry? (a) It allowed plans to invest in generating societal benefits in addition to financial return, as long as they were deemed appropriate for the plan's investment objectives, return and risk. (b) It provided a standard for economically targeted investments (ETIs). (c) It specified that, as long as the expected rate of return was commensurate with the rates of return offered by alternative investments with similar risk characteristics, ETIs were compatible with fiduciary duty. (d) It incentivised pension funds subject to ERISA to invest in ETIs

(a) It allowed plans to invest in generating societal benefits in addition to financial return, as long as they were deemed appropriate for the plan's investment objectives, return and risk.

Corporate engagement and shareholder action are the most popular responsible investment strategy in which country or region? (a) Japan (b) Europe (c) USA (d) Canada

(a) Japan

Which of the following is not among the challenges limiting the development of ESG investing? (a) Lack of regulation and voluntary initiatives. (b) The availability of expertise and skilled individuals. (c) The quality of data, research and analysis. (d) Limited tools to assist with portfolio construction and management

(a) Lack of regulation and voluntary initiatives

Which of the following statements applies to the MSCI ESG risk rating methodology? (a) MSCI assess material risks and opportunities for each industry through a quantitative model. (b) MSCI assess material risks and opportunities for each industry through a qualitative model. (c) MSCI assess material risks and opportunities for each industry through an algorithmic model. (d) MSCI does not use a model in its risk rating methodology.

(a) MSCI assess material risks and opportunities for each industry through a quantitative model.

What may be described as a strategic asset allocation method resulting in the construction of an efficient frontier that represents a mix of assets that produces the minimum standard deviation (as a proxy for risk) for the maximum level of expected return, being based on defined asset class buckets and long-term expected returns, risks and correlations? (a) Mean-variance optimisation (MVO). (b) Total portfolio analysis (TPA). (c) Dynamic asset allocation (DAA). (d) Factor risk allocation.

(a) Mean-variance optimisation (MVO).

Which of the following ESG service providers offer ESG ratings for mutual funds and fund managers? (a) Morningstar Ratings and Real Impact Tracker. (b) Bloomberg and Morningstar Ratings. (c) Bloomberg and Real Impact Tracker. (d) Bloomberg and Sustainalytics ESG Ratings.

(a) Morningstar Ratings and Real Impact Tracker.

Which of the following best describes the role of asset owners in the stewardship activities of their service providers? (a) Overseeing, challenging and assessing. (b) Supervising, orchestrating and incentivising. (c) Controlling, motivating and manipulating. (d) Directing, complying and stewarding

(a) Overseeing, challenging and assessing.

Which Principle for Responsible Investing (PRI) expects signatories to incorporate ESG into their investment approach? (a) Principle 1. (b) Principle 2. (c) Principle 3. (d) Principle 4.

(a) Principle 1.

Which of the following statements is true regarding the Japanese corporate governance code? (a) Provisions discourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards through having at least one independent non-executive director. (b) Provisions encourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards through having at least one independent non-executive director. (c) Provisions discourage the maintenance of cross-shareholdings and require decreasing independence on Japanese boards through having at least one independent executive director. (d) Provisions encourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards through having at least one independent executive director.

(a) Provisions discourage the maintenance of cross-shareholdings and require increasing independence on Japanese boards through having at least one independent non-executive director to be in place on every board.

The Index Industry Association (IIA) estimate what proportion of total indices are ESG related? (a) Roughly 1% of indices are ESG indices. (b) Roughly 5% of indices are ESG indices. (c) Roughly 10% of indices are ESG indices. (d) Roughly 25% of indices are ESG indices.

(a) Roughly 1% of indices are ESG indices.

Which of the following is true? (a) Sovereign debt is susceptible to distortion effects based on ESG ratings. (b) ESG is a standalone component within the entire investment process. (c) It is well understood that the long-term returns on equities outweigh the short-term risks associated with the adoption of ESG by companies as well as funds. (d) Proprietary ESG data is often a real differentiator for investment firms

(a) Sovereign debt is susceptible to distortion effects based on ESG ratings.

What is the concept of the triple bottom line (TBL) in the context of corporate accounting? (a) TBL attempts to clearly communicate to investors and stakeholders the value created by companies when social and environmental issues were considered systematically in their business operations. (b) TBL attempts to internalise within the accounts of the company all costs that have historically been externalised. (c) TBL attempts to improve reporting practices and enhance the quality of corporate governance practices through the systematic consideration of social and environmental issues. (d) TBL attempts to enhance the quality of financial reporting through improvements in auditing standards and practices and enhancements to corporate governance practices.

(a) TBL attempts to clearly communicate to investors and stakeholders the value created by companies when social and environmental issues were considered systematically in their business operations.

ESG data providers may use several types of assessment, which of the following is not one of those assessment types? (a) Technical. (b) Operational. (c) Disclosure-based. (d) Algorithmic and news-based.

(a) Technical.

What post-financial crisis report led to the creation of the first stewardship code? (a) The Walker Report. (b) The Oban Report. (c) The Kay Report. (d) The Arthur Report

(a) The Walker Report.

Which of the following statements regarding the agency problem is false? (a) The agency challenge is magnified at smaller corporations. (b) Corporate governance attempts to ensure that there is greater alignment between the interests of the agents with the owners through appropriate chains of accountability. (c) The agency problem arises in that the interests of the managers may not always be wholly aligned with the interests of the owners of the business. (d) The agency problem has been identified as an inevitable consequence of the separation of ownership and control.

(a) The agency challenge is magnified at smaller corporations.

For governance matters, who is the right company representative to work with? (a) The chair. (b) The board. (c) The non-executive directors. (d) The CEO.

(a) The chair.

What is the most probable reason why an investor would engage with policy makers on ESG? (a) The consideration of ESG-related matters can contribute to the proper functioning of the financial markets. (b) Asset owners need regulators to level the playing field in order to be able to increase their percentage of ESG investments. (c) Policy consultations on ESG investing are mandatory in order to ensure that all perspectives are taken into consideration. (d) ESG investors require a sound and stable financial system in order to make alpha from ESG megatrends.

(a) The consideration of ESG-related matters can contribute to the proper functioning of the financial markets

Why is ESG investing a concern for investors who are cautious of high tracking error? (a) The perception that exclusion resulting from ESG will distort the weight of sectors and countries in the portfolio in comparison to the benchmark. (b) The understanding that exclusion results in fewer available securities to invest in and thus, a more limited investment universe. (c) The belief that high-performing stocks may be excluded due to negative ESG characteristics, resulting in underperformance in comparison to the benchmark. (d) The awareness that ESG investing requires a redefinition of active risk

(a) The perception that exclusion resulting from ESG will distort the weight of sectors and countries in the portfolio in comparison to the benchmark.

What does the first pillar of the Green Loan Principles (GLP) established by the UK and Asia Pacific Loan Market Association state? (a) There must be a clear green use of loan proceeds. (b) Lenders must have above average green ratings. (c) Loan funds must be generated from green activities. (d) Lenders must charge average market interest rates

(a) There must be a clear green use of loan proceeds.

The Task Force on Climate-related Financial Disclosures provided a set of recommendations and a framework to help companies and financial institutions to provide better information to support investors, lenders, insurers and other financial stakeholders. Which of the following is not a core element of their climate-related disclosures? (a) Metrics and targets. (b) Society. (c) Governance. (d) Risk management.

(b) Society.

The EU's High Level Experts Group (HLEG) on sustainable finance has made a number of key recommendations which are designed to encourage investments that fully integrate ESG. Which of the following is not one of those recommendations? (a) To introduce common tax treatments to ensure market consistency and clarity, starting with climate change. (b) To enlarge the role and capabilities of the three European supervisory authorities to promote sustainable finance. (c) To develop official European sustainable finance standards, starting with one on green bonds. (d) To clarify investor duties to extend time horizons and bring greater focus on ESG factors.

(a) To introduce common tax treatments to ensure market consistency and clarity, starting with climate change.

When revealed, company ESG disclosure might be: (a) Unaudited, not complete or not comparable. (b) Unverifiable, untrustworthy or unsatisfactory. (c) Overly simplistic, nuanced or irrelevant. (d) Too complex, immaterial or false.

(a) Unaudited, not complete or not comparable.

Which of the following is an active quantitative approach to embed ESG within a portfolio? (a) Weighting ESG as an idiosyncratic factor in a multi-factor stock selection algorithm. (b) Consideration of ESG scoring and relevant metrics in security-specific investment decisions. (c) Minimising tracking error against benchmark indices. (d) Solving the mean-variance optimisation problem to arrive at the best sectors for asset allocation.

(a) Weighting ESG as an idiosyncratic factor in a multi-factor stock selection algorithm.

ESG based labels are typical based upon which of the following: I General - ESG as a whole II Thematic - Environment III Thematic - Social IV Thematic - Governance (a) i & ii (b) ii, iii & iv (c) i, ii & iii (d) ii & iii

(a) i & ii

When auditing a company, the auditors may face a number of challenges, particularly in the context of fraud prevention or detection. Which of the following would be considered to be amongst those fraud prevention or detection challenges? I Managers may provide misleading explanations or representations to the auditors. II Auditors rely heavily on the accuracy of a company's accounting records and systems. III Audits are intended to prevent or detect any errors or misstatements, however auditor rotation limits this ability. IV Auditors may provide non-audit work, reducing their independence. (a) i and ii only. (b) iii and iv only. (c) i, ii and iii only. (d) i, ii, iii and iv.

(a) i and ii only.

Which of the following are genuine methods used by fund managers to integrate governance factors into their investment decision-making? I Quality of management. II Risk assessment. III Profit engagement. (a) i and ii only. (b) i and iii only. (c) ii and iii only. (d) i, ii and iii.

(a) i and ii only.

Which of the following are covered by Scope 1 of the GHG Protocol standards?i. Fuel combustion.ii. Waste disposal.iii. Company vehicles.iv. Purchased electricity, heat and steam. (a) i and iii only. (b) ii and iv only. (c) i, ii and iv only. (d) i, ii, iii and iv.

(a) i and iii only.

An organisation is looking to assess and mitigate environmental risk, at what level will those risks need to be analysed? i. Asset level.ii. Portfolio level. iii. Systemic level. iv. Universal level. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv.

(a) i, ii and iii only.

Elements of ESG analysis include which of the following? i Red flag indicators.ii Company questionnaires and management interviews.iii Checks with outside experts.iv Adjusting forecast financials. (a) i, ii and iii only. (b) i, iii and iv only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(a) i, ii and iii only.

Why is it essential to undertake a materiality assessment of social issues? i. Social trends could have an effect on the risks and opportunities in a portfolio. ii. There are many social factors that investors may wish to take into account. iii. Social factors do not impact equally on each county, sector or company. iv. Social factors are always most significant at the company level. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) ii, iii and iv only.

(a) i, ii and iii only.

The Organisation for Economic Co-operation and Development (OECD) Environmental Outlook to 2050 projects a further 10% loss in biodiversity by 2050. Biodiversity loss is already causing severe problems for land use and marine industries, such as the fishing sector. Which of the sectors below also have the potential risk exposure to biodiversity loss?i. Agriculture. ii. Extractive Industries. iii. Forestry iv. Tourism. (a) i, ii and iii, and iv (b) i, ii and iv only. (c) i, iii and iv only. (d) ii, iii and iv only.

(a) i, ii and iii, and iv

How many people are currently estimated to be in forced labour globally? (a) 10 million. (b) 25 million. (c) 50 million. (d) 100 million.

(b) 25 million.

The global share between instutional and retail investors in sustainable investments, based on GSIA data from 2018 was: (a) 89% institutional and 11% retail (b) 75% institutional and 25% retail (c) 64% institutional and 36% retail (d) 51% institutional and 49% retail

(b) 75% institutional and 25% retail

Which of the following best describes the Sullivan Principles? (a) The principle that ESG issues are consistent with fiduciary duty because of their materiality to businesses. (b) A code of conduct guiding ethical investment in South Africa. (c) An initiative to find ways to integrate ESG into capital markets. (d) The principles underlying the leading investor initiative relevant to ESG.

(b) A code of conduct guiding ethical investment in South Africa.

What is the timescale over which long-term performance related pay should be released according to the Greenbury report? (a) A maximum of three years. (b) A minimum of three years. (c) A maximum of five years. (d) A minimum of five years.

(b) A minimum of three years.

Which of the following describes the typical board structure adopted by Japanese companies? (a) A unitary board with a balance of executive and non-executive directors. (b) A unitary board dominated by executive directors. (c) A unitary board dominated by non-executive directors. (d) A two-tier board.

(b) A unitary board dominated by executive directors.

Which of the following is an investor coalition covering ESG and environmental issues? (a) ACGA. (b) AIGCC. (c) PLSA. (d) AMEC.

(b) AIGCC.

Qualitative ESG analysis is likely to be used in investment processes that are based on: (a) Company-specific research. (b) Fundamental analysis. (c) Stock-picking. (d) All of the above

(d) All of the above

Which of the following statements is true regarding algorithmic approaches to integrating ESG analysis into investment decisions? (a) Algorithmic approaches typically gather data that is similar to fundamental investors but tends to be over smaller datasets. (b) Algorithmic approaches use ESG data to adjust company or sector weights after parsing the ESG data through rules-based formulae. (c) Algorithmic approaches rely entirely on internal data and research. (d) Algorithmic approaches use ESG data to adjust company or sector weights after parsing the ESG data through algebraic formulae.

(b) Algorithmic approaches use ESG data to adjust company or sector weights after parsing the ESG data through rules-based formulae.

Adjusting valuation models or multiples for ESG data would be categorised as which of the following? (a) An element of ESG analysis only. (b) An element of ESG integration only. (c) An element of both ESG analysis and integration. (d) An element of ESG research only.

(b) An element of ESG integration only.

According to a November 2018 report by the Inter-governmental Panel on Climate Change (IPCC), human activities are estimated to have caused approximately what level of global warming above pre-industrial levels? (a) Approximately 0.5°C. (b) Approximately 1.0°C. (c) Approximately 1.5°C. (d) Approximately 2.0°C.

(b) Approximately 1.0°C.

It is estimated that deforestation and forest degradation account for approximately what percentage of the world's greenhouse gas emissions? (a) Approximately 5-10%. (b) Approximately 10-15%. (c) Approximately 15-20%. (d) Approximately 20-25%.

(b) Approximately 10-15%.

How would you describe the relative ease/difficulty that a mutual fund client has in assessing the manager's voting and engagement activities? (a) They are both equally easy. (b) Assessing voting is easier. (c) They are both equally difficult. (d) Assessing engagement is easier.

(b) Assessing voting is easier

When an individual buys a product their consumer protection is typically safeguarded in three ways, which of the following is not one of those ways? (a) By enforcing product safety. (b) By enforcing professional indemnity. (c) By distributing consumer-related information. (d) By preventing deceptive marketing

(b) By enforcing professional indemnity.

In what way can stock exchanges support the advancement of ESG investing? (a) By rating the ESG characteristics of a listed security. (b) By increasing the requirement on the disclosure of ESG data by listed securities. (c) By structuring and issuing green bonds. (d) By integrating ESG considerations within its voting recommendations

(b) By increasing the requirement on the disclosure of ESG data by listed securities.

Which of the following statements regarding carbon footprinting is incorrect? (a) Carbon footprinting is one of the most common approaches used by companies. (b) Carbon footprinting cannot be applied on a portfolio basis. (c) Carbon footprinting applies the international accounting tool of the GHG (Greenhouse Gas) Protocol standards. (d) Carbon footprinting helps identify priority areas and actions for reducing emissions and tracking progress in making those reductions.

(b) Carbon footprinting cannot be applied on a portfolio basis.

Which of the following is not an outcome of short-termism? (a) Disproportionate focus on quarterly returns. (b) Companies are more willing to take on projects, such as research and development. (c) 'Patient capital' is less likely to develop. (d) Less investment in long-term assets, such as infrastructure

(b) Companies are more willing to take on projects, such as research and development.

Which of the following describes the principles of a circular economy? (a) Extracting natural resources for products which are then used and eventually discarded. (b) Designing out waste and pollution, keeping materials in use, regenerating natural systems. (c) Ensuring that all products are returned to the manufacturers to reuse component parts. (d) Producing goods only for consumption by customers in the manufacturer's domestic market

(b) Designing out waste and pollution, keeping materials in use, regenerating natural systems.

As ESG assessors, the aim of investment consultants is to form a view on the: (a) Manager's style and assess its compatibility with its ESG approach. (b) ESG integration practices and processes of different fund managers and strategies. (c) Manager's asset allocation approach and how it integrates ESG. (d) Manager's approach to governance and stewardship.

(b) ESG integration practices and processes of different fund managers and strategies.

Which of the following statements is true regarding ESG mapping and the examination of a portfolio's ESG risk? (a) ESG mapping is based on a quantifiable historical assessment. (b) ESG mapping identifies specific key E, S, and G exposures. (c) ESG mapping is a precise science that shows the exact ESG risks faced. (d) ESG mapping shows the unequivocal ESG risk irrespective of the analyst concerned.

(b) ESG mapping identifies specific key E, S, and G exposures

Which one of the following statements is true regarding ESG reporting by managers? (a) ESG reporting by investment managers is limited but typically comprehensive. (b) ESG reporting by investment managers is widespread and typically comprehensive. (c) ESG reporting by investment managers is widespread but typically restricted. (d) ESG reporting by investment managers is limited and typically restricted.

(b) ESG reporting by investment managers is widespread and typically comprehensive.

For societies, the primary impact of urbanisation falls into one of three categories. What are those three categories? (a) Economic, Environmental, Ethical. (b) Economic, Environmental, Social. (c) Ethical, Environmental, Social. (d) Economic, Ethical, Social.

(b) Economic, Environmental, Social.

Which of the following is not one of the objectives that the Investor Forum hopes to achieve through engagement? (a) Appropriate risk management by companies. (b) Efficient capital allocation by regulators. (c) Delivery of corporate purpose and culture. (d) Changed company behaviours.

(b) Efficient capital allocation by regulators.

The Employee Retirement Income Security Act (ERISA) expects that US pension funds should do which of the following? (a) Engage with companies but not vote at general meetings. (b) Engage with companies and vote at general meetings. (c) Avoid engaging with companies but vote at general meetings. (d) Avoid engaging with companies and not vote at general meetings.

(b) Engage with companies and vote at general meetings.

Central bank support for the Task Force on Climate-related Financial Disclosures (TCFD) initiative is intended to have what effect? (a) Encourage financial institutions to avoid investment in companies with high carbon emissions. (b) Enhance the approaches taken by financial institutions to manage financial risks from climate change. (c) Discourage financial institutions from providing finance to companies with poor labour rights records. (d) Encourage financial institutions to support quantitative easing.

(b) Enhance the approaches taken by financial institutions to manage financial risks from climate change.

Which of the following scandals did NOT help set the context for the creation of the first corporate governance code? (a) Polly Peck. (b) Enron. (c) Mirror Group Newspapers. (d) Caparo.

(b) Enron.

What is the connection between agency, alignment and executive pay within corporate governance? (a) Executive remuneration should be aligned to the executive's role as agent for the board. (b) Executive remuneration should be aligned to the executive's role as agent for the shareholders. (c) Executive pay structures should align the interests of management with those of other board members. (d) Executive pay structures should align the interests of management with those of other stakeholders.

(b) Executive remuneration should be aligned to the executive's role as agent for the shareholders.

Which of the following is a primary ESG driver for a defined benefit pension scheme? (a) Reputational risk. (b) Fiduciary duty. (c) Personal ethics. (d) Founding aims

(b) Fiduciary duty.

The Natural Capital Protocol currently provides guidance for the following sectors: (a) Construction materials. (b) Food and beverage. (c) Household durables. (d) Mining

(b) Food and beverage.

Which of the following statements is true regarding the issue of governance in private equity investments in comparison to public equity investments? (a) Governance is not an issue in private equity investments. (b) Governance is just as much an issue in private equity investments. (c) Governance is a greater issue in private equity investments. (d) It is not possible to draw any conclusion regarding governance in private equity investments.

(b) Governance is just as much an issue in private equity investments.

Which of the following fixed income strategies demonstrates the lowest degree of ESG integration? (a) Unconstrained. (b) Government. (c) Buy and maintain. (d) High yield.

(b) Government.

Which matters does the EU Taxonomy address? (a) Green bonds and engagement. (b) Green bonds and low-carbon benchmarks. (c) Carbon disclosure and long-termism. (d) Climate risk and fiduciary duty

(b) Green bonds and low-carbon benchmarks.

What are the four broad groupings of issues covered by the UN Global Compact? (a) Environmental, social, governance and impact. (b) Human rights, labour, environment and anti-corruption. (c) Poverty, diversity, sustainability and transparency. (d) Education, development, fairness and independence.

(b) Human rights, labour, environment and anti-corruption

Signatories to the UN Global Compact (UNGC) agreed to adhere to 10 principles falling within four broad categories. What are the four broad categories? (a) Environmental, social, governance, impact. (b) Human rights, labour, environment, anti-corruption. (c) Human rights, environment, government, Labour. (d) Environmental, sustainable, government, independence

(b) Human rights, labour, environment, anti-corruption.

Regarding Scope 3 carbon pollution impact, which of the following statements are correct? (a) It makes up more than 20% of the world's carbon pollution impact. (b) It makes up more than 50% of the world's carbon pollution impact. (c) It makes up more than 70% of the world's carbon pollution impact. (d) It is immaterial in contributing to the world's carbon pollution

(b) It makes up more than 50% of the world's carbon pollution impact.

In relation to materiality assessment, which of the following is correct? (a) The materiality assessment is typically contained in the valuation stage. (b) Materiality is measured in terms of likelihood and magnitude of impact on a company's financial performance. (c) There is evidence that non-material factors impact financials, valuations and company business models. (d) Ethical or impact investors judge material factors affecting social, environmental and maximum financial returns

(b) Materiality is measured in terms of likelihood and magnitude of impact on a company's financial performance.

The circular economy is based on three principles. Which of the following is not one of those three principles? (a) Keep products and materials in use. (b) Minimize energy consumption. (c) Design out waste and pollution. (d) Regenerate natural systems.

(b) Minimize energy consumption.

Which of the following is a new area of focus in the UK Stewardship Code 2020? (a) Voting. (b) Outcomes. (c) Collaboration. (d) Conflicts.

(b) Outcomes.

What US legislation led to the creation of the Public Company Accounting Oversight Board (PCAOB)? (a) Glass-Steagall Act. (b) Sarbanes-Oxley Act. (c) Dodd-Frank Act. (d) Accountable Capitalism Act

(b) Sarbanes-Oxley Act.

In relation to shadow carbon pricing, which of the following is incorrect: (a) Shadow carbon pricing is used to understand the potential impact of external prices on the profitability of a project. (b) Shadow carbon pricing is used to reduce a business's carbon footprint. (c) Shadow carbon pricing is used to reveal hidden risks and to factor these into future valuations and estimates of capital expenditure. (d) Shadow carbon pricing is used to create a theoretical cost per tonne of carbon emissions by establishing a business's internal price on carbon

(b) Shadow carbon pricing is used to reduce a business's carbon footprint.

The Corporate Human Rights Benchmark provides a measure of corporate human rights performance utilising a number of measurement themes. Which of the following is not one of those themes? (a) Remedies and grievance mechanisms. (b) Shareholder rights and commitments. (c) Governance and policy commitments. (d) Transparency.

(b) Shareholder rights and commitments.

What are the 3 parts of the triple bottom line? (a) Ecological, Social, and Governance (b) Social, Environmental and Financial (c) Ecological, Governance and Financial (d) Social, Financial and Governance

(b) Social, Environmental and Financial

You, as a UK analyst, need to assign an environmental score to a company who says it is addressing carbon emissions but refuses to disclose exactly how. What action should you take? (a) Assume that they are not addressing the issue and score them accordingly. (b) Suggest that your firm join the Investor Forum and use collective action to encourage the company to improve its environmental disclosures. (c) Assume that they are addressing the issue and score them accordingly. (d) Examine the company's financial statements in order to establish the relevant information.

(b) Suggest that your firm join the Investor Forum and use collective action to encourage the company to improve its environmental disclosures.

Which of the following is considered to be a social topic that will impact on external stakeholder groups? (a) Labour standards. (b) Tax payments. (c) Employee diversity. (d) Gender ratio.

(b) Tax payments

In what year was the Universal Declaration of Human Rights (UDHR) proclaimed? (a) The UDHR was proclaimed in 1947. (b) The UDHR was proclaimed in 1948. (c) The UDHR was proclaimed in 1949. (d) The UDHR was proclaimed in 1950.

(b) The UDHR was proclaimed in 1948.

The US Department of Labor (DOL) addressed ESG within ERISA in the 1990s by establishing that economically targeted investments (ETIs), which generate societal benefits in addition to financial return, are compatible with ERISA's fiduciary obligations as long as their expected rate of return is commensurate with the rates of return offered by alternative investments, provided: with similar risk characteristics (a) The rate of return remains within one standard deviation of the return on the alternative investment (b) The alternative investment has similar risk characteristics (c) The alternative investment has a similar sharpe ratio (d) The alternative investment uses the same benchmark.

(b) The alternative investment has similar risk characteristics

Which of the following statement regarding auditors is correct? (a) The auditor makes an informal report to shareholders each year and is reappointed every five years in most countries at the AGM. (b) The auditor reports formally to shareholders each year and is reappointed annually in most countries at the AGM. (c) The auditor makes an informal report to shareholders each year and is reappointed annually in most countries at the AGM. (d) The auditor reports formally to shareholders each year and is reappointed every five years in most countries at the AGM.

(b) The auditor reports formally to shareholders each year and is reappointed annually in most countries at the AGM.

What is the anticipated impact of the Shareholder Rights Directive II, which came into effect in Europe during June 2019, likely to be on the number of stewardship codes? (a) The number of codes will decrease. (b) The number of codes will increase. (c) There will be no change to the number of codes. (d) It is difficult to tell.

(b) The number of codes will increase

Which of the following best describes how the MSCI arrive at their final letter rating from the scores they have established? (a) The range of scores for each industry is established annually by taking a rolling three-year average of the top and bottom scores among the MSCI ACWI Index constituents; the values are set at the 95th and 5th percentile. (b) The range of scores for each industry is established annually by taking a rolling three-year average of the top and bottom scores among the MSCI ACWI Index constituents; the values are set at the 97.5th and 2.5th percentile. (c) The range of scores for each industry is established annually by taking a rolling five-year average of the top and bottom scores among the MSCI ACWI Index constituents; the values are set at the 97.5th and 2.5th percentile. (d) The range of scores for each industry is established annually by taking a rolling five-year average of the top and bottom scores among the MSCI ACWI Index constituents; the values are set at the 95th and 5th percentile.

(b) The range of scores for each industry is established annually by taking a rolling three-year average of the top and bottom scores among the MSCI ACWI Index constituents; the values are set at the 97.5th and 2.5th percentile.

Historically, little regard has been given to ESG issues as they have been considered non-financial. In what respect may companies consider them non-financial? (a) They are not direct business costs and therefore they are non-financial. (b) The scale and timing of any impact is both uncertain and difficult to quantify. (c) They are issues that will never have any financial impact on a business. (d) They are issues for governments to handle, not companies.

(b) The scale and timing of any impact is both uncertain and difficult to quantify.

The financial performance of companies and funds against ESG metrics has been subject to various meta-data studies. A common theme within this studies would appear to be: (a) There is a positive correlation between ESG performance and corporate financial performance including share price for companies that consistantly translates into positive alpha for fund performance. (b) There is a positive correlation between ESG performance and corporate financial performance including share price for companies that doesn't consistantly translates into positive alpha for fund performance. (c) There is a positive correlation between ESG performance and corporate financial performance excluding share price for companies that doesn't consistantly translates into positive alpha for fund performance. (d) There is a positive correlation between ESG performance and corporate financial performance excluding share price for companies that consistantly translates into positive alpha for fund performance.

(b) There is a positive correlation between ESG performance and corporate financial performance including share price for companies that doesn't consistantly translates into positive alpha for fund performance.

In his research paper, Alex Edmans revealed that over a 25 year period the 100 best companies to work for in America outperformed their peers in terms of equity returns by what percentage? (a) They outperformed by less than 1.5%. (b) They outperformed by 2.3% to 3.8%. (c) They outperformed by 4.2% to 5.7%. (d) They outperformed by more than 5.4%.

(b) They outperformed by 2.3% to 3.8%.

Japan, Taiwan and South Korea enjoy the structure of having statutory auditors in addition to the independent audit firm that assures the accounts. Typically, how many statutory auditors are there? (a) Five or ten. (b) Three or five. (c) Five to ten. (d) Three to five.

(b) Three or five. (appointed by shareholders -3 year rotation -independent individuals (but not always))

What does 'offshoring' mean? (a) Protecting coastal areas by building offshore dykes to protect cities against climate change. (b) Climate migrants moving from shore areas to more inland cities. (c) Moving company production to low income countries. (d) Tax avoidance by companies

(c) Moving company production to low income countries.

The Paris Agreement has what long-term goal in respect of temperature increases above pre-industrial levels? (a) To limit the increase in global average temperature to 1.0°C. (b) To limit the increase in global average temperature to 1.5°C. (c) To limit the increase in global average temperature to 2.0°C. (d) To limit the increase in global average temperature to 2.5°C.

(b) To limit the increase in global average temperature to 1.5°C.

Pension funds as institutions are driven by several internal players. One of these ultimately holds the fiduciary responsibility and acts separately from the employer and holds the assets for the beneficiaries of the scheme. This is mostly likely to be describing the: (a) Executives (b) Trustees (c) Beneficiaries (d) Members

(b) Trustees

The UK Stewardship Code sets out a list of escalation measures that can be considered to advance engagements, however there are a handful of additional methods used by some as part of their escalation models. Which of the following would not fall within these additional measures? (a) Formally adding the company to an exclusion list. (b) Voting at the annual general meeting. (c) Seeking dialogue with other stakeholders. (d) Seeking governance improvements through legal methods.

(b) Voting at the annual general meeting.

Which of the following descriptions best describes the role of the auditor? Auditors should be: (a) Hound dogs, not guard dogs. (b) Watch dogs, not bloodhounds. (c) Guard dogs, not sheep dogs. (d) Bloodhounds, not watch dogs.

(b) Watch dogs, not bloodhounds.

This question relates to the case study focusing on the beverages company. Which of the following are examples of material environmental factors that should be considered? (a) Talent retention; recruitment strategy. (b) Water efficiency; greenhouse gas emissions. (c) Supplier code-of-conduct protocols; product mix. (d) Human rights strategy; anti-bribery policy

(b) Water efficiency; greenhouse gas emissions.

Which of the following is NOT one of the prioritisation decisions that an investor must take in relation to stewardship? (a) Which company to focus engagement attention on. (b) Which annual general meeting (AGM) resolutions to vote on. (c) Which sectors face the greatest ESG risks. (d) Which are the key engagement issues for the individual company in question

(b) Which annual general meeting (AGM) resolutions to vote on.

The Pensions and Lifetime Savings Association (PLSA) have proposed which of the following as possible disclosures to demonstrate the management and monitoring of ESG risks and opportunities? i. Stock level ESG analysis. ii. Sector level ESG analysis. iii. Material changes to portfolio companies' ESG performance. (a) i and ii only. (b) i and iii only. (c) ii and iii only. (d) i, ii and iii.

(b) i and iii only.

Investment ideas can be generated from data by using a valuation screen, or fundamental screen, which may incorporate ESG factors. Which types of screen will typically be used in relation to ESG factors? i Positive. ii Negative. iii Growth.iv Momentum. (a) i and ii only. (b) i, ii and iv only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(b) i, ii and iv only.

As of 2018, how many mutual funds and ETFs were covered by Morningstar? (a) 10,000 mutual funds and over 1,000 ETFs. (b) 10,000 mutual funds and over 2,000 ETFs. (c) 20,000 mutual funds and over 2,000 ETFs. (d) 20,000 mutual funds and over 1,000 ETFs.

(c) 20,000 mutual funds and over 2,000 ETFs.

In determining ESG risks, MSCI apply a scoring system to relevant factors. Which of the following correctly describes that scoring system? (a) A 0-5 scale, 0 being the best score. (b) A 0-10 scale, 0 being the best score. (c) A 0-5 scale, 5 being the best score. (d) A 0-10 scale, 10 being the best score

(c) A 0-5 scale, 5 being the best score.

What is the Corporate Reporting Dialogue? (a) A report by the Task Force on Climate-related Financial Disclosures regarding the most appropriate way to combine ESG into corporate reporting. (b) A discussion/debate regarding stewardship and the purpose of corporate reporting. (c) A collective effort among standard setters to try to establish a consistent approach/requirement in respect of corporate reporting. (d) An effort to re-align the thinking of the Task Force on Climate-related Financial Disclosures with the requirements of stewardship and profitability.

(c) A collective effort among standard setters to try to establish a consistent approach/requirement in respect of corporate reporting.

Which two ESG specific areas of disclosure are requested by the International Corporate Governance Network (ICGN) Model Mandate? (a) A breakdown of the return on investment for each stakeholder group, and details of how each form of ESG risk type has been hedged by the portfolio manager. (b) A materiality map identifying the ESG impact of all investments, and a detailed disclosure of the voting record of all executive and non-executive directors. (c) A detailed disclosure of stewardship engagement and voting activity must be made, and the manager's assessment of ESG risks must be embedded in the portfolio. (d) A pro-rata environmental footprint of all investments must be estimated, and the impact of all externalities from investments must be identified

(c) A detailed disclosure of stewardship engagement and voting activity must be made, and the manager's assessment of ESG risks must be embedded in the portfolio.

Which of the following technologies may be used by investors to compile and assess ESG data? (a) AI (b) QESG (c) API (d) TBL

(c) API

Which of the following are included in labour rights? (a) Freedom of association and protection of the right to organise; minimum wage; and protection against physical forms of climate change. (b) Right to organise and collective bargaining; living wage; and minimum age. (c) Abolition of forced labour; equal remuneration; and protection against worst forms of child labour. (d) Collective labour agreements; health care; and retirement plans

(c) Abolition of forced labour; equal remuneration; and protection against worst forms of child labour.

Corporate governance can be distilled down to which of the following two factors? (a) Control and command. (b) Overture and oversight. (c) Accountability and alignment. (d) Responsibility and responsiveness.

(c) Accountability and alignment.

An analyst has identified that a company has strong ESG characteristics, how should they incorporate this information into any valuation ratio adjustment? (a) Add a discount versus its peers. (b) Make no adjustment versus its peers. (c) Add a premium versus its peers. (d) Add either a discount or premium.

(c) Add a premium versus its peers.

Which of these is NOT an ESG-integrated valuation technique? (a) Adjusting sales growth assumptions due to weak employee engagement scores. (b) Adjusting cost of capital due to poor governance ratings. (c) Adjusting cash flows due to cash tax adjustments. (d) Changing fair value price/earnings (P/E) ratio due to strong sustainability scores

(c) Adjusting cash flows due to cash tax adjustments.

What was the initial 2004 objective of the UN Global Compact? (a) A code of conduct guiding ethical investment in South Africa. (b) The principles underlying the leading investor initiative relevant to ESG. (c) An initiative to find ways to integrate ESG into capital markets. (d) The principle that ESG issues are consistent with fiduciary duty because of their materiality to businesses.

(c) An initiative to find ways to integrate ESG into capital markets.

Which element of executive pay is most likely to include some metric based on ESG performance? (a) Salary. (b) Benefits. (c) Annual bonus. (d) Long-term incentive or share scheme.

(c) Annual bonus.

Which one of the following articles in the French Law on Energy Transition for Green Growth requires institutional investors to consider climate change? (a) Article 171. (b) Article 172. (c) Article 173. (d) Article 174.

(c) Article 173.

Which social megatrends are important to consider within the investment analysis? (a) Human rights, health and safety and employee relations. (b) The Millennium and Sustainable Development Goals. (c) Automation, globalisation and longevity. (d) Natural capital, biodiversity and climate change adaptation

(c) Automation, globalisation and longevity.

Which of the following is not one of the main social megatrends that are considered to be the most important to consider within investment analysis? (a) Demographic change. (b) Digital disruption. (c) Biodiversity. (d) Automation.

(c) Biodiversity.

Why might a fund manager disagree with an external researcher's ESG analysis of a particular asset in its portfolio? (a) The fund manager may have greater insight from its direct dialogue with the asset than is available in public disclosures on which the research is based. (b) The fund manager may believe that the asset has an active programme of improvement that is likely to be recognised in a different rating in due course. (c) Both a and b. (d) Neither a nor b.

(c) Both a and b.

Which of the following fixed income strategies demonstrates the highest degree of ESG integration? (a) Unconstrained. (b) Government. (c) Buy and maintain. (d) High yield.

(c) Buy and maintain.

How is quantitative ESG analysis typically used in quant models to identify attractive investment opportunities? (a) By screening only. (b) By adjusting valuation models only. (c) By either screening or by adjusting valuation models. (d) By neither screening nor by adjusting valuation models.

(c) By either screening or by adjusting valuation models.

Which asset owner is most likely to apply an exclusion policy barring investment in all assets exposed to a particular business area? (a) Defined benefit pension scheme. (b) General insurance business. (c) Charitable foundation. (d) Sovereign wealth fund

(c) Charitable foundation.

Which of the following three ESG engagement dynamics did the Principles for Responsible Investment (PRI) highlight as value-creation drivers in their 2018 report? (a) Engagement dynamics, collaborative dynamics, directive dynamics. (b) Economising dynamics, development dynamics, social dynamics. (c) Communicative dynamics, learning dynamics, political dynamics. (d) Growth dynamics, geopolitical dynamics, socioeconomic dynamics.

(c) Communicative dynamics, learning dynamics, political dynamics.

Chang Ying runs an equity portfolio using ESG integration techniques which looks at E,S and G independently. To reduce the downside tail risk of the portfolio whilst preserving the largest investable universe possible, she could avoid? (a) All companies with low E scores (b) All companies with low G scores (c) Companies whose G score reflects insufficient financial oversight (d) Companies with exposure to coal fired power generation

(c) Companies whose G score reflects insufficient financial oversight

What is the term used under the MSCI ESG heirarchy to describe an on-going situation for a company which has negative ESG implications? (a) Chronic case. (b) Critical case. (c) Controversy case. (d) Contentious case.

(c) Controversy case.

Which of the following would not be considered a corporate governance issue? (a) Risk management. (b) Succession planning. (c) Cyber security. (d) Tax responsibility.

(c) Cyber security.

Engagement strategies must be designed to deliver meaningful results in the most cost-effective manner, which translates into a operational challenges that need to be addressed in a certain order. Which must be addressed first? (a) Develop clear processes. (b) Framing the engagement topic into a broader discussion around strategy. (c) Define the scope of the engagement. (d) Adapting the to the local context.

(c) Define the scope of the engagement.

What are the three main ways in which product liability can arise? (a) Design flaws, manufacturing errors, absence of user instruction. (b) Design flaws, manufacturing sabotage, absence of necessary warning signs. (c) Design flaws, manufacturing defects, absence of necessary warning signs. (d) Design flaws, manufacturing sabotage, absence of user instructions.

(c) Design flaws, manufacturing defects, absence of necessary warning signs.

What should be the first stage of a portfolio management process, which employs ESG integration? (a) Agreeing the meaning of all ESG terms discussed with clients (b) Determining any external ESG research requirements (c) Development of an investment policy statement (d) Undertaking any internal ESG research required

(c) Development of an investment policy statement

An active investor concerned about the financial viability of the business is most likely to reflect that concern in their voting on: (a) Board Director re-appointment. (b) Auditor pay. (c) Dividends issue. (d) Audit Committee member re-appointment.

(c) Dividends issue.

In 2009, the Stockholm Resilience Centre (SRC) led a group of 28 internationally renowned scientists to identify and quantify the first set of priorities relating to human-induced changes to the environment. How many priorities were identified? (a) Five priorities. (b) Seven priorities. (c) Nine priorities. (d) Eleven priorities.

(c) Nine priorities.

Sharon is the CIO at BCM, a boutique asset manager that primarily invests in UK equities. BCM has a small stake in RTC media company which has not been efficient in removing terrorist related content circulated on its social networking website. Since BCM's resources are limited, Sharon decides to join the investor forum, which will allow her to? (a) Avoid direct interaction with RTC (b) Benefit from the Investor Forum's advisory services (c) Draw investor attention to RTC's terrorist-related content (d) Initiate a joint resolution to gain control of RTC

(c) Draw investor attention to RTC's terrorist-related content

What is typically the favoured ESG investment approach among Sovereign Wealth Funds? (a) ESG integration. (b) ESG exclusion. (c) ESG engagement. (d) Positive and negative screening.

(c) ESG engagement.

The most popular responsible investment strategy within the USA is: (a) Best-In-Class screening (b) Negative screening (c) ESG integration (d) Sustainability themed investing

(c) ESG integration

When integrating ESG into the investment process at the portfolio level, which of the following may be considered during the portfolio construction stage? (a) Tactical asset allocation. (b) ESG exposures and limits. (c) ESG profile versus the benchmark. (d) Portfolio scenario analysis.

(c) ESG profile versus the benchmark.

Which of the following best represents factors least considered by credit ratings agencies (CRAs)? (a) Bankruptcy risk, standard credit ratio analysis, litigation risk. (b) Bankruptcy risk, litigation risk, human capital risk. (c) Environmental risk, religious / ethical risk. (d) Environmental risk, standard credit ratio analysis, governance risk

(c) Environmental risk, religious / ethical risk.

As an analyst, you wish to engage with a company on social issues and see that a quarterly analysts meeting is coming up. What should you do before the meeting in respect of this engagement? (a) Arrange a meeting with the company chair. (b) Make a pre-meeting call to the CEO to raise the issue. (c) Establish clear objectives. (d) Contact the Investor Forum for advice and assistance

(c) Establish clear objectives.

Which of the following can be described as being most likely to utilise negative screening? (a) Impact investing. (b) Thematic investing. (c) Ethical investing. (d) Social investing.

(c) Ethical investing.

In the UK, the Greenbury report was a response to which of the following? (a) Multinational business failures. (b) UK business failures. (c) Executive pay. (d) EU directives.

(c) Executive pay.

Which of the following steps are most important when incorporating social factors in investment decision-making? (a) Review and assess the company's stated policy on social factors. (b) Examine critically the company's track record on social issues. (c) Focus on the most controversial/financially material. (d) Record the company's fines and penalties for failures

(c) Focus on the most controversial/financially material.

What does the EU Climate Transition Benchmark (EU CTB) require regarding the inclusion of fossil fuel companies? (a) Best in class fossil fuel investments are permitted over the long term. (b) Below average fossil fuel investments by class and sector are excluded. (c) Fossil fuel investments are permitted as part of a transition process. (d) Direct and indirect fossil fuel investments must both be excluded.

(c) Fossil fuel investments are permitted as part of a transition process.

Which of the following is not an internal social factor that may be material to a business? (a) Labour rights. (b) Forced labour. (c) Freedom of dissociation. (d) Living wage.

(c) Freedom of dissociation.

Which of the following investors will most likely have the lowest risk tolerance? (a) Life insurer. (b) Sovereign wealth fund. (c) General insurer. (d) Foundation

(c) General insurer.

As an analyst for a small UK fund management firm you are concerned that a company in which your firm holds a small stake is failing to address social issues in its supply chain, how should you best proceed? (a) Identify the issue to the investment committee and recommend retaining the holding. (b) Identify the issue to the investment committee and recommend selling the holding. (c) Identify the issue to the investment committee and recommend collective action through the Investor Forum. (d) Identify the issue to the investment committee and refuse to make any investment recommendation.

(c) Identify the issue to the investment committee and recommend collective action through the Investor Forum.

Environmental costs are considered to be unavoidable for asset owners as they impact the portfolio in a variety of ways. Which of the following would not be considered a way in which a portfolio may be adversely impacted by environmental costs? (a) Litigation costs. (b) Tax charges. (c) Insurance pay-outs. (d) Inflated input prices.

(c) Insurance pay-outs.

Which of the following are examples of internal and external social factors? (a) Internal: human rights; external: labour rights. (b) Internal: human resources department; external: supply or value chain. (c) Internal: forced labour; external: controversial sourcing. (d) Internal: longevity; external: automation and AI.

(c) Internal: forced labour; external: controversial sourcing.

Various stakeholders shape responsible investment. Which one of the following is an incorrect statement regarding these stakeholders? (a) Given the long-term nature of a pensions liabilities, ESG factors are particularly pertinent to their investments. (b) In general, insurers are considered advanced in their understanding of ESG factors (c) Investment platforms can set standards and award ratings to investment vehicles after assessing its ESG process and performance (d) The 2008 financial crisis.

(c) Investment platforms can set standards and award ratings to investment vehicles after assessing its ESG process and performance

What is the most common method of waste management globally? (a) Recycling. (b) Incineration. (c) Landfill. (d) Treatment

(c) Landfill.

Which of the following statements is correct? (a) Larry Fink's annual letter to CEOs is an example of a value-oriented approach to shareholder engagement. (b) Larry Fink's annual letter to CEOs is an example of the company-focused approach to engagement. (c) Larry Fink's annual letter to CEOs is an example of the issue-based approach taken by passive investors. (d) Larry Fink's annual letter to CEOs is an example of an activist approach to shareholder engagement.

(c) Larry Fink's annual letter to CEOs is an example of the issue-based approach taken by passive investors.

Why is a (social) materiality assessment important? (a) It is standard procedure in investment analysis, which makes it an important tick-box exercise. (b) It is always recommendable to conduct assessments, because these provide you with invaluable insights. (c) Not all countries, sectors and companies are affected equally by the different social megatrends and social factors. (d) A social materiality assessment is required by law in many jurisdictions

(c) Not all countries, sectors and companies are affected equally by the different social megatrends and social factors.

In 2018, what value did the Global Sustainable Investment Alliance (GSIA) identify as invested globally in an SRI form? (a) Over USD10 trillion of assets. (b) Over USD20 trillion of assets. (c) Over USD30 trillion of assets. (d) Over USD40 trillion of assets.

(c) Over USD30 trillion of assets.

The first formal Corporate Governance Code emerged in the UK in 1992 in response to a number of UK business scandals. Which of the following was not those scandals? (a) Polly Peck. (b) Maxwell. (c) Parmalat. (d) Bank of Credit and Commerce International.

(c) Parmalat.

A private wealth manager tests using a data provider for its ESG screen to filter out tobacco and finds that the screen eliminates virtually all consumer companies. As consumers are a large percentage of the benchmark index, the manager would prefer not to eliminate the whole sector. What is the most precise method the fund could use? (a) GICS 15 screening regarding tobacco (b) ESG rating agency data regarding the financial materiality of tobacco (c) Percentage of company revenue related to tobacco as agreed with the client (d) Standard industry classification for tobacco companies

(c) Percentage of company revenue related to tobacco as agreed with the client

A client wishes to invest in a manner that will do the most towards the reduction of worldwide mortality rates. Which one of the following issues should they choose to target? (a) Drought. (b) Malaria. (c) Pollution. (d) Water shortages.

(c) Pollution.

For which of the following sectors will the management of greenhouse gas emissions be most material? (a) Software. (b) Recruitment. (c) Power generation. (d) Fund management.

(c) Power generation.

Which of the following ESG service providers does not produce company ESG ratings? (a) Inrate. (b MSCI. (c) Real Impact Tracker. (d) Thomson Reuters.

(c) Real Impact Tracker.

Which of the following is NOT a reason why an asset owner implements an exclusionary screening approach? (a) Reflects a fundamental value of the asset owner's beneficiaries. (b) Reflects a global or regional norm. (c) Reflects a regional norm. (d) Simplest approach

(c) Reflects a regional norm.

The principles of all the stewardship codes around the world are similar. The main body of the principles usually call for: (a) Active management, regular engagement and tactical voting. (b) Detailed analysis, constant engagement and responsible voting. (c) Regular monitoring, active engagement and thoughtfully intelligent voting. (d) Frequent oversight, passive engagement and voting with your conscience

(c) Regular monitoring, active engagement and thoughtfully intelligent voting.

Which of the following is an example of climate change mitigation? (a) Building a flood defence (b) Developing a drought resistant crop (c) Retrofitting a building (d) Desalinating water

(c) Retrofitting a building

In applying social factors to the analysis of investments, which of the following steps would the analyst undertake? (a) Social analysis, political analysis, policy analysis. (b) Strategic analysis, SWOT analysis, scenario analysis. (c) Risk assessment, quality of management, ratio analysis and financial modelling. (d) Fundamental analysis, Dupont analysis, Porter analysis.

(c) Risk assessment, quality of management, ratio analysis and financial modelling.

In respect to greenhouse gas emissions, which of the following would be the ideal way in which ESG data should be disclosed? (a) Scope 1. (b) Scope 2. (c) Scope 3. (d) Scope 4.

(c) Scope 3.

A US company does not wish to alter the composition of its board, however an investor forum has added an item on the upcoming AGM agenda proposing a new set of board members. How may the board respond? (a) Refuse to cover the item at the AGM. (b) Unilaterally remove the item from the agenda. (c) Seek a ruling from the SEC to have the item removed from the agenda. (d) Threaten to resign if the item is not removed from the agenda.

(c) Seek a ruling from the SEC to have the item removed from the agenda.

Over the last 10 years, many companies, especially in energy-intensive sectors, have used the practice of shadow carbon pricing. In relation to shadow carbon pricing, which of the following statements is false? (a) Shadow carbon pricing is used to create a theoretical cost per ton of carbon emissions by establishing a business's internal price on carbon. (b) Shadow carbon pricing is used to understand the potential impact of external prices on the profitability of a project. (c) Shadow carbon pricing automatically reduces a business's carbon footprint. (d) Shadow carbon pricing is used to reveal hidden risks and factor these into future valuations and estimates of capital expenditure.

(c) Shadow carbon pricing automatically reduces a business's carbon footprint.

What kinds of situations does the term 'negative externality' best describe? (a) Situations where the production of goods induces costs to others that are not reflected in the prices charged for them. (b) Situations where the consumption of services induces benefits to others that are not reflected in the prices charged for them. (c) Situations where the production or consumption of a product or service's private price equilibrium cannot reflect the true costs of that product or service for society as a whole. (d) Situations where the production or consumption of a product or service's private price equilibrium cannot reflect the true benefits of that product or service for society as a whole.

(c) Situations where the production or consumption of a product or service's private price equilibrium cannot reflect the true costs of that product or service for society as a whole.

The Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) urges companies to disclose against four factors. Which of the following is not one of those factors? (a) Risk management. (b) Metrics and targets. (c) Society. (d) Governance.

(c) Society.

Which of the following sectors requires the greatest enterprise value adjustment for physical climate change? (a) Fast moving consumer goods. (b) Chemicals. (c) Utilities. (d) Telecommunications

(c) Utilities.

Who are the main players involved in the UN Guiding Principles on Business and Human Rights? (a) Nation, State, Citizens. (b) Authorities, Lawyers, Courts. (c) State, Corporate, Victims. (d) Country, Foundations, Charities.

(c) State, Corporate, Victims.

What is the name of the PRI's own collective engagement service? (a) Ceres. (b) Climate Action. (c) The Collaboration Platform. (d) The Disclosure Project

(c) The Collaboration Platform.

Which of the following is NOT a reason why the role of the chair of a company board is so important? (a) The chair sets the agenda for board discussions. (b) The chair helps ensure all directors make their full contribution. (c) The chair will usually also be CEO. (d) The chair leads the process of selecting and appointing new directors

(c) The chair will usually also be CEO.

For matters that are purely a voting issues, who is the right company representative to work with? (a) The chair. (b) The board. (c) The company secretary (d) The CEO.

(c) The company secretary

The effectiveness of engagement is best described in which of the following ways? (a) The effects are strongest in relation to environmental issues than for social issues. (b) The effects are strongest in relation to governance issues than for environmental issues. (c) The effects are strongest in relation to governance issues than for social issues. (d) The effects are strongest in relation to social issues than for governance issues.

(c) The effects are strongest in relation to governance issues than for social issues.

Who currently determines ESG materiality for companies? (a) The board of directors of the company. (b) The shareholders of the company. (c) The investors in the company. (d) The regulatory authorities in the company's jurisdiction.

(c) The investors in the company.

What is the highest risk to the industry regarding greenwashing? (a) The overestimate of the ESG investing market. (b) The disappointment of clients with quarterly financial returns. (c) The negative impact on the industry's credibility. (d) The increased challenge to standardisation

(c) The negative impact on the industry's credibility

For an investor who uses the services of several fund managers rather than just one, what risk do they specifically face in respect of voting? (a) Outsourcing to proxy advisors. (b) A failure by the asset managers to align votes with their understanding of the investor's desires. (c) The possibility of different managers voting in different ways. (d) The possibility that voting rights may not be exercised due to resource constraints.

(c) The possibility of different managers voting in different ways.

Which of the following statements is true regarding thematic approaches to integrating ESG analysis into investment decisions? (a) Thematic funds typically integrate ESG factors alongside other factors, such as value, size, momentum, growth and volatility. (b) Thematic funds use ESG data to adjust company or sector weights after parsing the ESG data through rules based formulae. (c) Thematic funds may assess alignment with ESG factors they wish to prioritise. (d) Thematic funds typically gather data that is similar to fundamental investors but tends to be over larger datasets.

(c) Thematic funds may assess alignment with ESG factors they wish to prioritise.

Which of these statements is NOT true? (a) The ESG integration framework is not meant to illustrate the perfect ESG-integrated investment process. (b) The ESG integration techniques of one firm are not necessarily the right techniques for all firms. (c) There is a consensus amongst firms on which techniques to use to identify and assess ESG factors (d) Every firm is unique and will use a selection of the techniques referenced in the ESG Integration Framework

(c) There is a consensus amongst firms on which techniques to use to identify and assess ESG factors

At the ESG research stage, the materiality assessment is considered important because: (a) It gives a true indication of the financial risks confronting the company. (b) It differentiates between high impact and low impact events. (c) There is evidence that non-material factors do not impact financials,valuations or company business models. (d) It quantifies the likelihood and magnitude of potential losses.

(c) There is evidence that non-material factors do not impact financials,valuations or company business models.

One developing phenomenon in the area of ESG is the stewardship codes. What do these codes promote? (a) They encourage directors to take stewardship responsibilities seriously. (b) They encourage shareholders to take stewardship responsibilities seriously. (c) They encourage institutions to take stewardship responsibilities seriously. (d) They encourage governments to take stewardship responsibilities seriously.

(c) They encourage institutions to take stewardship responsibilities seriously.

The growing availability of ESG indices is important to the development of the ESG market for a number of reasons. Which of the following is not one of those reasons? (a) They help to set standards for categorising ESG. (b) They are the building blocks for exchange-traded funds (ETFs). (c) They represent optimised ESG portfolios. (d) They provide benchmarks for ESG performance analysis.

(c) They represent optimised ESG portfolios.

Which of the following does NOT represent the function(s) of ESG indices? (a) Investing to facilitate cash management at the multi-asset level. (b) To measure sustainability of non-conventional ESG companies. (c) To allow seamless destruction and reconstruction of benchmarking tools to include ESG screening. (d) All of the above

(c) To allow seamless destruction and reconstruction of benchmarking tools to include ESG screening.

Different countries put different weights on social factors, giving rise to materiality judgement challenges. How does the typical US policy on work unions compare to that of a typical German company? (a) US companies are more concerned about having a policy on work unions than German companies. (b) US companies have no concerns about work unions, whilst German companies do. (c) US companies are less concerned about having a policy on work unions than German companies. (d) US companies have the same concern about having a policy on work unions as German companies.

(c) US companies are less concerned about having a policy on work unions than German companies.

Which regions manage the highest proportion of sustainable and responsible investing assets? (a) Asia and North America. (b) Australia and USA. (c) USA and Europe. (d) Asia and Europe

(c) USA and Europe

Which of the following is the least appropriate to the valuation of fixed-income securities in the ESG integration framework? (a) Internal credit assessment. (b) Relative ranking. (c) Valuation multiples. (d) Duration analysis.

(c) Valuation multiples.

Internalisation can happen in various ways. Using the car industry as an example, which one of the following is a an example of a regulatory instrument? (a) Tradable pemits (b) Agreements with the car industry to reduce CO2 emissions from new passenger cars (c) Vehicle emission and safety standards (d) Taxes

(c) Vehicle emission and safety standards

Which of the following is NOT a macro-economic climate consideration? (a) Asset class sensitivity to interest rates. (b) Heterogeneity and wide-ranging risk/return profile. (c) Weighted-average carbon intensity for a single issuer position. (d) Ability to add low or inverse correlation relative to market returns

(c) Weighted-average carbon intensity for a single issuer position.

Where do most companies that address forced labour start and end their efforts? (a) Examining their own direct employment. (b) With first and second-tier contractors and suppliers. (c) With first-tier contractors and suppliers. (d) With all contractors and suppliers.

(c) With first-tier contractors and suppliers.

Which of the following is NOT among the identified key mechanisms for the escalation of engagement? (a) Holding additional meetings. (b) Operating collectively with other shareholders. (c) Withdrawing a shareholder resolution. (d) Proposing new board members.

(c) Withdrawing a shareholder resolution.

How can climate-related scenario analysis be used as an effective tool in portfolio management? i By pricing climate risk ii By assessing the portfolio's alignment with the Paris agreement temperature target iii By bottom-up analysis of individual companies in the portfolio iv By producing standardised data for performance measurement (a) i (b) i and ii (c) i, ii, and iii (d) i, ii, iii and iv

(c) i, ii, and iii

Natural resources cover which of the following key environmental factors?i. Water.ii Waste.iii Biodiversity.Iv Land use. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv only.

(c) i, iii and iv only.

The Natural Capital Protocol (NCP) is a decision-making framework that enables organisations to identify, measure and value the direct and indirect impacts and dependencies of companies on natural capital. Which of the following sectors does it currently provide guidance on? i. Apparel. ii. Travel.iii. Food and beverage. iv. Forest products. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) ii, iii and iv only.

(c) i, iii and iv only.

A number of asset owner organisations globally support their members in their governance work. Which of the following would be considered to be such an organisation? I IMAC II CII III PLSA IV ACGA (a) i, ii and iii only. (b) i, ii and iv only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(c) ii, iii and iv only.

Materiality mapping may be applied in which of the following ways? i. By market. ii. By sector. iii. By sub-sector. iv. By company. (a) i and ii only. (b) i, ii and iii only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(c) ii, iii and iv only.

What bodies have been primarily involved in the development of stewardship codes? I Companies. II Regulators. III Stock exchanges. IV Investor bodies (a) i, ii and iii only. (b) i, ii and iv only. (c) ii, iii and iv only. (d) i, ii, iii and iv.

(c) ii, iii and iv only.

The OECD Guidelines for Multinational Enterprises (a) state that companies should adhere to the UN Guiding Principles for Business and Human Rights. (b) is a voluntary agreement of multinational enterprises to improve their social performance. (c) is a comprehensive set of government-backed recommendations on responsible business conduct. (d) prescribe that multinational enterprises should perform a financial due diligence on their suppliers to prevent bribery and corruption

(c) is a comprehensive set of government-backed recommendations on responsible business conduct.

What is the platform on living wage? (a) A platform of companies offering a living wage to their employees. (b) A platform of companies demanding their suppliers offer a living wage. (c) A platform of investors offering a living wage to their employees. (d) A platform of investors that encourage investee companies to address the non-payment of living wage in their supply chains

(d) A platform of investors that encourage investee companies to address the non-payment of living wage in their supply chains

What is meant with the concept of a just transition? (a) A transition that is aligned with the Paris Agreement. (b) A transition that shares the financial and social burden in a fair way. (c) A transition that is just in time to prevent stranded assets. (d) A transition that respects labour and human rights.

(d) A transition that respects labour and human rights.

When integrating ESG into traditional financial analysis, which of the following statements is true regarding adjusting discounted cash flow (DCF) models? (a) Adjusting DCF models is not valid at sector level. (b) Adjusting DCF models is not valid at country level. (c) Adjusting DCF models is valid only at the level of company. (d) Adjusting DCF models is valid at the level of company, sector or country.

(d) Adjusting DCF models is valid at the level of company, sector or country.

Which of the following three industries does the Corporate Human Rights Benchmark (CHRB) include? (a) Food, mining and retail. (b) Technology, media and telecoms. (c) Pharma, healthcare and household goods. (d) Agricultural products, apparel and extractives.

(d) Agricultural products, apparel and extractives

How should the alignment between asset manager and client be achieved within ESG investment mandates? (a) Alignment should ensure engagement with companies and issuers on ESG issues and, for listed equities, voting all shareholdings. (b) Alignment should mean that portfolio managers respond to the clearly expressed intentions of the clients and report as fully as required. (c) Alignment should be clearly specified within the investment mandate through more regular performance reviews. (d) Alignment should be designed so that the time frames and structures of portfolio manager remuneration closely reflect the performance experienced by the clients.

(d) Alignment should be designed so that the time frames and structures of portfolio manager remuneration closely reflect the performance experienced by the clients.

Regarding company ESG disclosure policies and reporting, which of the following statements is correct? (a) Management has flexibility in what is chosen to be reported. (b) Most ESG data is not compulsory under typical reporting standards. (c) There can be a problem with over-disclosure. (d) All of the above.

(d) All of the above.

Which of the following statements are correct regarding collective engagement? (a)Collective engagement is sometimes seen as an alternative model of engagement. (b) Collective engagement is often the most powerful form of escalation. (c) The UK Stewardship Code includes collective engagement in its list of escalation mechanisms as well as giving it a principle in its own right. (d) All of the above.

(d) All of the above.

Why might a client concentrate their attention on ESG outliers in their active monitoring and assessment of fund manager performance? (a) Because companies with weak ESG performance will test how effective fund manager ESG integration is in practice. (b) Because allowing the fund manager to choose of case studies that are focused may lead to less insightful gloss. (c) Because the client can focus on ESG factors of most concern to them at a given time. (d) All the above

(d) All the above

Forests are a vital part of the carbon cycle as they convert the CO2 in the air into oxygen. What percentage of the world's land is currently covered by forest? (a) Approximately 15%. (b) Approximately 20%. (c) Approximately 25%. (d) Approximately 30%.

(d) Approximately 30%.

ESG investing is based on the understanding that by managing the risks and opportunities associated with long-term economic, social and environmental trends, companies will have the best chance to prosper over the long run. How should this view be reflected within investment mandates to ensure that the actions of asset managers are aligned with the concerns of their clients? (a) Assess investment performance irregularly and less frequently. (b) Assess investment performance irregularly and more frequently. (c) Assess investment performance regularly and more frequently. (d) Assess investment performance regularly but less frequently.

(d) Assess investment performance regularly but less frequently.

Which one of the following regions or countries has the highest proportion of sustainable investing relative to total managed assets? (a) USA (b) Europe (c) Japan (d) Australia and New Zealand

(d) Australia and New Zealand

Environmental impacts may be either direct or indirect. Which of the following is an indirect environmental impact for a furniture manufacturer who cuts down trees, has them transported to their factory, and uses them in production? (a) Energy consumption at the production facilities. (b) Water consumption within the factory. (c) The release of toxic production materials. (d) Carbon emissions from the transportation.

(d) Carbon emissions from the transportation.

Which of the following countries/economic regions was or will be the last to adopt an emissions trading system (ETS)? (a) EU. (b) USA. (c) UK. (d) China.

(d) China.

What was the model created by the Cadbury Code for adherence to its principles, still followed in the UK code? (a) If not, why not. (b) Comply or else. (c) Apply and explain. (d) Comply or explain

(d) Comply or explain

In understanding the range of ESG issues, which of the following is a social issue? (a) Water scarcity. (b) Supply chain impacts. (c) Diversity. (d) Cyber security.

(d) Cyber security.

Which of the following American states is home to more than 50% of publicly traded companies in the US? (a) New York. (b) Iowa. (c) California. (d) Delaware.

(d) Delaware.

Which of the following is not a typical method by which ESG is reflected in investment approaches? (a) Integrating ESG into investment decision-making. (b) Engaging actively with companies on ESG matters. (c) Engaging in public policy debates on ESG issues. (d) Disclosing the investor's corporate social responsibility activities.

(d) Disclosing the investor's corporate social responsibility activities.

ESG integration faces many hurdles and challenges which may be placed within four broad categories. Which of the following is not one of those categories? (a) Comparability challenges. (b) Disclosure and data-related challenges. (c) Materiality and judgement challenges. (d) ESG take-up challenges.

(d) ESG take-up challenges.

In its 2013 report, Climate Change, Action, Trends and Implications for Business, the Inter-governmental Panel on Climate Change (IPCC) considered four potential future scenarios depending on what policies governments adopt to cut emissions. Which of the following was not one of those scenarios? (a) Emissions rise until 2080 then fall. (b) Emissions are halved by 2050. (c) Emissions continue rising at their current level. (d) Emissions stabilize at today's level by 2080.

(d) Emissions stabilize at today's level by 2080.

Which of the following statements best describes and applies to engaged companies? (a) Engaged companies maximise shareholder profits above all else. (b) Engaged companies maximise stakeholder value at all levels. (c) Engaged companies minimise the risk of value destruction in the short run. (d) Engaged companies change their behaviours against ESG factors, and this leads to increased value.

(d) Engaged companies change their behaviours against ESG factors, and this leads to increased value.

Which of the following may be described as being a subset of socially responsible investing? (a) Responsible investing. (b) Impact investing. (c) Thematic investing. (d) Ethical investing.

(d) Ethical investing.

Much of what the Cadbury Commission recommended is still considered best practice today and has been incorporated in codes and guidelines globally. Which of the following correctly reflects some of the key recommendations? (a) Every public company should have an audit committee meeting at least annually and the roles of chair and CEO should not be combined. (b) Every public company should have an audit committee meeting at least annually and the roles of chair and CEO should be combined. (c) Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should be combined. (d) Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should not be combined.

(d) Every public company should have an audit committee meeting at least twice a year and the roles of chair and CEO should not be combined.

Which one of the following is not typically a way that institutional investors typically reflect ESG considerations? (a) Investment decision-making. (b) Shareholder engagement. (c) Policy engagement. (d) Externality engagement

(d) Externality engagement

Which one of the following is not one of the requirements implemented by the Principles of Responsible Investment (PRI) in 2018? (a) Investment policy that covers the firm's responsible investment (RI) approach, covering >50% of assets under management (AUM). (b)Internal or external staff being responsible for implementing RI policy. (c) Senior-level commitment and accountability mechanisms for RI implementation. (d) Facilitate knowledge exchange

(d) Facilitate knowledge exchange

What is the increase in automation and AI most associated with? (a) Data privacy concerns in social media companies. (b) Employment losses in the garment sector. (c) Employment gains in the IT sector. (d) Future employment losses in the transportation sector.

(d) Future employment losses in the transportation sector.

In collaboration with index providers, what has the Japanese Government Pension Investment Fund (GPIF) created? (a) Climate tilted rules-based indices to invest in. (b) Water tilted rules-based indices to invest in. (c) Equality tilted rules-based indices to invest in. (d) Gender tilted rules-based indices to invest in.

(d) Gender tilted rules-based indices to invest in.

Which of the following are countries that exclusively have two tier boards with wholly non-executive supervisory boards overseeing management boards? (a) USA and France. (b) France and Germany. (c) The Netherlands and the USA. (d) Germany and the Netherlands.

(d) Germany and the Netherlands.

Which of the following is one of the organisations who are seeking to align models for corporate reporting on ESG factors and broader narrative reporting? (a) Institute for Climate Economics. (b) Public Finance Initiative. (c) Grantham Research Institute. (d) Global Reporting Initiative.

(d) Global Reporting Initiative.

Which of the following statements is true for an economy that has an ageing population? (a) The ratio between the active and the inactive part of the workforce rises. (b) The pressures on national tax revenues are reduced. (c) Older people spend more per head on consumer goods. (d) Health care costs rise sharply when populations age.

(d) Health care costs rise sharply when populations age.

Which of the following is NOT a typical form of collective engagement? (a) Informal collaboration between investors. (b) Specialist stewardship service providers. (c) Investor associations aggregating member views. (d) Internet campaigns aggregating consumer perspectives

(d) Internet campaigns aggregating consumer perspectives

What does the corporate human rights benchmark look at? (a) It only looks at the policies of corporations on human rights. (b) It only looks at the processes of corporations on human rights. (c) It only looks at the practices of corporations on human rights. (d) It looks at the policies, processes and practices of corporations on human rights

(d) It looks at the policies, processes and practices of corporations on human rights

Which of the following statements is true where the materiality of ESG factors can be assessed? (a) It may be hard to assess the level of impact but there is certainty on how ESG factors interact with financial performance over time. (b) It is typically easy to assess the level of impact and there is certainty on how ESG factors interact with financial performance over time. (c) It is typically easy to assess the level of impact but there is uncertainty on how ESG factors interact with financial performance over time. (d) It may be hard to assess the level of impact and there is uncertainty on how ESG factors interact with financial performance over time.

(d) It may be hard to assess the level of impact and there is uncertainty on how ESG factors interact with financial performance over time.

How are agency, alignment and executive pay interrelated in corporate governance? (a) Corporate governance requires management to be agents when aligning executive pay. (b) Corporate governance requires agents to determine whether executive pay is aligned with the market. (c) Management remuneration package should be aligned to the function or role of management as agents responsible to their Board. (d) Management remuneration package should be aligned to the function or role of management as agents responsible to their shareholders.

(d) Management remuneration package should be aligned to the function or role of management as agents responsible to their shareholders.

What is the most significant difference between monitoring dialogues and engagement? (a) Monitoring will influence trading decisions, engagement voting decisions. (b) Monitoring is only done by portfolio managers, engagement only by stewardship staff. (c) Monitoring occurs with investor relations staff, engagement with board directors. (d) Monitoring is one-way information seeking, engagement two-way dialogue.

(d) Monitoring is one-way information seeking, engagement two-way dialogue.

Which of the following is NOT typically seen as a driver of concern regarding an individual director's independence? (a) A family tie to an executive. (b) Recent senior role in a firm that provides advisory services. (c) Receiving share options in the company. (d) Not having been on the board for long enough fully to understand the business

(d) Not having been on the board for long enough fully to understand the business

Which of these is NOT a way for investors to make their voting activity more effective and influential? (a) Hold an active dialogue with the company ahead of the decision. (b) Attend the AGM, perhaps to make a spoken intervention. (c) Writing afterwards to highlight the reasons for the voting decision. (d) Only vote on resolutions where they have a clear opinion.

(d) Only vote on resolutions where they have a clear opinion

What is the least likely reason why a pension fund trustee may consider ESG investing? (a) Pension fund trustees should act in the interest, including non-financial interests, of pension fund members; and the members have voiced their interest in social and environmental impact. (b) Pension fund trustees have the fiduciary duty to consider factors that are financially material to the long-term returns of the pension fund. (c) Pension fund trustees risk legal action by not managing climate change-related risks. (d) Pension fund trustees are the ultimate beneficiaries of pension funds and, as a result, should act in their interest.

(d) Pension fund trustees are the ultimate beneficiaries of pension funds and, as a result, should act in their interest.

Which of the following is NOT likely to be considered a G factor by a sovereign debt investor? (a) Corruption. (b) Rule of law. (c) Regulatory effectiveness. (d) Proportion of investors that are PRI signatories

(d) Proportion of investors that are PRI signatories

What three pillars do the UN Guiding Principles on Business and Human Rights encompass? (a) Safeguard, Integrate, Communicate. (b) Describe, Defend, Delegate. (c) Diagnose, Prescribe, Remedy. (d) Protect, Respect, Remedy.

(d) Protect, Respect, Remedy.

Which of the following would be considered a climate change mitigation strategy? (a) Developing drought resilient crops. (b) Retrofitting buildings to become more energy efficient. (c) Developing clean cooling systems. (d) Protecting coastlines

(d) Protecting coastlines

Which of the following is least appropriate to the valuation of equity securities in the ESG integration framework? (a) Forecast financial ratios. (b) Scenario analysis. (c) Valuation multiples. (d) Relative ranking.

(d) Relative ranking.

Which of the following places the typical stages of the integrated ESG assessment in the correct chronological order? (a) Research, investment decision, valuation, portfolio construction. (b) Research, investment decision, portfolio construction, valuation. (c) Research, valuation, investment decision, portfolio construction. (d) Research, valuation, portfolio construction, investment decision.

(d) Research, valuation, portfolio construction, investment decision.

What are the advantages of using mapping techniques when comparing 2 portfolios for ESG risk? (a) Both portfolios can be shown on the same map (b) Increased ESG disclosure is making mapping more uniform (c) The materiality aspect of mapping is standardised (d) Specific elements of E, S, and G can be compared across sectors

(d) Specific elements of E, S, and G can be compared across sectors

What ESG feature is often overlooked in screening approaches for collective investment funds? (a) Negative screening approaches like "socially conscious". (b) Position-weighted ESG portfolio score. (c) Portfolio carbon exposure. (d) Stewardship.

(d) Stewardship

Which of the following is NOT among the seven areas typically covered by the top-level principles of a stewardship code? (a) Engagement and escalation. (b) Voting. (c) Reporting and transparency. (d) Stock lending (or securities lending) policies.

(d) Stock lending (or securities lending) policies.

ESG investing is based on economic, social and environmental trends and makes which of the following assumptions? (a) That by managing the risks associated with short-term economic, social and environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making. (b) That by managing the risks associated with long-term economic, social and environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making. (c) That by managing the risks and opportunities associated with short-term economic, social and environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making. (d) That by managing the risks and opportunities associated with long-term economic, social and environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making.

(d) That by managing the risks and opportunities associated with long-term economic, social and environmental trends companies will have the best chance to prosper, taking decisions well and incorporating the full range of material risk factors into their decision-making.

Which of the following two initiatives represent a corporate governance code in America? (a) The Delaware Supreme Court and the Commonsense Corporate Governance Principles. (b) The Securities and Exchange Commission (SEC) and the Corporate Governance Policies of the Council of Institutional Investors (CII). (c) The Investor Stewardship Group's Corporate Governance Principles and the Corporate Governance Policies of the Council of Institutional Investors (CII). (d) The Commonsense Corporate Governance Principles and the Investor Stewardship Group's Corporate Governance Principles.

(d) The Commonsense Corporate Governance Principles and the Investor Stewardship Group's Corporate Governance Principles.

The introduction of stewardship codes around the world has reinforced the need for investment managers and asset owners to engage with their investees in respect of ESG issues. Within the UK, which body is responsible for releasing and enforcing the Stewardship Code? (a) The Financial Conduct Authority (FCA). (b) The Financial Policy Committee (FPC). (c) The Financial Ombudsman Service (FOS). (d) The Financial Reporting Council (FRC).

(d) The Financial Reporting Council (FRC).

Which body sets out the Green Bond Principles (GBP)? (a) The United Nations Environment Programme (UNEP). (b) The Institutional Investors Group on Climate Change (IIGCC). (c) The Sustainability Accounting Standards Board (SASB). (d) The International Capital Markets Association (ICMA).

(d) The International Capital Markets Association (ICMA).

Which of the following identify the behavioural challenges to implementing engagement? (a) The challenge of finding the time, the expertise and the leverage. (b) The challenge of defining the scope, the priorities and the impact. (c) The challenge of framing the topic, the goals and the milestones. (d) The challenge of reaching consensus, conflicts of interest and competition

(d) The challenge of reaching consensus, conflicts of interest and competition

Which of the following statements regarding the effectiveness of engagement is true? (a) The effects are strongest in relation to social issues and then for governance issues. (b) The effects are strongest in relation to governance issues and then for environmental issues. (c) The effects are strongest in relation to environmental issues and then for social issues. (d) The effects are strongest in relation to governance issues and then for social issues.

(d) The effects are strongest in relation to governance issues and then for social issues.

Challenges of carbon footprinting?

- Not yet available for unlisted assets - Rarely includes Scope 3 emissions - There are different estimation methodologies - Does not measure potential investment risks related to the physical impacts of climate change

The directors of a company are accountable to the shareholders. What corporate governance practice ensures this? (a) The automatic rotation of the auditors at the Annual General Meeting (AGM). (b) The setting of the executive remuneration by the non-executive directors. (c) The independence of the chairman and the COE. (d) The presentation of the report and accounts by the Board at the Annual General Meeting (AGM).

(d) The presentation of the report and accounts by the Board at the Annual General Meeting (AGM).

How are pension fund members most likely to influence responsible investment? (a) Their formal investment advice to pension fund executives must be implemented. (b) They monitor company controversy through social media and inform asset managers. (c) They act in the interest of sustainable companies. (d) Their ethical preferences may be taken into account

(d) Their ethical preferences may be taken into account

Which of the following ESG index providers specifically considers governance? (a) Bloomberg (b) FTSE Russell (c) MSCI (d) Thomas Reuters

(d) Thomas Reuters

Which of these least reflects how qualitative data is used in company analysis? (a) To adjust a valuation (b) To add an opinion to an investment thesis (c) To modify a financial model (d) To determine the value at risk for the company

(d) To determine the value at risk for the company

Scope 3 of the GHG Protocol standards covers the following emission sources: (a) Company vehicles. (b) Fuel combustion. (c) Purchased electricity. (d) Transportation and distribution.

(d) Transportation and distribution.

Which of the following sectors have the greatest risk of increased insurance costs due to physical climate change? (a) Construction and materials (b) Food and beverage (c) Media and technology (d) Travel and leisure

(d) Travel and leisure

Which is the only major country that does NOT, as of 2019, have a corporate governance code? (a) Japan. (b) France. (c) UK. (d) USA.

(d) USA. (because corporate law is set at the state level)

There are a number of challenges that have been identified with respect to ESG which are limiting its development. Which of the following is not one of those challenges? (a) The rapid development of new styles of ESG investing and marketing approaches. (b) The quality of data, research and analysis. (c) Limited tools to assist with portfolio construction and management. (d) Uncertainties regarding the demand for ESG products.

(d) Uncertainties regarding the demand for ESG products.

Which of the following is NOT a typical way in which asset managers integrate ESG? (a) Using ESG as a threshold requirement before investment can be considered. (b) Using ESG as a factor that informs the valuation. (c) Using ESG as a risk assessment that offers a level of confidence in the valuation. (d) Using ESG as a basis for explaining investment holdings to clients.

(d) Using ESG as a basis for explaining investment holdings to clients.

Climate-related scenario analysis may be used to achieve which of the following objectives? i. The pricing of climate risk. ii. The assessment of the portfolio's temperature target alignment. iii. The top-down mapping to identify the main areas of risk. iv. The identification of key parameters to be monitored over time. (a) i only. (b) i and ii only. (c) i, ii and iii only. (d) i, ii, iii and iv

(d) i, ii, iii and iv

Product liability represents a risk to a company. In what ways may this risk be manifested? i. Financial risk. ii. Regulatory risk. iii. Reputational risk.iv. Share price volatility. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv.

(d) i, ii, iii and iv.

Shifting business practices with respect to deforestation to adopt more sustainable land management approaches contributes to which of the following? i. Agricultural and economic development, both locally and globally. ii. The health and stability of forests and ecosystems. iii. The continued provision of ecosystem services at an increasing scale. iv. The reduction of greenhouse gas emissions. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv.

(d) i, ii, iii and iv.

Which of the following are typically addressed at a company's annual general meeting (AGM)? I The structure of the board. II Audit and oversight. III Executive pay. IV The capital structure of the company. (a) i, ii and iii only. (b) i, ii and iv only. (c) i, iii and iv only. (d) i, ii, iii and iv.

(d) i, ii, iii and iv.

What challenges can auditors face in preventing fraud in company accounts? i Auditors may be misled by management ii Auditors rely to a great degree on the accuracy of a company's internal accounting system iii Audits are based on samples and not all figures are reviewed iv Only segments of a company's business that are deemed material are reviewed (a) ii and iii (b) iii and iv (c) i, ii, and iii (d) i, ii, iii, and iv

(d) i, ii, iii, and iv

Justin runs an equity fund for a large insurance company which has signed on to the UN Global Compact Principles (UNGC) and the principles for responsible investment (PRI). His investment strategy will need to to: i. avoid companies which do not adhere to TCFD guidelines ii. screen the portfolio on environmental issues iii. incorporate ESG issues into the investment process iv. invest in companies which adhere to human rights principles (a) iii (b) i and ii (c) ii and iii (d) iii and iv

(d) iii and iv

pay ratio disclosures?

(mandated in most markets) compare the remuneration of the CEO with the firm's average worker, and reveal very sizeable differences.

Remuneration Committee?

(often called Compensation Committee) seeks to deliver a proper alignment through executive pay

Nominations Committee?

(often called Corporate Governance Committee) aims to ensure that the board overall is balanced and effective, ensuring that management is accountable

Full ESG integration strategies often take greater efforts to:

- Evidence internal and external research resources - Document how ESG is embedded - Track and report on engagement activities - Include portfolio exposure and weightings into sustainability themes like the SDGs - Provide positive impact measurements of the portfolio - Support the process with investment case studies

Examples of BOP

- Micro-finance and micro-insurance - Access to basic telecommunication - Access to improved nutrition and healthcare - Access to (clean) energy

3 ways Investment consultants and retail financial advisers impact investment strategy?

1- Aid trustees in understanding their fiduciary duty 2- Formulate a strategy that incorporates ESG 3- Draft investment principles and policies in line with the strategy and fiduciary obligations

Financial service companies facilitate what 2 things?

1- Availability of securities with higher ESG quality 2- Increases the quality of information about ESG characteristics of assets

What are the 2 updates to the Environmental Guidelines 2019?

1- Benefits of measuring and reporting their environmental performance 2- The use of environmental key performance indicators (KPIs)

4 types of Investees?

1- Companies 2- Projects (such as infrastructure projects) 3- Agencies (such as the World Bank and International Finance Corporation) 4- Jurisdictions (such as countries, provinces and cities)

Carbon footprinting helps investors do what 3 things?

1- Compare the portfolio to a global benchmark 2- Identify priority areas and actions for reducing emissions 3- Track progress in making those reductions

4 ways GIIN achieves its goal?

1- Facilitating knowledge exchange 2- Highlighting innovative investment approaches 3- Building the evidence base for impact investing 4- Producing tools and resources

Insurers are sensitive to which 2 aspects of ESG?

1- Frequency and strength of extreme weather events (P&C) 2- Demographic changes (Life insurance)

3 time horizon issues?

1- It is difficult to predict the value of future losses (or gains) 2- It is difficult to forecast when the losses (or gains) might occur 3- Fund managers' performance is commonly assessed using shorter time horizons, as opposed to the longer ones over which ESG factors might have a material impact.

3 Objectives of financial regulators?

1- Maintain orderly financial markets 2- Safeguard investments in financial instruments, savings/pensions and investment vehicles 3- Facilitate an orderly expansion of activities in the financial sector

3 ways Insurance can be divided?

1- Property and Casualty (P&C) 2- Life 3- Re-insurance

2 notes from Friede, Busch and Bassen's 2015 meta study on ESG and financial performance?

1. 62% of the studies that they reviewed showed a positive correlation between governance and corporate financial performance 2. 58% of environmental studies and 55% of social studies showed the same correlation

What 3 areas throughout the investment value chain can ESG be incorporated?

1. RFP 2. Strategic Asset Allocation 3. Security selection process

4 themes of the Sustainable Finance Action Plan?

1. Taxonomy 2. Green Bond Standard 3. Benchmarking 4. Reporting

McKinsey suggests that there are two fundamental questions that asset owners need to ask in developing their ESG investment philosophy:

1. Are ESG factors more important for risk management or value creation? - Risk Mgmt (either via exclusion or engagement) - Value Creation (overweight ESG companies) 2. What ESG factors are material?

Steps in calculating the final unmanaged risk score?

1. Assess the share of the overall exposure of companies and compare to a material ESG issue in a given sub-industry that can be managed by a company (manageable risk assessment). 2. At the company level, the degree to which a company has managed the manageable risk portion of its overall exposure, with regard to an issue being calculated based on the management assessment (overall management score assessment). 3. Finally, the unmanaged risk score is calculated by subtracting managed risks from a company's overall exposure score in relation to a material ESG issue (final unmanaged risk score calculation)

SRI investing can be used in combination with which 4 strategies?

1. Best-in-class investment - 2. Thematic funds - 3. High-conviction funds - 4. Quantitative investment strategies

2 consequences of digital technology

1. Big data 2. The ownership and use of data

4 main areas PRI provides support in?

1. Broad range of tools and reports on best practice 2. Hosts a collaborative engagement platform 3. Reviews, analyses and responds to responsible investment-related policies and consultations 4. The PRI Academy develops, aggregates and disseminates academic studies on responsible investment-related themes

Investors should assess whether a company in their portfolio has policies and systems in place which?

1. Clearly explain the environmental and social requirements that suppliers are expected to meet via a procurement policy (such as a supplier code of conduct) and 2. Enable it to assess environmental and social risks throughout its supply chain and discuss whether it has a mechanism in place to improve poor practices

4 environmental megatrends

1. Climate change and transition risk 2. Water scarcity 3. Pollution 4. Loss of natural resources and ecosystem services

3 market led best practices in creating US governance standards?

1. Commonsense Corporate Governance Principles (July 2016 and revised in October 2018) 2. Investor Stewardship Group's (ISG) Corporate Governance Principles for US Listed Companies (2018) 3. Corporate Governance Policies of the Council of Institutional Investors (CII)

The circular economy is based on what 3 principles?

1. Design out waste and pollution 2. Keep products and materials in use, and 3. Regenerate natural systems

Where should investors start when they decide to implement social factors in their investment decision?

1. Determine which social factors are most controversial or financially material in each industry 2. Assess how exposed certain companies are to these sector-specific social factors. 3. Assess critical social factors in their supply chain

SASB Materiality Map- 5 sustainability issues?

1. Environment 2. Social Capital 3. Human Capital 4. Business Model & Innovation 5. Leadership & Governance

3 players of Pension Funds?

1. Executives, 2. Trustees, 3. Beneficiaries

How to develop a scorecard?

1. Identify sector or company specific ESG items. 2. Breakdown issues into a number of indicators (e.g. policy, measures, disclosure). 3. Determine a scoring system based on what good/best practice looks like for each indicator/issue. 4. Assess a company and give it a score. 5. Calculate aggregated scores at issue level, dimension level (environmental, social or governance level) or total score level (depending on the relative weight of each issue). 6. Benchmark the company's performance against industry averages or peer group (optional).

What are the 3 thematic priorities of the EU environmental and climate legislation?

1. Protection and enhancement of natural capital 2. Establishment of a resource-efficient and green low-carbon economy 3. Protecting the citizens' health and wellbeing

6 voluntary PRI Principles?

1. Incorporate ESG issues into investment analysis and decision-making processes. 2. Be active owners and incorporate ESG issues into our ownership policies and practices. 3. Seek appropriate disclosure on ESG issues by the entities in which we invest. 4. Promote acceptance and implementation of the principles within the investment industry. 5. Work together to enhance our effectiveness in implementing the principles. 6. Report on our activities and progress towards implementing the principles.

3 ways Institutional Investors reflect ESG considerations?

1. Investment Decision Making, 2. Shareholder/Corporate Engagement (boards and management), 3. Policy Engagement

Who are the 3 stakeholders under - Fund Promoters?

1. Investment consultants and retail investment advisers 2. Investment platforms 3. Fund labelers

6 dimensions of investing (McKinsey)

1. Investment mandate 2. Investment beliefs and strategy Investment operations enablers: 3. Tools and processes 4. Resources and organisation 5. Performance management 6. Public reporting

3 minimum requirements of PRI - incorporated in 2018?

1. Investment policy that covers the firm's responsible investment (RI) approach, covering >50% of assets under management (AUM). 2. Internal or external staff being responsible for implementing RI policy. 3. Senior-level commitment and accountability mechanisms for RI implementation.

3 steps for qualitative ESG analysis?

1. Investment teams analyse ESG data to form their opinion on the ability of the firm to manage certain ESG issues. 2. They combine this opinion with their financial analysis by linking specific aspects of the company's ESG risk management strategy to different value drivers (such as costs, revenues, profits and capital expenditure requirements). 3. Analysts and portfolio managers then seek to integrate their opinion in a quantified way in their financial models by adjusting assumptions used in the model, such as growth, margins or costs of capital.

2 primary advantages of automation?

1. It is associated with faster production and lower labour costs 2. Replaces hard, physical or monotonous work

Globalisation can be positive and negative:

1. It led to increased efficiency in the markets, resulting in wider availability of products at lower costs 2. It is claimed to be detrimental to social well-being due to social structural inequality

How does internalisation happen (car industry example)?

1. Market-based instruments, e.g. charges, taxes and tradable permits; 2. Regulatory instruments, e.g. vehicle emission and safety standards, traffic restrictions; or 3. Voluntary instruments, e.g. agreements with the car industry to reduce CO2 emissions from new

What are the 3 key committees of the board?

1. Nominations Committee 2. Audit Committee 3. Remuneration Committee

2 negative implications of globalisation

1. Offshoring 2. Dependency

2 collective engagement platforms?

1. PRI - The Collaboration Platform 2. The Investor Forum

what are the 2 organizations that provided a definition and scope of ESG?

1. PRI and 2. FTSE Russell

Who are the 3 stakeholders under - Asset Owners?

1. Pension funds 2. Insurance 3. Individual (retail) investors and wealth management

Climate change affects the financial system through what 2 main types of risks?

1. Physical risk arises from damage to property, infrastructure and land 2. Transition risk results from changes in climate policy, technology, and consumer and market sentiment during the transition to a lower-carbon economy

Aging population effects on society

1. Ratio between active and inactive part of the workforce drops, impacting national tax revenues and challenging pension systems 2. Older people have higher accumulated savings per head than younger people, but spend less on consumer goods, which is a business risk for some Industries.

Elements of ESG analysis?

1. Red flag indicators 2. Company questionnaires and management interviews 3. Checks with outside experts 4. Watch lists 5. Internal ESG research 6. External ESG research 7. ESG agenda items at investment committees or CIO-level meetings

two potential approaches on how to treat ESG coverage gaps:

1. Rescale the scoreable portion of the portfolio to 100% by proportionally resizing each scoreable position 2. Apply Bayesian inference to the coverage ratio, effectively grossing it up to 100% by probabilistic inference (Both these approaches are reasonable with coverage gaps of up to 25%)

3 UNEP FI Framework Principles?

1. Responsible Investment (PRI), 2. Sustainable Insurance (PSI) 3. Responsible Banking (PRB)

Investors typically address the effects to risk-adjusted returns of ESG integration in portfolio management through 2 dimensions:

1. Risk mitigation 2. Alpha generation

Governments have recognized 3 main ways in which RI plays a part in creating positive outcomes for society - way 1?

1. Social security systems and public pensions are struggling, many of their citizens are turning to corporate or private pension plans later on in life

What are the 3 dominant approaches characterized by 'responsible investment'?

1. exclusions-based investing; 2. ESG investing; and 3. impact investing

3 steps in building ESG indices?

1. The index typically relies upon rules-based criteria assessed on underlying ESG scores or metrics. 2. These then go into a formula to tilt company weightings or exclude entire companies based on ESG scores and hurdles. 3. These scores may be sourced by other ESG service providers. For instance, Sustainalytics started providing FTSE Russell with underlying data from 2019 (and had provided Morningstar with data before this).

what are the 4 major consequences found from the Berg et al. study (low correlation/agreement between the various rating agenicies) ?

1. The information that decision-makers receive from ESG rating agencies is relatively noisy 2. ESG performance is less likely to be reflected in corporate stock and bond prices, as investors face a challenge when trying to identify out-performers and laggards. 3. the divergence hampers the ambition of companies to improve their ESG performance because they receive mixed signals from rating agencies about which actions are expected and will be valued to the market 4. The divergence of ratings poses a challenge for empirical research, as using one rating vs another may alter a study's results and conclusions.

Green Loan Principles - established in 2018 - are underpinned by what 4 pillars?

1. There is clear green use of loan proceeds 2. The project's sustainability objectives have been clearly evaluated and communicated to lenders 3. Loan proceeds are strictly managed through project accounts 4. Detailed and strict reporting is mandated

4 concerns expressed by critics of ESG investing?

1. Too inclusive of poor companies. 2. Dubious assessment criteria. 3. Quality of data 4. Potential lack of emphasis of long-term improvements

10 key features that the Investor Forum publishes of their private collective engagement framework?

1. Trusted facilitator, not an adviser 2. Opt in/opt out 3. Complementary to members' direct engagement 4. Confidentiality 5. Nominated key engagement contact 6. Hub and spoke model 7. No inside information 8. No-concert party and no-group 9. Heightened procedures 10. Conflict of interest avoidance

3 UN Initiatives?

1. UN Global Compact 2. UN Environment Program Finance Initiative 3. UN Framework Convention on Climate Change

What 2 guidelines, with respect to human rights, have a direct effect on companies and investors?

1. United Nations Guiding Principles on Business and Human Rights (UNGPs) 2. OECD Guidelines for Multinational Enterprises (MNEs)

The PRI recommends which 8 potential mechanisms to act as engaged owners in infrastructure:

1. Use ESG assessments undertaken during due diligence to prioritise attention to ESG considerations and potential for improving profitability, efficiency and risk management. 2. Include material ESG risks and opportunities identified during due diligence into the post-acquisition plan of each asset or project company and integrate this into asset management activities. 3. Engage with, and encourage, the management of the business to act on the identified ESG risks and opportunities using the mechanisms available. 4. Define and communicate your expectations of ESG operations and maintenance performance to the infrastructure business managers. 5. Ensure ESG factors identified as material during due diligence are explicitly woven into asset-level policies. 6. Advocate a governance framework that clearly articulates who has responsibility for ESG and sustainability. 7. Set performance targets for preserving or improving environmental and social impact, including regular reports to the board and investors. 8. Where possible, make ESG information and expertise available to the asset or project company to help it develop capacity.

4 investment beliefs from AustraliaSuper?

1. We return all profits to members. 2. We believe in active management - both asset allocation and stock selection. 3. We use our scale to reduce costs and better structure investments. 4. We're aware of our responsibility to the broader community, consistent with our obligations to maximise benefits to members.

What are the multiple forms of single-tier boards?

1. a single exec sits on the board and is both Chair & CEO (USA, France) 2. single-tier board dominated by executive directors (Japan) 3. single-tier board has a few executive directors and a majority of non-executives (most independent) and one of whom acts as chair (most other countries)

4 issues that investors have to annually vote on?

1. accepting the reports and accounts 2. board appointments 3. the appointment of the auditor and perhaps their fees 4. executive remuneration

5 themes that underline the 18 principles of the UK's Corporate Governance Code?

1. board leadership and company purpose 2. division of responsibilities 3. composition, succession and evaluation 4. audit, risk and internal control 5. remuneration

ICGN's Global Governance Principles - 6 questions about the independance of an individual who:

1. had been an executive at the company/subsidiary/adviser, and there was not an appropriate gap between their employment and joining the board 2. receives, or has received, incentive pay from the company, or receives fees additional to directors' fees 3. has close family ties with any of the company's advisers, directors or senior management 4. holds cross-directorships or has significant links with other directors through involvement in other companies or bodies 5. is a significant shareholder in the company, or is an officer of, or otherwise associated with a significant shareholder, or is a nominee or formal representative of a shareholder or the state 6. has been a director of the company for a long enough period that independence may have become compromised

(in 2015) the PLSA published a disclosure guide for public equities on ESG integration and stewardship activities, asking for separate disclosure on both:

1. identification of ESG risk; and 2. the management and monitoring of ESG risks and opportunities, with suggested possible disclosures in respect of each.

In what 2 scenarios are class tests applied for minority shareholders?

1. if a transaction affects more than 5% of any of a company's assets, profits, value or capital, there must be additional disclosures (Class 2 transactions) 2. if it affects more than 35% of any of them then there must be a shareholder vote to approve the deal, based on detailed justifications (Class 1 transactions)

a company's human capital development ensures that the workforce:

1. is well equipped for completing tasks 2. operates under the latest standards and regulations 3. remains motivated

Top 3 shareholder resolution types in 2019 in America?

1. lobbying 2. environmental impact 3. political contributions

Litigation may affect Pension Fund Trustees due what 2 things?

1. losses caused by climate change and 2. breach of fiduciary duties

How does the PWLF engage with their investee companies?

1. measure their performance on living wage 2. discuss the assessment results 3. support innovative pilots

What 3 measures will impact and help address all the remaining SDGs?

1. mitigation 2. adaptation 3. resilience (of climate change)

examples of Unmanageable Risk being 1. Manageable and 2. not (fully) manageable?

1. risk of on the job injuries through - establishing safety procedures, having emergency response plans and safety drills, and promoting a safe culture 2. carbon emissions of aeroplanes in flight

external social factors?

1. stakeholder opposition and controversial sourcing 2. product liability and consumer protection 3. social opportunities 4. animal welfare and antimicrobial resistance

Stern Review on the Economics of Climate Change (Stern Report 2006) - 2 conclusions?

1. that climate change is the greatest and widest-ranging market failure ever seen, presenting a unique challenge for economics and that early action far outweighs the costs of not acting. 2. without action, the overall costs of climate change would be equivalent to losing at least 5% of GDP each year, now and forever.

Portfolio risks can be divided into 2 portions:

1. the isolated risk of the individual asset or individual investment strategy; and 2. the correlation risk that emerges from the combination of all the assets and strategies.

The ESG Risk Rating scoring system for a company is best thought of as occurring in three stages on the issue level:

1. the starting point is exposure; 2. the next stage is management; and 3. the final stage is calculating unmanaged risk, using the concept of risk decomposition.

UNGP's 3 pillars on how states/business should implement the framework

1. the state duty to protect human rights 2.the corporate responsibility to respect human rights 3. access to remedy for victims of business-related abuses

2 categorizations of social factors?

1. those impacting external stakeholders (customer, community, government) 2. groups of internal stakeholders (employees of a company)

Ways to enact shareholder engagement?

1. via dialogue with the corporate officers/board/management team or 2. through voting powers

social factors that impact internal stakeholders?

1. working conditions 2. labour standards 3.gender balance 4.pay ratios

For an investor analyzing a company on human capital development, they should consider if the business:

1.identifies required skills or competencies to deliver on its strategy, and gaps within the company and areas of skill shortage in the industry? 2. develops an attractive value proposition to attract talent and develops competencies of internal employees to retain talent? 3.develops measures to monitor its investment in human capital development and its return on investment (KPIs, ability to fill vacancies with internal candidates)?

2013 report, Climate Change, Action, Trends and Implications for Business, the Inter-governmental Panel on Climate Change (IPCC) considered four potential future scenarios?

1/ Emissions continuing to rise at current levels; 2/ Emissions rising until 2080 then falling; 3/ Emissions stabilising at half today's levels by 2080; 4/ Emissions being halved by 2050.

Environmental risk assessments are conducted at what levels?

1/ asset level, 2/ portfolio level, and 3/ the macroeconomic or systemic level

How many "global risks over the next 10 years" did the World Economic Forum identify in 2020?

10

How many principles does the UNGC adhere to?

10

How many members does the UNEP FI work with?

300 - banks, insurers and investors

What % of the global population live near a coastline ?

70%

How many reasons to integrate ESG?

7: Financial Materiality, Financial Performance, Fiduciary Duty, Economics, Impact & Ethics, Client Demand and Regulation

How many corporate signatories does the UNGC have?

8,000

What % of Global GDP do cities represent?

80%

What % of alpha can be attributed to portfolio factor risk rather than stock-specific risk?

80%

How many stakeholders shape responsible investment?

8: 1. Asset owners 2. Asset managers 3. Fund Promoters 4. Financial Services (investment banks, investment research, stock exchanges, financial and ESG rating agencies) 5. Policymakers and regulators 6. Investees 7. Government 8. Civil society and academia

What is a business moat and where does the term come from?

A business' competitive advantage and comes from Warren Buffet's Annual Letters

Institutional Investors Group on Climate Change scenario framework?

Approach climate-related scenario analysis with two objectives: 1- Financial impact - enables the assessment and pricing of climaterelated risks and opportunities 2- Alignment - aligning the portfolio with a two degrees or lower future

Which article in the French Law on Energy Transition for Green Growth requires institutional investors to consider climate change?

Article 173-VI - requires both fund managers and asset owners (in France, these are primarily insurance firms) to describe, across all asset classes, how they incorporate ESG factors into their investment strategy.

Internalisation?

As environmental and social regulation and taxation rise, it is expected that an increasing proportion of this cost might be forced into companies' accounts

Who plays a key role in proposing new products and approaches to considering ESG?

Asset Managers

What other country's stewardship code has a similar one to Principle 4 of the UK's Stewardship Code?

Australia - Australian Asset Owner Stewardship Code, developed by the industry body Australian Council of Superannuation Investors (ACSI), had a similar expectation in place, in its principle 5

Correlation between climate change speed and adaptation rate?

Negative: faster the climate changes, the more challenging it is to adapt

Which of the following is not covered by the OECD Guidelines for Multinational Enterprises (MNEs)? A. Consumer interests. B. Animal welfare. C. Information disclosure. D. Combating bribery.

B. Animal welfare.

Which report was commissioned by the United Nations (UN) General Assembly's World Commission on Environment and Development (WCED) to propose long-term solutions for bringing about sustainable development? A. Freshfields Report. B. Brundtland Report. C. Stern Report. D. Walker report.

B. Brundtland Report.

Which of the following strategic asset allocation models is driven by changes in risk tolerance, typically induced by cumulative performance relative to investment goals or an approaching investment horizon? A. Liability driven asset allocation. B. Dynamic asset allocation (DAA). C. Factor risk allocation. D. Mean-variance optimisation (MVO).

B. Dynamic asset allocation (DAA).

Which social factor does the Bangladesh Investor Initiative aim to address? A. Employee diversity. B. Human rights. C. Labour rights. D. Human capital development..

B. Human rights.

Although institutional investors tend to dominate the financial market, interest by retail investors in responsible investing has been steadily growing. Under data compiled by the GSIA, in 2018, the retail portion had grown by what percentage? A. Interest by retail investors in responsible investing has grown by 15% B. Interest by retail investors in responsible investing has grown by 25% C. Interest by retail investors in responsible investing has grown by 35% D. Interest by retail investors in responsible investing has grown by 45%

B. Interest by retail investors in responsible investing has grown by 25%

Based on the CICERO shades of green methodology that determine how a bond aligns with a low-carbon resilient future, how would reconfigured plug-in bus system be classified? A. Dark green. B. Medium green. C. White. D. Light green.

B. Medium green.

Stakeholder Capitalism

Business leaders respect needs of their stakeholders (investors, customers, employees, suppliers, local community, etc)

Which of the following is considered to be crucial for the next wave of responsible investment? A. Ensuring that sovereign wealth fund advisors incorporate ESG factors into their core service provision. B. Ensuring that pension funds advisors incorporate ESG factors into their core service provision. C. Ensuring that investment consultants and retail financial advisors incorporate ESG factors into their core service provision D. Ensuring that insurance fund advisors incorporate ESG factors into their core service provision.

C. Ensuring that investment consultants and retail financial advisors incorporate ESG factors into their core service provision

Passive and index approaches to the integration of ESG analysis into investment decisions may be best described in which of the following ways? A. Passive and index approaches typically gather data that is similar to fundamental investors but tends to be over larger data sets. B. Passive and index approaches typically integrate ESG factors alongside other factors, such as value, size, momentum, growth and volatility. C. Passive and index approaches may tilt towards ESG factors chosen by investors. D. Passive and index approaches use ESG data to adjust company or sector weights after parsing the ESG data through rules based formulae.

C. Passive and index approaches may tilt towards ESG factors chosen by investors.

Which of the following is not a theme followed by the Corporate Human Rights Benchmark? A. Governance and policy commitments. B. Transparency. C. Shareholder rights and commitments. D. Remedies and grievance mechanisms.

C. Shareholder rights and commitments.

For asset owners and multi-asset managers, which of the following may account for as much as 90% of the variability in investment returns of a typical fund over time. A. Stock selection. B. Tactical asset allocation. C. Strategic asset allocation. D. Immunisation.

C. Strategic asset allocation.

Which country has still not adopted ETS?

China (in 2020) - Emissions trading was initially trialled in the UK in the early 2000s. The European Union subsequently adopted ETS in 2005. Schemes are now operating in California, the Eastern seaboard of the US and some Canadian provinces.

2 most common faith-based investors?

Christian investors and Islamic investors

SDG 6

Clean water and sanitation: ensure availability and sustainable management of water and sanitation for all

In which report did the IPCC consider 4 potential futures depending on what policies governments adopt to cut emissions?

Climate Change, Action, Trends and Implications for Business (2013 report)

Who are the ESG standard setters?

Climate Disclosure Standards Board, the CDP (formerly the Carbon Disclosure Project), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) who have come together to try to coalesce around a consistent approach, as the Corporate Reporting Dialogue.

Conflicts of interest mainly stem from?

Codes developed by regulators

Paris Agreement

Commits developed and emerging economies to strengthen the response to the threat of climate change by keeping a global temperature rise this century well below 2°C (3.6°F) above pre-industrial levels

Kyoto Protocol

Commits industrialised countries to limit and reduce their GHG emissions in accordance with agreed individual targets.

SDG 14

Conserve and sustainably use the oceans, seas and marine resources for sustainable development

Which of the following are, respectively, the most likely and least likely responsible investment clauses to be incorporated within investment mandates? A. Specific requirements for PSG incorporation into decision-making, and voting requirements. B. Reporting on agreed responsible investment activities, and voting requirements. C. Reporting on the impact of PSG issues of financial performance, and engagement requirements. D. Acting in accordance with responsible investment beliefs of policy, and engagement requirements.

D. Acting in accordance with responsible investment beliefs of policy, and engagement requirements.

An institutional investor believes that ESG factors are relevant to portfolio performance. They also feel that their duties to their beneficiaries include consideration of their long-term. hey will accept some financial sacrifice in order to support ESG-related beliefs. This is most likely to be consistent with a: A. Modern investor B. Traditional investor C. Universal investor D. Broader goals investor

D. Broader goals investor

Within the UK, there are several Stewardship Code principles that apply to institutional investors. Which of the following is not one of those principles? A. Monitoring. B. Voting. C. Engagement. D. Capital structure.

D. Capital structure.

Which of the following factors will be higher for alternative investments than for other financial investments? A. Correlated returns. B. Liquidity premium. C. Reporting obligations. D. Direct investment effect.

D. Direct investment effect.

Which one of the following is not typically a way that institutional investors typically reflect ESG considerations? A. Investment-decision making B. Policy engagement C. Corporate engagement D. Externality engagement

D. Externality engagement

Which of the following asset classes has seen the lowest investment manager progress on ESG integration? A. Public equities. B. Infrastructure. C. Fixed income. D. Hedge funds

D. Hedge funds

Which of the following offer more than 1,000 ESG indices with a methodology based on ESG ratings with screening criteria available on tobacco, weapons, coal, fossil fuel, Catholic and Islamic values? A. FTSE Russell. B. FTSE4Good. C. JP Morgan ESG EMD. D. MSCI ESG

D. MSCI ESG

Which of the following contains an item that is not one of the ten themes identified within the MSCI ESG heirarchy? A. Pollution and waste, stakeholder opposition, social opportunities. B. Natural resources, product liability, corporate governance. C. Climate change, human capital, corporate behaviour. D. Opportunities, human capital, social engineering.

D. Opportunities, human capital, social engineering.

If the software solution to the security concerns is ineffective but the manufacturer still presses ahead with production, how would a purely qualitative equity investor incorporate ESG risk factors into their investment decision framework? A. Qualitative adjustment to relative valuation models B. Qualitative adjustment to forecast cash flows C. Qualitative adjustment to the cost of capital D. Qualitative adjustment at the end of the analysis process

D. Qualitative adjustment at the end of the analysis process

4 megatrends?

Emerging and Urban, Technological Disruption, Demographic Changes and Wealth Inequality, Climate Change and Resource Scarcity

What 2 objectives does the IIGCC take for undertaking scenario analysis?

Financial Impact and Alignment

How do passive investors typically start engagement?

First with an issue (usually via a letter), whether identified by the team from news or broader analysis, or through a screening or other research provider, and seek to engage with all the companies impacted by that issue (which may be a sector as a whole, or broader than this). Then, by dialogue with those impacted

4 themes of TCFD?

Governance, Strategy, Risk Management, Metrics & Targets

What product allocates 95% or more of the proceeds to climate change solutions and are aligned to the Climate Bonds Taxonomy?

Green Bonds

Most common strategy used in Green Investment?

Green bonds - where proceeds of the bond issue are used to raise money for environmental projects

one form of green securitisation?

Green collateralised loan obligations (CLO)

Growing challenge to the industry?

Greenwashing

What is at the heart of the Paris Agreement?

Nationally determined contributions (NDCs)

Largest ESG investing strategy in Europe?

Negative Screening

Are all thematic funds considered responsible investments?

No - it depends on the theme of the fund and the eSG characteristics of the investee companies

Is there an industry standard for the scope of ESG?

No - it is dynamic

Which asset owner constructs and implements the most visible asset owner exclusion lists?

Norges Bank, in its Norwegian sovereign wealth fund (SWF)

Split incentive problem?

Occurs in real estate when the tenants and operators might think differently to the owners and constructors

ESG integration's effect on externalities?

Reduce externalities

SDG 10

Reduce inequality within and among countries

Sustainable Investment?

Selection of assets that contributes to a sustainable economy. May include best-in-class and also that of ESG integration, which considers how ESG issue impact an assets risk and return profile. Can be used to describe companies with positive impact or companies that will benefit from sustainable macro-trends. Can also be used to screen out activities considered contrary to long-term environmental and social sustainability

Thematic Investment?

Selection of companies that sit under a sustainability-related theme

What is the chronological order for ESG scorecard development?

Step 1: Identify sector or company specific ESG items. Step 2: Breakdown issues into a number of indicators. Step 3: Determine a scoring system based on what good or best practice looks like for each indicator or issue. Step 4: Assess a company and give it a score. Step 5: Calculate aggregated scores at issue level, dimension level, or total score level. Step 6: Benchmark the company's performance against industry averages or peer group.

Are stewardship codes asset class specific?

Stewardship codes are expressed to apply to all asset classes but their language tends to reveal an initial focus in practice on public equity investment.

Who issued UK's first stewardship code in 2010?

The Financial Reporting Council (FRC) - largely unchanged from the existing 'Statement of Principles on the Responsibilities of Institutional Shareholders and Agents' issued by the Institutional Shareholders Committee (dated 2005, but itself built upon a 1991 document, 'The Responsibilities of Institutional Shareholders in the UK').

What did the 2015 report from the OECD say about income inequality?

The average income of the richest 10% of the population is about 9x that of the poorest 10% across the OECD.

UK Walker Review (2009)

The report formally called for the Financial Reporting Council (FRC) to issue a stewardship code to provide a framework for shareholder engagement, and that this code was to be reinforced by a Financial Services Authority (FSA - now the Financial Conduct Authority (FCA)) requirement that any registered fund manager must make a statement as to whether and how it approached its principles.

What has become a bigger priority for policymakers, businesses and citizens?

waste and waste management

What provided the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity?

UNGPs

How much expenditure is expected over next 15 years on infrastructure?

US $90 trillion

Impact from the Megatrend - Technological Disruption?

Unemployment -as robots replace humans

How do SRI investors score companies?

Using a chosen set of criteria, using sector specific weightings. A hurdle is then set for inclusion within the investment universe. This serves as a first screen to identify a list of ESG qualified companies.

What is the most visible element of stewardship and engagement?

Voting - given the public nature of company general meetings, where the results are announced publicly by the company, and the events themselves are often open to the media

Who Cares Wins (2004)?

a report which effectively coined the term ESG and resulted from the joint initiative led by Kofi Annan

Responsible Business Conduct for Institutional Investors

a study that helps institutional investors implement the due diligence recommendations of the OECD Guidelines for MNEs in order to prevent or address adverse impacts related to human and labour rights, the environment and corruption in their investment portfolios.

emission trading system (ETS) ?

a system where emitters can trade emission units to meet their emission targets

Just transition?

a transition that shares the financial and social burden in a fair way

What did the 2006 Stern Report say about climate change?

a unique challenge for economics and the biggest market failure ever seen

Tobin's Q?

a valuation measure based on the ratio between a company's market value and the replacement cost of its assets

ESG external research and analysis can be categorised in what 2 types of research?

academic research and practitioner research.

Which approach to ESG integration utilises the greatest resources?

active ownership

Inclusion in the taxonomy is restricted to what?

activities that contribute to at least one of the 6 environmental objectives

climate change adaptation?

adapting to the climate change already taking place and increasing climate change resilience

CHRB's 3 initial industries

agricultural products, apparel and extractives

executive pay?

aligns the interests of management with those of the owners by creating a balanced compensation package that includes performance-related remuneration based on long-term goals and that vests over a long-term period

supervisory board (two-tier board)?

all members being non-executives

Forced labour

all work or service which is exacted from any person under the menace of any penalty and for which said person has not offered himself voluntarily

What does the NCP allow companies to do?

allows companies to measure, value and integrate natural capital impacts and dependencies into existing business processes

IPR (Inevitable Policy Response)?

assumes that, in the current environment where the policy response to climate change is inadequate - perhaps best characterised as "business as usual" - governments may potentially respond to increasing climate-borne damage in a sudden reflex reaction.

What is utilised by a fixed income practitioner when evaluating ESG aspects?

bankruptcy risk, negative credit events, and time horizons

What is the first item at many annual general meetings (AGMs)?

an acceptance of the report and accounts often through a formal vote

Transition Pathway Initiative

an asset-owner led initiative that assesses companies' preparation for the transition to a low carbon economy

Corporate Governance Policies of the Council of Institutional Investors (CII)?

an indication of the likely positions of CII members on issues that might go to a shareholder vote or be subject to public policy debate

Frequency of PRI reporting?

annual

frequency of investor voting?

annual, at the annual general meeting (AGM), and occasionally in between at special meetings, in most countries called extraordinary general meetings (EGMs).

Blue Economy?

another name for "the oceans' resources" which is a source of economic growth

socially responsible investing (SRI)

approach that applies social and environmental criteria when evaluating companies

Say on Pay vote?

approves executive remuneration to be put to shareholder at least every third year

concept of material environmental issues?

are factors that could have a significant positive or negative impact on a company's business model and value drivers; these factors differ from one sector to another.

The Global Real Estate Sustainability Benchmark (GRESB)?

assesses and benchmarks ESG performance of real estate assets.

What technique represents a relatively easy way to attribute the performance drag or enhancement that comes from ESG investing?

assessing the effect of removing one sector from the portfolio (i.e. exclusion)

What term typically used to describe the analysis of ESG datasets through the use of algorithms and natural language processes to determine company quality, reputational risk and many forward-looking aspects of business strength and valuation?

big data analytics

Half of the 'Guide to Board Effectiveness' is made up of which of the 5 themes?

board leadership and company purpose

Transition bonds?

bonds issued by high-emission companies to finance their reduction in greenhouse gas emissions

What is a fundamental step towards achieving climate targets (source: Ellen Mac Arthur Foundation report)?

circular economy

Who is at the frontline of adaptation and resilience due to their high concentration of people, assets and economic activities?

cities and municipalities

Commonsense Corporate Governance Principles (July 2016 and revised in October 2018)?

created by a coalition of US companies and focus mostly on the inner workings of corporate governance, board effectiveness and accountability, and also alignment through pay

Integrated Reporting Framework (IRF)

created by the International Integrated Reporting Council (IIRC), encourages companies to integrate sustainability within their strategy and risk assessment by integrating it into the traditional annual report.

The aims and objectives for integrating ESG into an investment process may include: (a) Meeting requirements under PRI regulations. (b) Increasing reputational risk at a firm and investment level. (c) Meeting internal audit demands. (d) Improving the quality of engagement and stewardship activities, and increasing investment returns.

d) Improving the quality of engagement and stewardship activities, and increasing investment returns.

Where do human rights violations occur?

deep within supply chain, rarely directly in the company invested in

Biodiversity?

defined as variability among living organisms from all sources including, inter alia, terrestrial, marine and other aquatic eco-systems and the ecological complexes of which they are part of; this includes diversity within species, between species and of ecosystems.

carbon tax?

directly sets a price on carbon by defining an explicit tax rate on greenhouse gas emissions

the most important type of diversity needed on a board?

diversity of thought

The Brunel Asset Management Accord

document emphasises that short-term underperformance is not in itself likely to give rise to undue concern for the client when evaluating the manager of the fund

Brunel Asset Management Accord

document sets out a pension manager's approach to long-term investment and ESG factors, but in a form of words that it believes is less-suited to the hard legal language of a specific contract, but more to a softer form of agreement whereby the fund managers are enabled more clearly to understand the client's perspective and so, align to it.

A portfolio manager would optimise their portfolio for ESG considerations for the purpose of:

enhancing risk-return profile

Principles for Responsible Investment (PRI)

established in 2006 by UNEP FI and the UN Global Compact, now applied by half the world's institutional investors (US$83tn).

Principles for Sustainable Insurance (PSI)

established in 2012 by UNEP FI and today applied by one-quarter of the world's insurers (25% of world premium).

What is the major incentive in regards to alignment for executives and why?

executive pay - focus on addressing the agency problem and helping to ensure that executives are not subject to incentives to perform in their own interests and contrary to that of the owners

initial 2004 objective of the UN Global Compact?

find ways to integrate ESG into capital markets

What did Bernile, Bhagwat and Yonker's 2017 study conclude?

firms with diverse boards tend to take on less financial risk and adapt more stable policies

According to the 2018 GSIA Market Review, what is the second largest asset class allocation across regions?

fixed income (36%)

what was the largest asset class allocation in 2016?

fixed income (64%)

Asset owners - regulation?

focus on pension funds, requiring the integration of ESG and disclose the process and outcome

What is the most important step when incorporating social factors in investment decision-making?

focus on the most copntreversial/financially material

Global Impact Investing Network (GIIN)

focuses on lowering the barriers to impact investment by building critical infrastructure and developing activities, education and research that help accelerate the development of a coherent impact investing industry.

Farm Animal Investment Risk and Return (FAIRR)

focuses on the increased prevalence of antimicrobial resistance due to intensive farming practices and poor antibiotic stewardship

What 2 EU climate benchmarks are to be adopted in 2020?

for equities and corporate bonds

conduct-related exclusions?

generally company or country specific

OECD Corporate Governance Factbook

good source for detail on the governance structures and approaches in 49 jurisdictions

of the 3 ESG factors, which one is most taken into consideration by traditional investment analysts and has the clearest link to financial performance?

governance (74% in EMEA, 67% globally)

Stewardship?

governs the interaction between investors and investee companies and aims to protect shareholders and beneficiaries along with the stability of the markets - Mode codes are voluntary

Green loans?

green and sustainability loans are linked to climate impact key performance indicators

Corporate disclosure?

guidelines that come from governments or stock exchanges to require/encourage investee companies to disclose detail on material ESG risks

Germany's two-tier board structure?

half: members of the supervisory board and half: from the workforce

Agency problem?

has been identified as an inevitable consequence of the seperation of ownership and control - the interests of these professional manager (the agents) may not always be wholly aligned with the interests of the owners of the business and so, the company may not be run in the way the owners wish

What changes were set forth in October 2019 to the UK's Occupational Pension Scheme Investment Regulations (2005)?

have required pension schemes to set out in their Statement of Investment Principles (SIP) their policies on how they consider financially material ESG factors within their investment approach, as well as the extent to which they undertake stewardship, including engagement and voting.

SASB materiality maps

helpful for investors determining what is material for reporting and facilitates more standardised benchmarking process.

Board appraisals

helps boards to become more effective by bringing problems to the surface

How does natural capital help businesses?

helps businesses identify, measure, value and prioritise their impacts and dependencies on biodiversity and the ecosystem

International Organisation for Standardisation (ISO)?

helps companies to manage their energy efficiently through a set of management system standards

What do regulators consider?

how ESG factors might impact the stability of economies, markets and financial instruments

According to the 2016 PRI report, How Asset Owners Can Drive Responsible Investment, investment mandates should require investment managers to?

i. Implement the asset owners' investment beliefs and relevant investment policies. ii. Implement effective stewardship processes aligned with the asset owner's ESG policies. iii. Integrate ESG issues into their investment research, analysis and decision-making processes. iv. Invest in a manner consistent with the asset owner's time horizons. v. Engage constructively and proactively with policymakers on responsible investment and ESG-related issues. vi. Report on the actions taken and outcomes achieved.

'Prior' - Free Prior Informed Consent (FPIC)?

implies that consent is sought sufficiently in advance of any activities being either commenced or authorized, and time for the consultation process to occur must be guaranteed by the relative agentrs

How is materiality measured?

in terms of likelihood and magnitude of impact on a company's financial performance

Over what issues are equity and debt investors direct rivals?

in the case of some transactions or capital structurings, or in the case of the company nearing insolvency.

ETS?

incentivises industries to reduce or limit emissions

What caused overfishing of oceans?

increase in human population

Who populates the audit and remuneration committees?

independent non-executive directors

Scope 2 emissions

indirect greenhouse gas emissions associated with the generation of purchased electricity, heating/cooling, or steam off site, through a utility provider for the entity's consumption

Which asset owner is most likely to apply screened funds in their investment process?

individual investor

The Brundtland Report

introduced the concept of sustainable development and described how it could be achieved

What should be specified within an ESG investment mandate?

investment goals; investment beliefs

What can pension funds use to integrate long-termism (including ESG factors) into their investment belief?

investment mandates

Alternative performance metrics (APMs)

is a way the management team masks weakening performance in their reporting. These are measures that are adjusted forms of accounting standard-approved measures of performance

Shareholder Engagement

is the active dialogue between companies and their investors, with the latter expressing clear views about areas of concern. Engagement helps ensure that the board of directors remember that they are accountable for their actions.

Primary role of an audit?

is to provide assurance on the financial statements, i.e. to prevent or detect any material errors or misstatements in the financial statements, which is achieved through checking a sample of accounting items and transactions.

What is the 'exposure dimension' incorporated in the ESG risk rating's emphasis on materiality?

it reflects the extent to which a company is exposed to material ESG risks identified at industry-level and affects the overall rating score for a company as well as its rating score for each material ESG issue.

occupational health focuses on?

limiting workforce exposures to minimize the risk of occupational diseases or injury

Ways in which a portfolio may be adversely impacted by environmental costs?

litigation costs, insurance premiums, tax charges, inflated input prices and the physical costs associated with disasters.

PRI report - public or private?

made available to the public, but the assessment is private to the member

Pension Fund - Executives?

manage the fund's day-to-day functioning

What is the second dimension incorporated in the ESG risk rating's emphasis on materiality?

management - can be considered as a set of company commitments and actions that demonstrate how a company approaches and handles an ESG issue through policies, programmes, quantitative performance and involvement in controversies, as well as its management of corporate governance

Circle of accountability stakeholders?

management, beneficiaries/workforce, asset owner, fund manager and corporate board (back to management)

Unmanaged Risk

material ESG risk that has not been managed by a company. It includes two types of risk: ▶ unmanageable risk, which cannot be addressed by company initiatives; and ▶ the management gap, which represents risks that could be managed by a company through suitable initiatives but which may not yet be managed.

How is thematic investing expressed?

may be expressed both fundamentally and quantitatively through active quant strategies or more passive vehicles

'Consent' - Free Prior Informed Consent (FPIC)?

means a process in which participation and consultation are the central pillars

'Free' - Free Prior Informed Consent (FPIC)?

means that there is no manipulation or coercion of the indigenous people and that the process is self-directed by those affected by the project

Social Impact Bonds

mechanism to contract with the public sector which pays for enhanced social outcomes and passes on part of the savings achieved to the investors.

Which ESG investment approach is least naturally suited to accommodate the UN's SDGs?

negative screening

Is it possible to measure performance attribution for ESG at the portfolio-level?

no

What tends to cause the problem of over- disclosure?

non-material ESG information

proxy voting advisory firms?

offer analysis and (in most cases) voting recommendations across all public companies, and almost all institutions hire them to provide the pipework that ensure their voting decisions are delivered, and mostly also to provide advice on those voting decisions.

Indirect greenhouse gas emissions in supply chains are how much higher than those from direct operations?

on average four times

Why have passive ESG indices been criticized as being more active than they are presented?

opaque methodology and construction of ESG indices may include space for human judgement and bias

Bangladesh Accord

over 175 brands pledged to commit to higher fire and health safety standards in Bangladesh

How much of the world's oxygen does the ocean produce?

over half

Audit Committee?

overseas financial reporting and the audit, delivering accountability in the accounts

where does the clearest conflict of interest btw management and the shareholders occur?

pay

Pension Fund - Beneficiaries (or members)?

pay into the fund or are pensioners who benefit from the assets

EU Climate Transition Benchmark (EU CTB) ?

permits fossil fuel investments as part of a transition process

Access to the Proxy standard?

permits shareholders that fulfill certain criteria to add to a candidate to the company's formal proxy statement, avoiding the cost and administrative complexity of mounting a full proxy fight over board membership

primary ESG driver for an individual investor?

personal ethics and perspectives

What is the correlation between country ESG risk and credit ratings?

positive

correlation between positive ESG factors and financial performance?

positive

What are the observed outcomes of successful engagement?

positive abnormal financial returns and reduced downside risk

Which ESG investment approaches will portfolio managers more likely apply for Private equity?

positive screening or thematic focus

In Fixed Income, what is the greatest opportunity to push for conditions and disclosures around ESG?

pre-issuance (in private debt issuance)

key way in which fund managers have to respond to resource constraints?

prioritisation of engagements

negative externalities

private costs are lower than societal costs, resulting in market outcomes which may not be efficient or, in short, leading to 'market failures'..

Sustainability-linked Loans are in what markets?

private markets (not fully transparent)

Photosynthesis

process by which forests convert CO2 in the air to oxygen.

what potentially increases the risk of greenwashing?

process-driven approach of ESG

ESG is still largely characterised by its ?XX? approach for much of the investment management industry

process-oriented

Universal Decleration of Human Rights

proclaimed by the UN General Assembly on 10 December 1948 by General Assembly resolution 217A and is a common standard of achievements for all peoples and all nations

Freshfields Report?

produced by UNEP FI, which showed that ESG issues are relevant for financial valuation and thus, fiduciary duty.

Stewardship Checklist?

produced by the Pensions and Lifetime Savings Association (PLSA) for its members, which encourages just such a development of a broader philosophical approach. In this checklist (useful not just to pension schemes but for all asset owners) there are three key bullet points. Investors should: 1. Be clear about how stewardship fits within their investment strategy, policy and how it helps meet their investment objectives. 2.Seek to ensure that fund managers and other service providers deliver effective integration of long-term ESG factors into their investment approach. 3. Work with their advisers to consider the level of resource available for stewardship activities, which assets are covered and what the appropriate structure is.

Investment consultants and retail financial advisers?

professionals who help institutions and individuals set and meet long-term investment goals

The global financial crisis of 2008?

provided another reminder of the interdependence between societies, economies and financial markets

'The ICGN Model Mandate Initiative: Model contract terms between asset owners and managers'?

provides a helpful framework and proposes best practices for ESG-aware investment mandates around: ▶ the monitoring and use of ESG factors; ▶ the integration of ESG factors into investment decision-making; ▶ adherence to good practice around stewardship; and ▶ voting and reporting requirements.

According to the 2018 GSIA Market Review, which asset class has the largest allocation across regions?

public equities (51%)

5 Investment strategiy classifications?

quantitative (systemic, algorithmic), fundamental, active, passive or beta

biggest challenge in engagement?

question of resources (Does the investment firm have the time, the expertise and sufficient leverage with its investees to engage successfully?)

According to recent surveys, do more firms integrate ESG into investment processes in order to lower investment risk or to increase investment return?

recent surveys suggest that more firms do so to lower the risk rather than enhance returns

primary ESG driver for a life insurer?

recognition of implications of lengthy investment time horizons

Triple Bottom Line

recognition of the need for organizations to improve the state of people, the planet, and profit simultaneously if they are to achieve sustainable, long-term growth

Investee concern?

regarding a lack of access to reliable and consistent ESG data.

What is driving a need for greater engagement in relation to ESG in real estate?

regulatory changes

How would you go about measuring the weighted-average carbon intensity in a portfolio?

sum of the current value of the investments divided by the current portfolio value multiplied by the issuer's scope 1 and scope 2 Global green house gas emissions divided by the issuer's revenue

Task Force on Climate-related Financial disclosures (TCFD)

takes the Paris Agreement's 2°C (3.6°F) target and tries to operationalise it for the business world.

sector with low impact of cost of insurance?

technology

Fully-integrated ESG portfolios?

tend to be more concentrated and composed of high-conviction holdings based primarily on internal investment research

Natural capital?

term used to describe the relationship between nature and measuring and valuing nature's role in decision making

How do clients typically determine whether there is any substance to the ESG element of an investment process?

test hard cases and look at metrics such as the Sharpe Ratio

What does Sir Donald Brydon's review into the quality and effectiveness of audit propose?

that audit committees produce an annual audit and assurance plan which discloses the committee's expectations for overall assurance of company reporting, including both internal and external audit, which should make this coordination more apparent and perhaps more effective.

Rio Declaration states?

that businesses have a responsibility to ensure that activities within their own operations do not cause harm to the environment as businesses gain their legitimacy through meeting the needs of society

If there are concerns about the effectiveness or diversity of the board, what should the voting decision be about?

that needs to be reflected in voting decisions on director re-elections (and particularly in relation to the members of the nominations committee).

What led to pressure for heightened standards of corporate governance and board & auditor independence in Europe in 2003?

the 2003 failures at Ahold and Parmalat, in Netherlands and Italy respectively

Who published a set of guidelines on the use of APMs?

the European Securities and Markets Authority (ESMA) in 2015

Within private equity investments, who will undertake direct ESG engagement?

the General Partner (GP)

What international accounting tool does Carbon Footprinting apply?

the Greenhouse Gas Protocol Standards

2019 white paper, Defining stewardship and engagement?

the Investor Forum provides a framework for understanding the nature and key elements of stewardship.

What discouraged the maintenance of cross-shareholdings in Japan in 2015 and 2018?

the Japanese Corporate Governance Code - principle 1.4

What fueled the advance of Japanese governance standards and expectations for ESG disclosures across the market?

the Olympus scandal of 2011-12 (more than $1.5bn in losses were hidden) and 2015 Toshiba scandal of overstated profits

quantum?

the amount paid to executives, aggregated across all forms of remuneration

Types of Model adjustments based on ESG assessment?

the analyst may: (1) Make explicit forecast profit and loss, balance sheet and cash flows adjustments for specific factors such as litigation, stranded asset write-offs, etc.; (2) Adjust the cost of capital used in any discounted cash flow (DCF) model for changing ESG risk levels; (3) Make valuation ratio adjustments based on peer group comparisons.

Field Assistance Bulletin, No 2018-01 (2018)?

the regulator's views confirm that fiduciaries can vote proxies and use them if there is a reasonable expectation that such activities are likely to enhance the economic value of the investment after taking costs into account. It added that engagement might be prudent for indexed portfolios where ESG issues represented significant operational risks and costs.

Manageable risk factor (MRF)?

the share of risk that is manageable vs the share of risk that is unmanageable on a material ESG issue. ranging from 30% (unmanageable) to 100% (fully manageable)

Access to Medicine Index

the tool analyses how 20 of the world's largest pharmaceutical companies are addressing access to medicine in 106 low-to middle-income countries for 77 diseases, conditions and pathogens, evaluating them in areas where they have the biggest potential and responsibility to make change.

Green investment is a sub-category of what 2 investment types?

thematic investing and/or impact investing.

Pre-emption rights

these rights ensure that an investor has the ability to maintain its position in the company

ICGN's Global Governance Principles?

they set out an unusually complete investor perspective on independence criteria.

Japan, Taiwan and South Korea enjoy the structure of having statutory auditors in addition to the independent audit firm that assures the accounts. Typically, how many statutory auditors are there?

three or five statutory auditors.

How does MSCI assess material risks and opportunities for each industry?

through a quantitative model that compares ranges and average values in each industry for externalised impacts (such as carbon intensity, water intensity and injury rates)

How common is outsourcing of voting?

very common

what is a key tool to the active investor?

voting

'Guide to Board Effectiveness'?

was published alongside the new Code of Corporate Governance and applies the same structure, under the same 5 themes. It provides questions to assist board members when considering whether they are being fully effective in their roles

original objective of exclusionary screening?

was to impose a set of values or preferences to screen through an ethical or normative framework a portfolio's exposure to specific sectors

urban heat islands?

where urban areas produce and retain heat

Corporate Social Responsibility (CSR)

wide business concept that describes a company's commitment to conducting business in an ethical way.

Chain of accountability flows through?

workforce > management > corporate board > fund manager > asset owner > beneficiaries

Is water scarcity present on every continent?

yes

Are OECD Guidelines for MNEs voluntary?

yes: voluntary principles and standards

Proprietary ESG research could consist of:

» materiality frameworks; » ESG-integrated research notes; » research dashboards; » strengths, weaknesses, opportunities and threats (SWOT) analysis with ESG factors; » scenario analysis; and » relative rankings.

Challenges of Climate scenario analysis?

• Climate related risks are most complex macro-existential risks • There is no common set of scenario analysis methodology used by investors

Examples of stewardship codes from other markets?

▶ Global - ICGN Global Stewardship Principles. 10 ▶ Europe - European Fund and Asset Management Association Stewardship Code 2018.11 ▶ Hong Kong - Securities and Futures Commission Principles of Responsible Ownership 2016. 12 ▶ Japan - Financial Services Agency Principles for Responsible Institutional Investors 2017. 13 ▶ USA - Investor Stewardship Group Stewardship Principles.

What are the 2 dominant proxy firms that assist in processing votes and in providing advice on voting?

▶ ISS, with around 80% of the market; and ▶ Glass Lewis, with the bulk of the remaining 20%; along with ▶ a few much smaller rivals, which have some market share, especially in a few localised markets.

According to the Brunel Asset Management Accord, what are likely causes for concern?

▶ Persistent failure to adhere to Brunel's investment principles and the spirit of the Accord. ▶ A change in investment style, or investments that do not fit into the expected style. ▶ Lack of understanding of reasons for any underperformance, and/or a reluctance to learn lessons from mistakes. Conversely, complacency after good performance should be avoided. ▶ Failure to follow the investment restrictions or manage risk appropriately, including taking too little risk. ▶ Organisation instability or the loss of key personnel.

What do the 12 principles cover?

▶ Principles 1 to 3 and 5 to 6 of the new code cover structural issues within the investment institution such as governance, culture and conflicts ▶ Principles 7 and 8 integrate ESG factors into the investment process and include an effective oversight of service providers. The disclosures need to be explanations of how these processes have delivered effectively on behalf of clients and beneficiaries. ▶ Principles 9 to 12 regard engagement (and voting) activities. The intended outcome of these principles is to show substantive change at companies as a result of the engagement activity. ▶ principle 4 (most challenging!) which charges signatories with identifying and responding to market-wide and systemic risks. This type of additional disclosing imposes a burden even for those who already recognise this as being a stewardship responsibility.

For MSCI to score a company highly on a key issue, the management needs to be judged commensurate with the level of exposure:

▶ a company with high exposure must also have very strong management; but ▶ a company with limited exposure can have a more modest approach

What does the Global Real Estate Sustainability Benchmark (GRESB, founded in 2009) report provide?

▶ a composite of peer group information; ▶ overall portfolio key performance indicator (KPI) performance; ▶ aggregate environmental data in terms of usage and efficiency gains; ▶ a GRESB score that weights management, policy and disclosure, risks and opportunities and monitoring and Environmental Management Systems (EMS); ▶ environmental impact reduction targets; and ▶ data validation and assurance.

What are some of the proposed changes to Japan's Code?

▶ a move to require reporting on the outcomes of engagement activity (but this is downplayed and given little prominence) ▶ to extend coverage to all asset classes, not only equity; ▶ to incorporate sustainability and ESG; ▶ to add encouragement for asset owners to become involved in stewardship, and provide a little more clarity on their role in the stewardship hierarchy; and ▶ to clarify the position of service providers in the hierarchy, and add higher expectations of proxy advisers.

Elements of ESG integration?

▶ adjusting forecast financials, for example revenue, operating cost, asset book value or capital expenditure; ▶ adjusting valuation models or multiples, for instance discount rates, terminal values or ratios; ▶ adjusting credit risk and duration; ▶ managing risk, including exposure limits, scenario analysis, value-at-risk models; ▶ ESG factor tilts; ▶ ESG momentum tilts; ▶ strategic asset allocation, including thematic and ESG objective tilts; ▶ tactical asset allocation; and ▶ ESG controversies and positive ESG events

Different ways different managers integrate ESG:

▶ as a threshold requirement before investment can be considered; ▶ as a factor that informs the valuation; ▶ as a risk assessment that offers a level of confidence in the valuation; ▶ as a basis for stewardship engagement; or ▶ as a combination of two or more of these methods, which is very often the case.

UNEP FI recommends that real estate investment stakeholders:

▶ engage, directly or indirectly, on public policy to manage risks; ▶ support research on ESG and climate risks; and ▶ support sector initiatives to develop resources to understand risks and integrate ESG.

MSCI ESG opportunities combine:

▶ exposure indicates the relevance of the opportunity to a given company based on its current business and geographic segments; and ▶ management indicates the company's capacity to take advantage of the opportunity

Responses to resource constraints:

▶ hiring new resource; ▶ prioritising with care; ▶ expecting more ESG delivery from mainstream fund management teams; and ▶ using collective and collaborative engagement resources.

Indirect sources of ESG data?

▶ news articles; ▶ third-party reports and analysis; and ▶ investment and consulting research

GRESB benchmark portfolio report provides a composite of:

▶ peer group information; ▶ overall portfolio KPI performance; ▶ aggregate environmental data in terms of usage and efficiency gains; ▶ a GRESB score that weights management, policy and disclosure; ▶ risks and opportunities, monitoring and environmental management system (EMS); ▶ environmental impact reduction targets; and ▶ data validation and assurance.

The 12 new principles of the 2020 version of the UK Stewardship Code falls under what 2 functions?

▶ principles 1 to 8 address the foundations for stewardship; while ▶ principles 9 to 12 focus on the practical discharge of engagement responsibilities.

Primary Data?

▶ surveys; ▶ direct company communication; and ▶ company reports, presentations and public document

The two distinctions that many investment practitioners make in fundamental investment analysis?

▶ the difference between a company or business assessment; and ▶ a security, stock, bond or convertible (or other tradeable construct including derivatives) assessment.

PRI's guide to ESG engagement for fixed income investors recommends that investors should prioritise engagement based on:

▶ the size of a holding in the portfolio; ▶ lower credit quality issuers (with less balance sheet flexibility to absorb negative ESG impacts); ▶ key themes that are material to sectors; and ▶ issuers with low ESG scores.

Exclusions can be organized in 4 categories:

▶ universal; ▶ conduct-related; ▶ faith-based; and ▶ idiosyncratic exclusions

MSCI argues that to understand whether a company is adequately managing a key ESG risk, it is essential to understand both:

▶ what management strategies it has employed (i.e. risk management); and ▶ how exposed it is to the risk (i.e. risk exposure)