Free Practice Questions for CFA Institute ESG-Investing Exam

Question 1

Which of the following data are most likely the easiest to optimize in a portfolio?

ASocial

BGovernance

CEnvironmental

Correct Answer: B. Governance

Question 2

When accounting for a critical weakness in a company's environmental management process, an analyst using a discounted cash flow (DCF) valuation model should:

Adecrease the cost of capital.

Bnot change the cost of capital.

Cincrease the cost of capital.

Correct Answer: C. increase the cost of capital.

Question 3

A bond issued to finance construction of a solar farm is an example of a:

Ablue bond

Bgreen bond

Ctransition bond

Correct Answer: B. green bond

Question 4

According to the Taskforce on Nature-Related Financial Disclosures (TNFD), which of the following drivers of nature change can directly translate into a positive impact on circular economy principles?

APollution

BResource use

CClimate change

Correct Answer: B. Resource use

Question 5

Scopewashing is best described as a situation in which a company's management:

AUses hyperbole to highlight its sustainability-related skills and experience.

BKeeps quiet about its environmental goals for fear of retribution or misinterpretation.

CEmphasizes positive action in one ESG area while negatively contributing to another.

Correct Answer: C. Emphasizes positive action in one ESG area while negatively contributing to another.

Question 6

Creating long-term stakeholder value by implementing a strategy that focuses on the ethical, social, environmental, cultural and economic dimensions of doing business is best described as:

Acorporate sustainability.

Btriple bottom line accounting.

Ccorporate social responsibility.

Correct Answer: C. corporate social responsibility.

Question 7

In Australia, a managing director of a company is the:

Aexecutive chair.

Bonly executive director.

Cformer CEO of the company.

Correct Answer: B. only executive director.

Question 8

Leased assets of a company contribute to:

AScope 1 emissions.

BScope 2 emissions.

CScope 3 emissions.

Correct Answer: C. Scope 3 emissions.

Question 9

Scorecards to assess ESG factors:

ACannot be used to compare a performance with industry averages

BCan be adapted to analyze sovereign bonds

CAre usually developed based on ESG scores from third-party providers

Correct Answer: B. Can be adapted to analyze sovereign bonds

Question 10

Assessing the alignment of local labor laws with International Labour Organization (ILO) principles is an example of social analysis at the:

Asector level

Bcountry level.

Ccompany level

Correct Answer: B. country level.

Question 11

Which of the following is a challenge of integrating ESG analysis into investment processes?

ACultural challenges and biases within investment management firms

BIssuer disclosures are standardized across industries without issuer-specific adjustments

CESG analysis is objective by nature, which makes it challenging to find investment opportunities

Correct Answer: A. Cultural challenges and biases within investment management firms

Question 12

Which of the following is a challenge in ESG integration?

AESG disclosures that lack comparability across companies

BExcessive company-level ESG reporting that overwhelms investors

CStandardized disclosures in audited financial statements that hinder differentiated analysis

Correct Answer: A. ESG disclosures that lack comparability across companies

Question 13

The European Union (EU) Ecolabel:

AIs a mandatory label for companies that apply sustainability labels on their products

BCertifies products that have a guaranteed, independently verified, low environmental impact

CContains a list of six key principles designed to prevent businesses from making misleading environmental claims

Correct Answer: B. Certifies products that have a guaranteed, independently verified, low environmental impact

Question 14

A pension fund concerned about climate change will most likely:

AAccept long-term returns below the benchmark.

BUse screens to exclude fossil fuel investments.

CIncrease investments in sovereign debt of countries where the physical impacts of climate change are likely to be most acute.

Correct Answer: B. Use screens to exclude fossil fuel investments.

Question 15

Which of the following best describes Weitzman's dismal theorem?

ARelative improvements in efficiency may be offset by increased consumption of a given product

BEconomic asset value should be assigned to biodiversity to reverse its treatment as a free resource

CStandard cost-benefit analysis is insufficient to address the potential downside losses from climate change

Correct Answer: C. Standard cost-benefit analysis is insufficient to address the potential downside losses from climate change