CFA Institute Sustainable-Investing - Sustainable Investing Certificate (CFA-SIC) Exam

Sustainability-linked bonds (SLBs) include a financial incentive for issuers to achieve specific sustainability targets. If the issuer fails to meet these targets, they agree to pay a higher coupon (interest rate) to investors, making the bonds more expensive and incentivizing issuers to fulfill their commitments.ESG Reference: Chapter 7, Page 362 - ESG Analysis, Valuation & Integration in the ESG textbook.

The 2020 revision of the UK Stewardship Code requires signatories to annually report on how their stewardship activities have produced tangible outcomes that benefit their clients. (ESGTextBook[PallasCatFin], Chapter 6, Page 280)

The ICGN Model Mandate Initiative emphasizes the need for a detailed disclosure of stewardship engagement and voting activity, as well as the manager's assessment of ESG risks within the portfolio. However, a comprehensive ESG-linked performance attribution analysis is not specifically required under this initiative.ESG Reference: Chapter 6, Page 305 - Engagement and Stewardship in the ESG textbook.

A family office is typically categorized as an asset owner, managing the wealth of a high-net-worth family. They often direct investment strategies, which may include ESG considerations. (ESGTextBook[PallasCatFin], Chapter 7, Page 316)

ESG screening tools evaluate investments by assessing their exposure to or involvement in specific ESG factors, sectors, products, or services. This screening process is a key element in responsible investing. (ESGTextBook[PallasCatFin], Chapter 7, Page 364)

ESG ratings are considered a primary source of ESG data. These ratings are generated by specialized ESG research firms and provide an assessment of a company’s ESG performance based on various metrics and methodologies. Research from consultants or regulatory scores may supplement these ratings but are not primary sources.ESG Reference: Chapter 7, Page 319 - ESG Analysis, Valuation & Integration in the ESG textbook.

Carbon footprinting allows investors and companies to compare their emissions to global benchmarks, providing a standard metric for measuring environmental performance and identifying areas for improvement. (ESGTextBook[PallasCatFin], Chapter 3, Page 139)

Including ESG constraints in portfolio optimization models often leads to increased tracking error because the constraints limit the pool of available investments, making it more challenging to match the benchmark exactly. (ESGTextBook[PallasCatFin], Chapter 8, Page 463)

The OECD Guidelines for Multinational Enterprises aim to provide voluntary principles and standards for responsible business conduct, including remedying business-related human rights abuses. These guidelines encourage companies to address and prevent violations, especially in areas such as labor rights and environmental protection.ESG Reference: Chapter 4, Page 211 - Social Factors in the ESG textbook.

ESG investing in emerging markets is more challenging due to limited availability of data, variability in reporting standards, and differences in governance practices between countries and companies. (ESGTextBook[PallasCatFin], Chapter 2, Page 61)

Human rights are a social factor that primarily affects external stakeholders, such as communities or populations impacted by a company's operations. (ESGTextBook[PallasCatFin], Chapter 4, Page 192)

One of the critical steps in developing an ESG scorecard is preparing a materiality map. This map identifies and prioritizes ESG issues based on their relevance and impact on the company’s performance, helping guide decision-making and resource allocation.ESG Reference: Chapter 7, Page 370 - ESG Analysis, Valuation & Integration in the ESG textbook.

Trustees of pension funds hold a fiduciary duty to manage assets responsibly, making them vulnerable to legal risks if they fail to account for financial losses related to climate change. (ESGTextBook[PallasCatFin], Chapter 6, Page 285)

Scope 3 emissions include all indirect emissions that occur in a company’s value chain, including those associated with suppliers and consumers. These emissions are typically harder to measure and manage compared to Scope 1 and Scope 2 emissions, which are more directly controlled by the company.ESG Reference: Chapter 3, Page 133 - Environmental Factors in the ESG textbook.

If the auditor sets performance materiality at 60% of the overall materiality threshold, it indicates a low level of confidence in the company's financial controls. This suggests that the auditor believes there is a higher risk of misstatements, requiring more conservative thresholds during the audit.ESG Reference: Chapter 5, Page 252 - Governance Factors in the ESG textbook.