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

“There are many types of diversity needed for a board to be successful,though the most important is diversity of thought. The other types include diversity of gender, race, age, culture, nationality and experience….”

TheGovernance Factorssection of the Official Training Manual (OTM) explains the two main board structures globally: theone-tier (unitary)andtwo-tier (dual)systems. It states:

“Under thetwo-tier board model, asupervisory boardcomposed mainly of non-executive directors oversees themanagement board, which handles day-to-day operations. This system ismost common in Continental Europe, particularly in Germany and the Netherlands.”

The manual highlights that this structure provides a formal separation of oversight and execution, strengthening independence and reducing conflicts of interest. The U.S. and Japan predominantly use one-tier structures with mixed boards.

Hence, the Netherlands, alongside Germany, exemplifies the dual-board framework.Option Bis therefore correct.

📘Reference:2021-Final-Book.pdf, Chapter 5 — Governance Factors (Board Structures and Independence section).

Green bondsare a type of fixed-income instrument used specifically to fund projects that havepositive environmental and/or climate benefits. These may include projects in renewable energy, energy efficiency, sustainable waste management, and clean transportation.

“Green bonds… are any type of bond instrument that funds projects that provide a clear benefit to the environment such as renewable energy projects… They are typically structured as ‘use of proceeds’ bonds where the raised capital is earmarked for green projects.”

While theGreen Bond Principles (GBP)provide voluntary guidelines for issuance, certification isnot mandatory. Hence, option B is inaccurate. Option C mischaracterizes the purpose of green bonds.

TheBlue Economy and Natural Resourcessection of the OTM cites the OECD’s “Ocean Economy in 2030” report:

“The OECD estimates thatocean-based industriessuch as shipping, offshore wind, and aquaculture couldoutperform global GDP growth rates by 2030, contributing strongly toboth value added and employment.”

This dual benefit arises from technological innovation, renewable energy expansion, and sustainable fisheries management. The manual highlights that marine sectors not only drive economic productivity but also generate millions of jobs globally, aligning with SDG 14 (“Life Below Water”).

Therefore,option Cis correct, as the OECD’s analysis explicitly references both economic (value added) and social (employment) dimensions.

📘Reference:2021-Final-Book.pdf, Chapter 3 — Environmental Factors (Ocean Economy and Resource Sustainability section).

The manual cites the Stockholm Resilience Centre update: “four of nine planetary boundaries have already been crossed…▶climate change;▶loss of biosphere integrity;▶land-system change; and▶altered biogeochemical cycles (phosphorus and nitrogen loading).”

It reiterates that “in 2015 [they] found that four – climate change, loss of biosphere integrity, land-system change and altered biogeochemical cycles… – have been crossed.”

Therefore, among the options provided, “Land-system change” is the correct choice.

The OTM defines engagement as a cornerstone of active ownership, describing it as:

“A structured process by which investorscommunicate expectations to investee companieson ESG practices and long-term value creation.”

It further notes:

“Engagement helps companiesbetter understand investor expectations and prioritieswhile giving investors insight into corporate governance and risk management practices.”

This explanation precisely reflectsoption A. Conversely, the manual emphasizes that engagement is least effective when a company shows resistance or lacks openness (contradicting option C) and that successful engagement islong-term and relationship-driven, not reactive to short-term price movements (contradicting option B).

Thus, engagement’s primary value lies in facilitating two-way understanding between investors and companies, confirming optionAas correct.

📘Reference:2021-Final-Book.pdf, Chapter 6 — Engagement and Stewardship (Purpose and Benefits of Engagement section).

TheOfficial Training Manualdescribes theCorporate Sustainability Reporting Directive (CSRD)as an EU regulation expanding non-financial disclosure requirements to a wider set of companies. It clarifies:

“TheCSRD requires companies to report sustainability information according to EU Sustainability Reporting Standards (ESRS)and allowsself-certification of compliance in specific casesuntil independent assurance becomes mandatory.”

This transitional arrangement permits limitedself-certification, particularly for smaller or newly in-scope entities, prior to third-party audit readiness. The manual distinguishes CSRD from ESRS—CSRD is the legislative directive, whereas ESRS are the technical standards it mandates. Smaller listed entities arenot exemptbut may have delayed timelines.

Thus,option Baccurately captures the current compliance mechanism.

📘Reference:2021-Final-Book.pdf, Chapter 9 — Sustainability Regulation and Disclosure Frameworks (Corporate Sustainability Reporting Directive section).

The manual quotes the Accord directly: “Investment performance particularly in the short term will be of limited significance in evaluating the Manager.” It goes on to note that concerns are “much more about culture and a failure to adhere to the expected investment process or style,” and lists issues including “A change in investment style…” and “Organisation instability or the loss of key personnel.”

The manual explicitly notes: “One can deduce that individual companies in the same market-defined sector may be judged to have different material ESG factors impacting their business.” It illustrates this with examples within insurance.

More broadly, it stresses that identifying “issues which are genuinely material to a sector and company is one of the most active challenges within ESG investment… there are also differences between what is most material to individual companies within a single sector.”

The CFA UK ESG manual explains that scorecards are acustomizable toolthat allow analysts totranslate qualitative insights into structured, numerical assessments. They are particularly useful where third-party ESG ratings are unavailable, such as with private companies or sovereign entities.

“Scorecards can be used to assess ESG risk and opportunity… A custom ESG self-assessment tool that reflects the sector-specific risk issues… is created… These scorecards translate qualitative judgments into numerical scores.”

Thus, scorecards are flexible tools, usable for both private companies and sovereigns, making option B the most accurate.

Qualitative assessmentsinvolve evaluatingsubjective and narrativeelements, such asmanagement discussions, sustainability goals, anddirect interactionswith the issuer. In contrast, aproprietary framework that aggregates third-party ESG metricsisquantitativein nature.

“The corporate credit analysts perform a qualitative assessment by reviewing ESG policies and targets… and consider information learned from the engagement call.”

Thus, option C isnota qualitative input; it refers to aquantitative score or modelused in ESG rating systems.

In Chapter 7, the OTM emphasizes the lack of universal ESG reporting standards and the interpretive nature of ESG analysis:

“There isno single global consensuson what constitutes comprehensive ESG disclosure. Analysts must therefore apply professional judgment, making ESG analysisinherently subjective.”

This confirmsStatement 2as correct, whileStatement 1is explicitly refuted. The OTM further explains that even when frameworks like GRI, SASB, and TCFD are applied, analysts often diverge in weighting or interpretation, reinforcing subjectivity as a defining characteristic of ESG evaluation.

Thus, the verified correct choice isB — Statement 2 only, accurately reflecting the current state of ESG disclosure and assessment practices.

📘Reference:2021-Final-Book.pdf, Chapter 7 — ESG Analysis, Valuation, and Integration (Challenges in ESG Analysis section).

The manual clarifies how the OECD Guidelines apply to investors: “these guidelines do not focus on the impact social factors can have on investments (financial materiality) but on the responsibility investors have for the adverse impacts their investments/companies can cause to society,” and call for a “double materiality approach.”

It also describes the Guidelines as “a comprehensive set of government-backed recommendations on responsible business conduct,” i.e., voluntary rather than mandatory—contradicting option C.

Within theEnvironmental Factorschapter, the OTM discusses climate risk in project valuation, highlighting physical risk impacts:

“Rising temperatures, flooding, and heat stress can increaseoperating expensesfor infrastructure assets due to higher cooling requirements, maintenance costs, and efficiency losses.”

For instance, energy facilities may require enhanced insulation, cooling systems, or backup capacity—all directly impacting operating expenditure (OPEX). Revenues might also fluctuate, but theprimary and quantifiable effectlies in cost escalation rather than revenue reduction.

Therefore, the correct analytical adjustment in discounted cash flow (DCF) models would be to increaseoperating expenses, makingoption Ccorrect.

📘Reference:2021-Final-Book.pdf, Chapter 3 — Environmental Factors (Physical Climate Risks and Financial Implications section).

Discretionary index-based ESG integrationuses ESG data and rankings as part of aprocessrather than simply following a fixed rule-based or factor-based methodology. CFA materials describe this as “process-orientedintegration,” meaning that asset managers usequalitative judgmentandongoing interpretationof ESG signals to adjust exposures, rather than relying solely on automated factor or rule frameworks.