Chapter 2 - The ESG Market Flashcards
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.
What is the largest sustainable investment strategy globally?
(a) Impact investing.
(b) Best-in-class.
(c) ESG integration.
(d) Negative screening.
(d) Negative screening.
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.
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.
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.
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 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.
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 is the main challenge with policies that are ‘comply or explain’ regarding ESG?
(a) It is the sole indication that the policy has not reached maturity.
(b) It leads to investors challenging the assertion that ESG integration is a requirement.
(c) It allows investors to explain all kinds of behavior away.
(d) It completely excuses investors from reporting on ESG practices.
(b) It leads to investors challenging the assertion that ESG integration is a requirement.
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.
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.
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.
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.
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.
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.
