CFA textbook qs

Question 1

Which of following best describes net zero targets?

Answer 1

Absorbing GHG emissions from the atmosphere equivalent to annual emissions to achieve a zero net
balance each year

Question 2

To limit global warming to 1.5°C, the real economy needs to reach net zero by:

Answer 2

2050.

Question 3

Under the current trajectory, what is the estimated impact of rising temperatures on gross domestic
product (GDP) by 2050?

Answer 3

Global GDP could reduce by more than 10%

Question 4

Incentivising the use of electric bikes to commute is best described as:

Answer 4

a mitigation action only.

Question 5

Which of the following is a reason for using scenario analysis to study climate change?

Answer 5

Climate change interacts with many other issues and it is difficult to isolate cause and effect.
(II) Historical data is insufficient as humans have not experienced such carbon dioxide (CO2)
concentrations in the atmosphere before

Question 6

Which of the following is most likely the primary driver for climate-aware investing for a defined
benefit fund?

Answer 6

Long-term investment horizon of the fund.

Question 7

Which of the following is most likely the primary driver for climate-aware investing for retail
investors?

Answer 7

Personal values and beliefs.

Question 8

When did the Earth last have a carbon dioxide (CO2) concentration as high as now?

Answer 8

4 million years ago.

Question 9

The report, Indicators of Global Climate Change 2022, estimated that for a 67% chance of avoiding
global warming beyond 1.5°C, the world has a remaining carbon budget of

Answer 9

150bn tCO2.

Question 10

Which of the following is a non-renewable source of natural capital?

Answer 10

Minerals. (not biodiversity, water or air)

Question 11

Which of these descriptions of nationally determined contributions (NDCs) is most accurate?

Answer 11

Non-binding, self-determined plans set by countries to reduce GHG emissions.

Question 11

A country has just imposed a carbon tax but does not plan to issue free allowances to high-emitting
industries. The introduction of which of the following measures would be most likely to reduce the
risk of carbon leakage?

Answer 11

A global carbon price floor

Question 12

What is the primary purpose or focus of the Dasgupta Review, commissioned by the UK government
in 2020 as a part of the Net Zero Strategy?

Answer 12

Evaluating the economic impact of biodiversity conservation.

Question 13

In the European Union, economic activities are classified as environmentally sustainable by the:

Answer 13

Non-Financial Reporting Directive (NFRD)

Question 14

What are the principles outlined in the Paris Agreement for cooperation involving Internationally
Transferred Mitigation Outcomes (ITMO)?

Answer 14

Environmental integrity, transparency and robust accounting.

Question 15

How does the CDP expect organisations to report their GHG emissions?

Answer 15

The CDP asks for Scope 1, 2 and 3 GHG reporting on a voluntary basis

Question 16

The CSRD increases the scope of mandatory disclosures to include:

Answer 16

large listed & UNLISTED companies with more than 250 employees.

Question 17

Which of the following best describes the Sustainable Stock Exchange Initiative (SSE)?

Answer 17

A UN initiative encouraging stock exchanges and securities regulators to make a voluntary public
commitment to promote improved environmental, social and governance (ESG) disclosure among
listed companies

Question 18

According to the Partnership for Carbon Accounting Financials, the purpose of the physical emissions
intensity metric is to understand the:

Answer 18

efficiency of a portfolio in terms of total GHG emissions per unit of a common output.

Question 19

Which of the following is most accurate regarding blue hydrogen?

Answer 19

It is produced using carbon capture technologies

Question 20

An assessment of materiality in the context of adaptation and resilience investment can include the
quantification of all the following, except:

Answer 20

reduction in the vulnerable asset’s level and scope of insurance cover

Question 21

Which type of physical climate change risk is most suitable for risk transfer using insurance products
and why is it most suitable?

Answer 21

)Acute risk because of the long-tail nature of risk.

Question 22

Which of the following is not a challenge with using bioenergy with carbon capture and storage
(BECCS) as a mitigation strategy?

Answer 22

Waste management and recycling

Question 23

4. Which of the following adaptation solutions can be used to reduce saltwater intrusion in domestic,
   commercial and industrial water?

Answer 23

Geosynthetics

Question 24

What is the sensitivity of assets to physical climate risk and their ability to cope with it defined as?

Answer 24

Vulnerability

Question 25

A helicopter manufacturing company reports their GHG emissions using the GHG Protocol. If the helicopters are fully manufactured at a factory owned by the company, which of the following GHG emissions should be reported as Scope 2 emissions?

Answer 25

GHG emissions arising from the generation of supplied electricity.

Question 26

What are the two main organisational boundary approaches for emissions accounting under the GHG Protocol?

Answer 26

Equity share and control

Question 27

For a company setting a science-based target based on the Science Based Target initiative (SBTi) standards, which of the following is correct?

Answer 27

At least one target year must fall between 5 and 10 years from the target-setting date

Question 28

Which Shared Socioeconomic Pathway (SSP), as used by climate change models, has a narrative describing a world of increased nationalism, where regional security is prioritised over environmental concerns, population growth is low in developed countries but high in developing countries and consumption is material intensive?

Answer 28

SSP3.

Question 29

What does Portfolio Warming Potential (PWP) methodology primarily focus on?

Answer 29

Calculating emissions impact on global warming directly, based on climate sensitivity

Question 30

What is used to represent risk in carbon value at risk (VaR)?

Answer 30

Carbon tax

Question 31

Which of these statements accurately describes the Network for Greening the Financial System (NGFS) ‘disorderly’ climate scenario for central banks and supervisors?

Answer 31

Climate policies are not introduced until 2030 and transition risk is higher than for an orderly transition

Question 32

Which of the following stewardship codes or principles specifically mentions climate change considerations?

Answer 32

UK Stewardship Code

Question 33

Disclosures by asset managers and asset owners about their voting records are weakest in which areas?

Answer 33

Voting outcomes and voting rationales

Question 34

Which initiative partnered with CA100+ to create the Net Zero Company Benchmark?

Answer 34

Transition Pathway Initiative (TPI).

Question 35

Which of the following is not an example of a way that a company can directly influence climate policy?

Answer 35

Encouraging investee companies to align business strategies to climate goals

Question 36

Which of the following is an advantage of using absolute contraction of emissions as a method for assessing corporate alignment to the Paris Agreement goal of keeping global warming well below 2°C?

Answer 36

It provides a clear reference to assessing corporate alignment and target applicability

Question 37

Which of the following correctly reflects one of the five Climate Bonds Initiative’s transition principles?

Answer 37

Technological viability taken into account but not economic competitiveness

Question 38

All of the following have exhibited a strong correlation in relation to equity valuations, except for:

Answer 38

climate temperature scenario alignment and returns

Question 39

Which of the following is not an indicator used in the Climate Action 100+ (CA100+) Net Zero Company Benchmark framework for assessing corporate climate policies and actions?

Answer 39

renewable energy investment

Question 40

Which of the following sectors accounted for the greatest use of GREEN BOND PROCEEDS in 2022?

Answer 40

Energy.

Question 41

Which of the following typically describes the seniority of labelled bonds relative to conventional bonds?

Answer 41

EQUAL

Question 42

What is a structural weakness in sustainability-linked bonds?

Answer 42

Investors stand to gain when a company misses on key performance indicator (KPI) targets.

Question 43

Which of these is not a key component of a Green Bond Framework following the International Capital Market Association’s (ICMA) Green Bond Principles (GBP) recommendations?

Answer 43

Verification against technical criteria and indicators

Question 44

If a transmission utility is exposed to wildfires across their network, which of the following would not be expected in the fixed income valuation?

Answer 44

Upward pressure on credit ratings

Question 45

An instrument pays out if there is insufficient wind to generate power, which ensures the wind farm can fund its debt service. The instrument is most likely:

Answer 45

a weather derivative.

Question 46

Which of the following describes a cat bond trigger type that uses actual reported physical event parameters (e.g. wind speed) to determine loss?

Answer 46

parametric

Question 47

Which of the following is an industry-level value driver specific to private equity that an investor should consider when assessing climate change risk impacts?

Answer 47

Growth in investment market, enabling attractive exits.

Question 48

Which of the following does the Principles for Responsible Investment (PRI) recommend when implementing climate change risk management in a private equity/venture capital investment process?

Answer 48

Scenario analysis should be undertaken in the post-acquisition phase.

Question 49

What is the primary purpose of sustainability-linked derivatives (SLDs)?

Answer 49

Achieving pre-agreed sustainability key performance indicators (KPIs).

Question 50

Which of the following is not one of the four core transparency recommendations of the Green Loan Principles?

Answer 50

Annual information on the use of proceeds should be disclosed publicly

Question 51

During a client meeting, a climate risk analyst is asked to share an example of integration of climate change risk in private equity. Which of the following examples should they share?

Answer 51

A GP decided not to invest in a company supplying agriculture inputs because of unusually long droughts in its region.

Question 52

With respect to climate risk analysis, investors in private debt, compared to investors in public debt, generally need to do:

Answer 52

MORE due diligence and typically have more time to decide on the investment.

Question 53

A key difference between an emissions trading scheme and a carbon tax is that a carbon tax:

Answer 53

is easier to implement across the economy.

Question 54

Which of the following is not a major source of demand for carbon offsets?

Answer 54

Net-zero investment frameworks.

Question 55

With respect to carbon offset projects, concerns regarding subjectivity in quantification are most relevant to projects pertaining to:

Answer 55

renewable energy that avoids fossil fuel-powered energy generation

Question 56

Which of the following is an example of a derivative with a climate change mitigation feature?

Answer 56

A retailer buys a coffee future, which commits the provider to reinvest the premium in a reforestation project

Question 57

Which of the following best describes the Carbon Risk Real Estate Monitor (CRREM) methodology?

Answer 57

CRREM is a dynamic tool for estimating the COST of stranding

Question 58

Which of the following is correct regarding green infrastructure?

Answer 58

Green infrastructure includes hybrid adaptation solutions.

Question 59

For a building with poor climate credentials, which of the following is least likely to be impacted by increasing climate-related regulation?

Answer 59

Physical risk.

Question 60

Which of the following statements explains infrastructure investment categories appropriately in terms of climate risk?

Answer 60

US municipal bonds can finance brownfield infrastructure investments

Question 61

. Which of these statements is not characteristic of private equity infrastructure investments?

Answer 61

Financial investors can easily seek repayment of debts due to longer economic lives of assets

Question 62

Asset stranding occurs from the point when an asset’s greenhouse gas (GHG) emissions intensity:

Answer 62

surpasses the CRREM pathway level

Question 63

Which of the following is not a challenge when designing investment products that have a positive real world climate-change impact?

Answer 63

Aligning the investment product to climate change mitigation.

Question 64

Which of the following is best described as “investing in companies expected to benefit from decarbonisation”?

Answer 64

Thematic investing.

Question 65

Which of the following statements is correct regarding the EU Paris-aligned Benchmark (EU PAB) and EU Climate Transition Benchmark (EU CTB)?

Answer 65

Year-on-year self-decarbonisation of the benchmark should be at least 7% on average for both

Question 66

Large-scale decarbonisation and an ambitious schedule will likely lead to a tracking error that is:

Answer 66

higher

Question 67

Which of the following factors might be used in the best-in-class investment strategy for climate management?

Answer 67

Proportion of research and development spent on climate transition.