Intro to ESG Investment
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Questions and Answers

Which of the following is NOT a common approach to ESG investing?

  • Triple bottom line accounting (correct)
  • Responsible investment
  • Best-in-class investment
  • Thematic investment

What is the term used to describe the integration of ESG factors into investment analysis and decision-making processes?

  • Corporate social responsibility
  • ESG integration (correct)
  • Triple bottom line accounting
  • ESG megatrends

What do asset owners and investment managers aim to achieve by incorporating ESG criteria into investment analysis?

  • Higher returns
  • Sustainable investing
  • Ethical investing
  • Lower risk (correct)

Which approach to responsible investment seeks to influence a corporation's decisions on ESG matters through dialogue with corporate officers or votes at a shareholder assembly?

<p>Shareholder Engagement (D)</p> Signup and view all the answers

What does the concept of triple bottom line (TBL) in ESG investing refer to?

<p>The generation of long-term sustainable returns (B)</p> Signup and view all the answers

Which of the following best describes ESG investing?

<p>An approach to managing assets that incorporates environmental, social, and governance factors in investment decisions (A)</p> Signup and view all the answers

What are the main benefits of integrating ESG factors in investment decisions?

<p>Enhanced returns and better risk management (A)</p> Signup and view all the answers

What is the potential consequence of short-termism in investment practice?

<p>Promotion of bubbles, financial instability, and economic underperformance (C)</p> Signup and view all the answers

What do environmental factors in ESG investing pertain to?

<p>The use of and interaction with renewable and non-renewable resources (C)</p> Signup and view all the answers

Which of the following best describes sustainable investment?

<p>Investing in assets that contribute to a sustainable economy (B)</p> Signup and view all the answers

Thematic investment is focused on investing in assets related to which of the following factors?

<p>ESG factors (C)</p> Signup and view all the answers

What does green investment refer to?

<p>Allocating capital to assets that mitigate climate change and other environmental challenges (D)</p> Signup and view all the answers

What does social investment involve?

<p>Allocating capital to assets that address social challenges (B)</p> Signup and view all the answers

Which of the following best describes impact investing?

<p>Investments made with the intent of generating positive social or environmental impact (A)</p> Signup and view all the answers

What differentiates impact investing from philanthropy?

<p>Impact investing focuses on generating financial return, while philanthropy does not (A)</p> Signup and view all the answers

What are some examples of direct investments associated with impact investing?

<p>Private debt, private equity, and real estate (B)</p> Signup and view all the answers

What are the Sustainable Development Goals (SDGs) launched by the United Nations in 2015?

<p>17 goals aimed at addressing the world's most pressing challenges (D)</p> Signup and view all the answers

Which of the following best describes responsible investment?

<p>Adapting environmental, social and governance practices to enhance value or mitigate practices in order to protect value (B)</p> Signup and view all the answers

What is socially responsible investment (SRI)?

<p>Approaches that apply social and environmental criteria in evaluating companies (D)</p> Signup and view all the answers

What is best-in-class investment?

<p>Selecting only the companies that overcome a defined ranking hurdle, established using ESG criteria within each sector or industry (D)</p> Signup and view all the answers

What is the purpose of the tracking error for the MSCI World SRI index?

<p>To measure the deviation in performance between the MSCI World SRI index and the parent index (B)</p> Signup and view all the answers

What does the term 'triple bottom line' refer to in ESG investing?

<p>The integration of social, environmental, and economic factors in investment decisions (D)</p> Signup and view all the answers

What factors determine the efficacy of shareholder engagement?

<p>The scale of ownership, the quality of engagement dialogue, and the company's informed divestment (B)</p> Signup and view all the answers

What is the purpose of engagement in responsible investment?

<p>To encourage and influence an issuer's behavior on ESG matters (A)</p> Signup and view all the answers

Which of the following best describes responsible investment?

<p>An umbrella term for considering ESG factors in security selection and portfolio construction (D)</p> Signup and view all the answers

What does the Shareholder Rights Directive (SRD) issued by the European Union (EU) require investors to do?

<p>Act with a more long-term focus (A)</p> Signup and view all the answers

Which of the following best describes the concept of triple bottom line (TBL) accounting in ESG investing?

<p>Accounting for three different types of performance indicators: environmental performance, social performance, and financial performance (C)</p> Signup and view all the answers

Which of the following best describes the concept of best-in-class investment in ESG investing?

<p>Investing in companies that are leaders in their respective industries in terms of ESG performance (D)</p> Signup and view all the answers

Which of the following best describes the concept of dynamic materiality in ESG analysis and reporting?

<p>The materiality of ESG factors that change over time and require ongoing monitoring and reassessment (B)</p> Signup and view all the answers

Which of the following is NOT an example of a social investment?

<p>Access to (clean) energy (B)</p> Signup and view all the answers

What is the term used to describe the allocation of capital to assets that mitigate climate change, biodiversity loss, resource inefficiency, and other environmental challenges?

<p>Green investment (C)</p> Signup and view all the answers

What is the term used to describe the selection of assets that contribute in some way to a sustainable economy, considering typical ESG issues?

<p>Sustainable investment (D)</p> Signup and view all the answers

Which of the following best describes impact investing?

<p>Investments made with the intent of generating positive social or environmental impact alongside a financial return (C)</p> Signup and view all the answers

What is the main difference between impact investing and philanthropy?

<p>Impact investing focuses on generating financial returns, while philanthropy does not (D)</p> Signup and view all the answers

What is the estimated size of the global impact investing market according to the Global Impact Investing Network (GIIN)?

<p>US$502 billion (D)</p> Signup and view all the answers

What are some examples of direct investments associated with impact investing?

<p>Private debt, private equity, and real estate (A)</p> Signup and view all the answers

Responsible investment consists of mitigating risky ESG practices in order to protect value. This means considering both how ESG might influence the risk-adjusted return of an asset and the stability of an economy. What is the minimum requirement for responsible investment?

<p>Incorporating ESG factors into investment decisions and active ownership (D)</p> Signup and view all the answers

Socially responsible investment (SRI) refers to approaches that apply social and environmental criteria in evaluating companies. How do investors implementing SRI generally score companies?

<p>Using a chosen set of criteria, usually in conjunction with sector-specific weightings (B)</p> Signup and view all the answers

What does best-in-class investment involve?

<p>Selecting only the companies that overcome a defined ranking hurdle, established using ESG criteria within each sector or industry (C)</p> Signup and view all the answers

What is the tracking error for the MSCI World SRI index, which targets the top 25% companies in each sector using a best-in-class selection approach?

<p>1.79% (C)</p> Signup and view all the answers

Flashcards

ESG Integration

ESG integration aims to incorporate environmental, social, and governance factors into investment analysis to achieve better long-term returns and mitigate risks.

Active Ownership

Active ownership seeks to influence corporations' decisions on ESG matters by engaging with them directly.

Triple Bottom Line (TBL)

The Triple Bottom Line (TBL) encompasses three key aspects: economic performance, environmental impact, and social responsibility.

ESG Investing

ESG investing considers environmental, social, and governance factors alongside financial returns to make investment decisions.

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Benefits of ESG Integration

ESG integration offers benefits like improved risk management, potential for better long-term performance, and alignment with personal values.

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Short-termism

Short-termism prioritizes immediate gains over long-term sustainability, potentially overlooking crucial risks and opportunities.

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Environmental Factors

Environmental factors in ESG investing include climate change, biodiversity loss, and resource efficiency.

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Social Factors

Social factors in ESG investing encompass human rights, labor standards, and community relations.

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Governance Factors

Governance factors in ESG investing include board structure, executive compensation, and shareholder rights.

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Sustainable Investment

Sustainable investment prioritizes investments that consider the environmental, social, and governance impacts.

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Thematic Investment

Thematic investment focuses on specific areas like renewable energy, clean water, or social justice.

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Green Investment

Green investment focuses on assets that mitigate climate change, biodiversity loss, and resource inefficiency.

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Social Investment

Social investment focuses on assets that contribute to social goals like education, healthcare, and community development.

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Impact Investing

Impact investing seeks to generate both financial returns and positive social or environmental impact.

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Impact Investing vs. Philanthropy

Impact investing is differentiated from philanthropy by its intention to generate both financial returns and social impact.

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Direct Impact Investments

Examples of direct impact investments include microfinance, renewable energy, education, and healthcare.

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Sustainable Development Goals (SDGs)

The Sustainable Development Goals (SDGs) are 17 goals launched by the United Nations to address global challenges like poverty, climate change, and inequality.

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Responsible Investment

Responsible investment considers the environmental, social, and governance effects of investments to generate long-term returns.

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Socially Responsible Investment (SRI)

Socially responsible investment (SRI) applies social and environmental criteria to evaluate companies for inclusion in investment portfolios.

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Best-in-Class Investment

Best-in-class investment selects companies that perform best in their sector based on ESG criteria.

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Engagement

Engagement aims to influence corporations' decisions on ESG matters through dialogue and voting.

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Efficacy of Shareholder Engagement

The efficacy of shareholder engagement depends on factors like dialogue, voting, and collaboration with other stakeholders.

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Tracking Error for MSCI World SRI Index

The tracking error for the MSCI World SRI index measures the performance difference between a portfolio that excludes companies with low ESG ratings and a benchmark index.

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Dynamic Materiality

Dynamic materiality involves identifying the most important ESG issues for a specific company at a given time.

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Shareholder Rights Directive (SRD)

The Shareholder Rights Directive (SRD) requires investors to disclose their engagement policies and voting practices.

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Size of Global Impact Investing Market

The global impact investing market is estimated to be a substantial size, indicating a growing trend of investments aiming for both financial returns and positive social impact.

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Study Notes

ESG Investing Approaches

  • Not a common approach to ESG investing: no specific answer, as there are various approaches to ESG investing
  • Integration of ESG factors into investment analysis and decision-making processes: ESG integration
  • Aim of incorporating ESG criteria into investment analysis: to achieve better long-term returns and to reduce risks

Responsible Investment

  • Approach seeking to influence corporations' decisions on ESG matters: active ownership
  • Triple bottom line (TBL) in ESG investing: economic, environmental, and social performance
  • ESG investing: an investment approach that considers environmental, social, and governance factors to generate long-term returns

Benefits of ESG Integration

  • Main benefits of integrating ESG factors: enhanced risk management, improved long-term performance, and alignment with individual values

Short-termism

  • Potential consequence of short-termism: failure to consider long-term risks and opportunities

ESG Factors

  • Environmental factors: climate change, biodiversity loss, resource inefficiency, and other environmental challenges
  • Social factors: human rights, labor standards, community relations, and other social issues
  • Governance factors: board structure, executive compensation, shareholder rights, and other governance issues

Sustainable Investment

  • Sustainable investment: an investment approach that considers the environmental, social, and governance impact of investments
  • Thematic investment: focused on investing in assets related to environmental, social, or governance themes
  • Green investment: investment in assets that mitigate climate change, biodiversity loss, resource inefficiency, and other environmental challenges
  • Social investment: investment in assets that contribute to social goals, such as education, healthcare, and community development

Impact Investing

  • Impact investing: an investment approach that seeks to generate both financial returns and positive social or environmental impact
  • Differentiation from philanthropy: intention to generate financial returns alongside social impact
  • Examples of direct investments: microfinance, renewable energy, education, and healthcare

Sustainable Development Goals

  • Sustainable Development Goals (SDGs): 17 goals launched by the United Nations in 2015 to end poverty, protect the planet, and ensure peace and prosperity

Responsible Investment

  • Responsible investment: an investment approach that considers the environmental, social, and governance impact of investments to generate long-term returns
  • Socially responsible investment (SRI): an investment approach that applies social and environmental criteria in evaluating companies
  • Best-in-class investment: investment in companies that perform best in their sector based on ESG criteria

Engagement and Tracking Error

  • Purpose of engagement: to influence corporations' decisions on ESG matters through dialogue and voting
  • Factors determining efficacy of shareholder engagement: dialogue, voting, and collaboration
  • Purpose of the tracking error for the MSCI World SRI index: to measure the performance of a portfolio that excludes companies with low ESG ratings

Additional Concepts

  • Dynamic materiality: the concept of combining ESG factors to identify the most material issues for a company
  • Shareholder Rights Directive (SRD): requires investors to disclose their engagement policies and voting practices
  • Estimated size of the global impact investing market: according to the Global Impact Investing Network (GIIN)

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Related Documents

CFA Certificate in ESG Investing Curriculum 2023 PDF

Description

Test your knowledge on ESG (environmental, social, and governance) investing approaches, integration of ESG factors into decisions, responsible investment strategies, and the concept of triple bottom line. Identify common approaches, terminology, and objectives in ESG investing.

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