CFA Institute. (2023). Guidance for Integrating ESG Information

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Which factor is used to calculate the ESG score for each company in the valuation model?

Discount rate

Multiplier models

ESG factors (correct)

Traditional financial factors

What is the maximum discount or premium that can be applied to the target price based on the ESG score?

Up to 5%

Up to 15%

Up to 20%

Up to 10% (correct)

How can ESG information be integrated into other types of valuation models?

By adjusting the ESG score

By adjusting the perpetual growth rate

By adjusting the target price

By adjusting the dividend discount rate (correct)

Which of the following is a factor that analysts should consider when determining the materiality of ESG information?

Investment horizon Signup and view all the answers

What are some examples of industry-specific ESG issues?

Customer privacy and data security Signup and view all the answers

What are some company-specific factors that may be material to ESG risk?

Adherence to environmental laws and regulations Signup and view all the answers

What are the SASB Standards used for?

Determining industry-specific material ESG issues Signup and view all the answers

Which organizations have been setting standards for voluntary ESG corporate reporting?

Climate Disclosure Standards Board and IIRC Signup and view all the answers

What is the primary and most current source of ESG data?

Company-disclosed ESG information Signup and view all the answers

What can cause third-party data sources to lag in providing up-to-date ESG information?

The timing of data collection Signup and view all the answers

What should analysts consider when determining the usefulness of an ESG score or rating?

All of the above Signup and view all the answers

Which of the following is the purpose of integrating ESG information into the investment analysis process?

To reduce financial risks and enhance financial returns Signup and view all the answers

What are examples of ESG information sources?

Company disclosures and publications Signup and view all the answers

Why is it important to assess the quality of ESG information used in analysis and valuation?

ESG disclosures are not standardized or required Signup and view all the answers

What factors should be considered when determining the risks and limitations of using ESG information?

The type of ESG information and the degree of skill and judgment required to collect, measure, and interpret it Signup and view all the answers

Which of the following factors may be included in governance data that an analyst assesses?

Shareholder rights and protections Signup and view all the answers

What does the Task Force on Climate-related Financial Disclosures (TCFD) recommend that companies disclose in their financial filings or other reports?

Climaterelated information on governance, strategy, risk management, and metrics and targets Signup and view all the answers

According to the ESG Integration Framework, what methods can be used to integrate ESG information into security valuation?

Security sensitivity/scenario analyses Signup and view all the answers

What does the ESG Integration Framework serve as?

A resource for firms to reference when developing their own methods for integrating ESG information Signup and view all the answers

According to the CFA Guidance for Integrating ESG Information into Equity Analysis (2023), analysts may adjust forecasted financial statements to incorporate expected financial effects of ESG information. This adjustment can be made to which of the following financial statement items?

Operating costs and revenues Signup and view all the answers

How can adjustments made to financial statement items affect forecasted financial ratios?

They can decrease net income Signup and view all the answers