2 CFA Guidance and Case Studies for ESG Integration: Equity and Fixed Income
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Questions and Answers

Which factor is considered by practitioners when analyzing securities backed by general consumer/credit card loans?

  • Credit scores of individual borrowers
  • Societal risks such as discriminatory lending (correct)
  • Interest rates in the consumer lending market
  • Technological advancements in credit card systems

    • What is one limitation of quantifying ESG issues in structured credit analysis?

  • It may not help identify mispriced prepayment assumptions (correct)
  • It may not consider societal risks
  • It may not assist with monitoring the performance of the deal
  • It may not accurately measure the intrinsic value of securities

    • What does qualitative analysis in structured credit analysis focus on?

  • Calculating the intrinsic value of securities
  • Thorough due diligence of parties to the transaction (correct)
  • Monitoring interest rates in the market
  • Analyzing credit card transaction data

    • Which of the following is a potential impact of ESG factors on a company's book value and earnings?

    <p>Decrease in book value and earnings</p> Signup and view all the answers

    Which factor may lead a company to decrease or increase its future capital expenditure?

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

    How do practitioners adjust the beta or discount rate in company valuation models to reflect ESG factors?

    <p>They increase the beta/discount rate for companies considered to possess high ESG risk</p> Signup and view all the answers

    Which approach is commonly used to analyze ESG issues in sovereign credit analysis?

    <p>Feeding ESG research and/or scores into the credit analysis of an issuer</p> Signup and view all the answers

    What factors are typically considered in credit analysis for municipal bonds?

    <p>All of the above</p> Signup and view all the answers

    How can chronic social and environmental problems affect the credit quality of municipal bonds?

    <p>All of the above</p> Signup and view all the answers

    What additional ESG factors may be integrated into credit analysis for project revenue bonds?

    <p>All of the above</p> Signup and view all the answers

    Which of the following aspects should be considered when analyzing ESG risks in fixed-income investing?

    <p>Issuer types and credit quality</p> Signup and view all the answers

    What is the main approach used by practitioners when assessing the impact of ESG issues on investment decisions?

    <p>Using third-party ESG scores and traditional credit analysis</p> Signup and view all the answers

    Which of the following is true about the impact of ESG issues on corporate bond prices and share prices?

    <p>The order of frequency of impact is the same</p> Signup and view all the answers

    What do practitioners use materiality/sustainability frameworks and company ESG research for?

    <p>To identify material ESG issues</p> Signup and view all the answers

    What factors do Equities and Fixed Income depend more strongly on?

    <p>Governance factors</p> Signup and view all the answers

    What types of securities are included in the fixed-income market?

    <p>Securities backed by financial assets</p> Signup and view all the answers

    Why are practitioners just starting to consider how to systematically integrate ESG factors into structured credit analysis?

    <p>Lack of available ESG data</p> Signup and view all the answers

    What role does ESG analysis play in determining the true risk-adjusted credit profile of a securitization?

    <p>Evaluating the originator's reputation</p> Signup and view all the answers

    According to the text, why is the adoption of ESG integration in sovereign debt less widespread compared to corporate bonds?

    <p>All of the above</p> Signup and view all the answers

    What are some examples of ESG data sources used by sovereign debt investors?

    <p>All of the above</p> Signup and view all the answers

    Why do practitioners believe that ESG integration is not applicable to sovereign debt?

    <p>ESG issues are less material for sovereign debt compared to shares and corporate bonds</p> Signup and view all the answers

    Which type of issues more frequently affect sovereign debt prices according to the CFA-PRI survey?

    <p>Social issues</p> Signup and view all the answers

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