Sustainability Accounting Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary challenge that the disclosure of company policies (such as ESG policies or whistleblower policies) can pose to investment analysis?

Company policies always increase the labor burden of analysis, where large narrative documents must be manually processed
Company policies may be written in response to poor performance and often provide fraudulent data, reducing the reliability of the information
The presence of a company policy is represented through binary data, which does not provide useful insight into actual company performance
It is not always clear who at the company is accountable for implementing the policy, inhibiting investor-investee engagement (correct)

How do trends in index investing influence corporate-investor engagement on sustainability?

The decline of index investing can encourage shareholders to file resolutions and increase withdrawal rates
The decline of index investing can encourage investment stewardship through proxy voting
The growth of index investing can encourage investment stewardship based on how buy-sell decisions are made (correct)
The growth of index investing can encourage use of the “Wall Street rule” and decrease dialogue-based engagement

Corporate disclosures of sustainability information serve which two of the following purposes in capital markets? (Choose two)

Aid in valuation for financial analysts (correct)
Demand additional regulation for corporations
Allow investors to assess risks and opportunities related to their investments (correct)
Prevent non-governmental organizations from “naming and shaming” poor ESG performers

The chart below presents examples of business initiatives designed to reflect the different stages of sustainability-based value creation, as identified by multiple thought leaders in the field. Select the arrangement of initiatives that progress from early-stage to late-stage:

2, 3, 1, 4 (C) Signup and view all the answers

Which of the following is suitable to be included as an “activity metric” in SASB's standards?

CAPEX (D) Signup and view all the answers

Why is SASB's objective of cost-effectiveness for reporting companies ultimately in the best interest of providers of capital?

If companies focus on internal reporting to inform performance management decisions, they will naturally produce decision-useful information that meets the needs of external users (B) Signup and view all the answers

Which of the following provides an example of line-item sustainability disclosure guidance issued by a regulator?

The European Union Taxonomy for Sustainable Economic Activities (The EU Taxonomy) expects companies to report capital and operating expenditures associated with activities classified as environmentally sustainable. (B) Signup and view all the answers

Which two features explain how SASB's standards-development process is designed to improve the decision-usefulness of sustainability information for investors? (Choose two)

The accounting metrics are quantitative to make it easier to integrate into conventional financial analysis tools (B), A topic is only included in a standard if it includes evidence of financial impacts (D) Signup and view all the answers

An analyst wants to understand the connection between a company's sustainability data and one of four financial drivers (revenue, cost, assets and liabilities, and cost of capital) that are relevant to a discounted cash flow (DCF) analysis. Choose the pairing that correctly matches a data type with its relevance to a DCF analysis.

Data about regulatory compliance : operational performance and cost structure (B) Signup and view all the answers

Completeness is an important concept in disclosures of material information. For a company in an industry where workplace safety is likely to be material, if a company with 0 fatalities but 1,000 near-misses only discloses the number of fatal accidents, then investors are missing the complete picture. In the Automobile industry, information about the safety of a company's car models is likely to be material. Which three metrics, when taken together, are most likely to represent a complete disclosure? (Choose three)

Number of vehicles recalled (D), Number of safety-related defect complaints (E), Percentage of vehicles with 5-star safety rating (F) Signup and view all the answers

On the spectrum of “values-” to “value”-focused investing, which investment strategy that uses sustainability information is farthest on the "value" end?

ESG Integration (A) Signup and view all the answers

Which two statements, if true, provide evidence that the potential disclosure topic of Labor Practices fails to meet the criteria for inclusion in the Oil & Gas - Services Standard? (Choose two)

"There are instances where labor practices is material in a specific set of circumstances—such as in Gabon in 2013—but it is not material across the industry." (B), "Labor Practices is a frequent topic in media coverage of the industry and shareholder resolutions in the industry but it is not important to our customers or our board of directors." (D) Signup and view all the answers

If an analyst determines that Company A is less likely than Company B to face material impacts from environmental and climate risks, what piece of information would likely lead to that conclusion?

The percent of revenue from coastal regions (C) Signup and view all the answers

An analyst comparing the two companies' management of water use found that, on a normalized basis, Company A was actually outperforming Company B. Which normalization did the analyst use?

Percent of water withdrawn from regions with high/extremely high water stress (D) Signup and view all the answers

As compared to Company A, how would Company B's performance on energy management predominantly impact the valuation model?

Decrease expense projections (C) Signup and view all the answers

How will performance on SASB metrics impact Company A's valuation as compared to Company B?

Company A's lower percentage of revenue from coastal regions will likely decrease valuation. (B) Signup and view all the answers

Due to the differences in revenue streams, management of which sustainability topic(s) will likely have more material impacts for Company B than for Company A?

Recruitment and retention of a diverse workforce (A) Signup and view all the answers

When comparing Company A's performance to Company B's, what external factor(s) provides relevant insight into differences in near-term forecasts for the two companies?

Rising costs and legislative focus on energy use (D) Signup and view all the answers

If each company's performance data on energy consumption remained the same next year while all other data points increased, which two statements would likely offer the best explanation? (Choose two)

Company A invested in efficiency upgrades for their data centers (C), Company B negotiated stable pricing deals with their largest utility providers (D) Signup and view all the answers

How could stakeholder concerns materially impact the insurance industry?

Pending regulation scrutinizing companies' systemic impact on financial markets (B), An NGO pressuring companies to integrate ESG factors into investment management (C) Signup and view all the answers

Suppose an analyst is reviewing performance data from a company for the following SASB metrics:

Metric 1: Complaints-to-claims ratio Metric 2: Notional amount of CDS protection sold Metric 3: Net premiums written related to energy efficiency and low carbon technology Metric 4: Amount of life and annuity liabilities that can be surrendered upon request with penalties lower than 20% Metric 5: Percentage of policies in which weather-related natural catastrophe risks have been mitigated through reinsurance and/or alternative risk transfer

Which two provide information about progressive impacts? (Choose two)

Metric 5 (B), Metric 3 (E) Signup and view all the answers

The efficiency of the company's production of tailings waste is improving based on the 3-year trend when:

the weight of tailings produced is normalized by number of mining complexes. (D) Signup and view all the answers

Company A's management of business ethics and payments transparency will likely translate to impacts on which financial metric?

Pricing power (B) Signup and view all the answers

Flashcards

Primary challenge of disclosing ESG policies

Disclosure of company policies (ESG or whistleblower) may not provide useful insight into company performance because it's binary data and lacks information on actual performance.

Index investing and corporate-investor engagement

Growth in index investing encourages investment stewardship based on buy-sell decisions; it does NOT encourage the "Wall Street rule" or decrease dialogue engagement.

Purpose of sustainability disclosures in capital markets

Sustainability disclosures aid in valuation & risk/opportunity assessment for investors.

Stages of sustainability-based value creation

Initiatives progressing from early-stage (e.g., cost-reducing process improvements) to late-stage (e.g., new business line refinements) reflect increasing levels of value creation.