CEP ESG Principles & Regulatory Frameworks 3 — Questions and Answers
Question 1: California's SB 253 (Climate Corporate Data Accountability Act) requires large companies operating in California to report Scope 1, 2, and 3 emissions starting in which year?
- 2025
- 2026 (Correct answer)
- 2027
- 2030
Correct answer: 2026
Under SB 253, companies with over $1 billion in annual revenues must begin reporting Scope 1 and 2 emissions in 2026 (for fiscal year 2025 data), with Scope 3 following in 2027.
Question 2: Which principle underpins the 'S' in ESG and is defined by the UN as the right of people to freely determine their political status and pursue economic, social, and cultural development?
- Stakeholder primacy
- Self-determination (Correct answer)
- Social license to operate
- Shared value creation
Correct answer: Self-determination
Self-determination, as articulated in the UN Declaration on the Rights of Indigenous Peoples and other instruments, is a foundational principle underlying social rights in the ESG framework.
Question 3: The International Sustainability Standards Board (ISSB) was established under which umbrella organization?
- United Nations Environment Programme (UNEP)
- World Economic Forum (WEF)
- IFRS Foundation (Correct answer)
- Global Reporting Initiative (GRI)
Correct answer: IFRS Foundation
The ISSB was established by the IFRS Foundation in November 2021 at COP26, tasked with developing a global baseline of sustainability-related disclosure standards.
Question 4: Under IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information), companies must disclose sustainability risks and opportunities that could reasonably be expected to affect which of the following?
- Only near-term cash flows
- The company's cash flows, access to finance, and cost of capital over the short, medium, and long term (Correct answer)
- Exclusively Scope 1 greenhouse gas emissions
- Only information required by local regulators
Correct answer: The company's cash flows, access to finance, and cost of capital over the short, medium, and long term
IFRS S1 requires disclosure of sustainability-related information that could reasonably affect an entity's cash flows, access to finance, and cost of capital across short, medium, and long time horizons.
Question 5: Which ESG-related regulation requires EU financial market participants to classify investment products into Article 6, 8, or 9 categories based on their sustainability characteristics?
- CSRD
- SFDR (Correct answer)
- EU Taxonomy Regulation
- MiFID II
Correct answer: SFDR
The Sustainable Finance Disclosure Regulation (SFDR) classifies financial products: Article 6 (no sustainability claim), Article 8 (promotes environmental/social characteristics), and Article 9 (sustainable investment objective).
Question 6: What is 'greenwashing' in the ESG context, and which regulatory body issued guidance in 2022 specifically targeting this practice in investment fund naming?
- Overstating social benefits; EEOC
- Making misleading sustainability claims; SEC (Correct answer)
- Underreporting carbon emissions; EPA
- Hiding governance failures; PCAOB
Correct answer: Making misleading sustainability claims; SEC
Greenwashing involves making misleading or unsubstantiated sustainability claims; the SEC issued guidance and proposed rules in 2022 targeting ESG-labeled investment fund names and disclosures.
Question 7: The Equator Principles are a risk management framework primarily used by which type of institution?
- Central banks setting monetary policy
- Financial institutions for determining, assessing, and managing environmental and social risk in project finance transactions (Correct answer)
- National governments for infrastructure permitting
- Credit rating agencies evaluating sovereign debt
Correct answer: Financial institutions for determining, assessing, and managing environmental and social risk in project finance transactions
The Equator Principles are adopted by financial institutions to manage environmental and social risks in project finance transactions, particularly for large infrastructure and industrial projects in emerging markets.
CEP ESG Principles & Regulatory Frameworks 3
California's SB 253 (Climate Corporate Data Accountability Act) requires large companies operating in California to report Scope 1, 2, and 3 emissions starting in which year?