CEP ESG Principles & Regulatory Frameworks 4 â Questions and Answers
Question 1: Which of the following correctly describes the relationship between the GRI Standards and the SASB Standards?
- They are identical frameworks consolidated in 2022
- GRI focuses on broad stakeholder impacts while SASB focuses on industry-specific financial materiality for investors (Correct answer)
- SASB replaced GRI after the ISSB merger
- GRI applies only to European companies while SASB applies only to US companies
Correct answer: GRI focuses on broad stakeholder impacts while SASB focuses on industry-specific financial materiality for investors
GRI is stakeholder-oriented, addressing a company's impacts on society and the environment, while SASB is investor-oriented, focusing on financially material ESG topics by industry.
Question 2: The UN Guiding Principles on Business and Human Rights (UNGPs) are built on which three foundational pillars?
- Reduce, Reuse, Recycle
- Protect, Respect, and Remedy (Correct answer)
- Identify, Assess, and Mitigate
- Disclose, Engage, and Report
Correct answer: Protect, Respect, and Remedy
The UNGPs rest on three pillars: the state's duty to Protect human rights, corporations' responsibility to Respect human rights, and the need for access to Remedy when rights are violated.
Question 3: Which concept in ESG governance refers to a board's responsibility to oversee the long-term sustainability strategy and ensure it aligns with stakeholder interests beyond shareholders?
- Shareholder primacy
- Stakeholder capitalism (Correct answer)
- Fiduciary absolutism
- Agency theory
Correct answer: Stakeholder capitalism
Stakeholder capitalism holds that corporations should create value for all stakeholdersâemployees, customers, communities, and the environmentânot solely maximize shareholder returns.
Question 4: Under the TCFD framework, which category addresses how climate-related risks and opportunities have affected or may affect a company's businesses, strategy, and financial planning?
- Governance
- Strategy (Correct answer)
- Risk Management
- Metrics and Targets
Correct answer: Strategy
TCFD's Strategy pillar requires disclosure of the actual and potential impacts of climate-related risks and opportunities on an organization's businesses, strategy, and financial planning.
Question 5: The concept of 'stranded assets' in ESG risk analysis most commonly refers to which scenario?
- Physical damage to corporate assets from extreme weather
- Fossil fuel reserves or infrastructure that may lose economic value before end of expected life due to energy transition (Correct answer)
- Supply chain disruptions caused by geopolitical events
- Brand damage resulting from social media controversies
Correct answer: Fossil fuel reserves or infrastructure that may lose economic value before end of expected life due to energy transition
Stranded assets are fossil fuel reserves and related infrastructure that may become economically unviable or unusable before the end of their expected life as the world transitions to cleaner energy.
Question 6: The Principles for Responsible Investment (PRI), launched with UN backing in 2006, requires signatories to do which of the following?
- Divest all fossil fuel holdings within five years
- Incorporate ESG factors into investment analysis and decision-making processes (Correct answer)
- Achieve net-zero portfolios by 2030
- Report exclusively using the SASB framework
Correct answer: Incorporate ESG factors into investment analysis and decision-making processes
PRI signatories commit to six principles, with the core commitment being to incorporate ESG factors into investment analysis and ownership decisions.
Question 7: Which term describes the risk that a company's assets, earnings, or reputation are damaged due to shifts in climate policy, legal liability, or changing market preferences, as distinct from physical climate risks?
- Systemic risk
- Transition risk (Correct answer)
- Liquidity risk
- Reputational risk
Correct answer: Transition risk
Transition risk refers to financial risks arising from the shift to a lower-carbon economy, including policy changes, technological disruption, and market sentiment changes.
CEP ESG Principles & Regulatory Frameworks 4
Which of the following correctly describes the relationship between the GRI Standards and the SASB Standards?