CEP Sustainable Finance & ESG Investing 3

Question 1

According to ICMA's Social Bond Principles, what do social bonds finance?

Accepted Answer

Projects designed to achieve positive social outcomes, particularly for target populations facing social challenges

Answer

Social bonds finance projects that achieve positive social outcomes for target populations facing challenges, analogous to how green bonds fund environmental projects under ICMA principles.

Question 2

What is 'stranded asset' risk in the context of ESG and sustainable finance?

Accepted Answer

Assets that may lose economic value before their expected useful life ends due to regulatory, technological, or market changes

Answer

Stranded assets face unanticipated premature write-downs or devaluation due to environmental regulations, technological shifts, or changing preferences — a key risk for fossil fuel investments.

Question 3

Which metric is most commonly used to measure the carbon footprint of an investment portfolio?

Accepted Answer

Weighted Average Carbon Intensity (WACI)

Answer

Weighted Average Carbon Intensity (WACI) is the primary portfolio carbon metric recommended by TCFD, measuring tons of CO2 equivalent per million dollars of portfolio company revenue.

Question 4

What is the purpose of the Science Based Targets initiative (SBTi) for financial institutions?

Accepted Answer

To help financial institutions set greenhouse gas emission reduction targets aligned with climate science and the Paris Agreement

Answer

SBTi helps financial institutions set emission reduction targets for their lending and investment activities that align with the Paris Agreement's 1.5°C warming limit.

Question 5

What is 'double materiality' in ESG reporting and investing?

Accepted Answer

The concept that companies must consider both how ESG issues affect their financial performance AND how their activities impact society and the environment

Answer

Double materiality requires companies to assess both financial materiality (ESG risks to the company) and impact materiality (the company's own environmental and social impacts), a concept central to the EU's CSRD.

(CEP) Certified Environmental, Social, and Governance (ESG) Planner Practice Test

(CEP) Certified Environmental, Social, and Governance (ESG) Planner Practice Test

CEP Sustainable Finance & ESG Investing 3