ESG & Sustainable Investing Flashcards

Which international framework established Principles for Responsible Investment (PRI) that fund managers commonly sign onto?

Answer: United Nations

The UN-backed PRI was launched in 2006 and provides six principles for incorporating ESG factors into investment decisions.

In ESG integration, 'engagement' refers to:

Answer: Active dialogue with company management on ESG issues

Engagement means investors communicate directly with company leadership to encourage improved ESG practices rather than divesting.

A fund manager evaluating 'stranded asset risk' is most concerned about:

Answer: Assets that may lose value due to environmental regulatory changes

Stranded assets are those whose economic value is impaired ahead of end of expected life due to policy, regulatory, or market changes related to sustainability.

The EU Sustainable Finance Disclosure Regulation (SFDR) classifies 'dark green' funds under which article?

Answer: Article 9

Article 9 funds under SFDR have sustainable investment as their explicit objective, making them the most stringent category.

Which ESG data challenge is most commonly cited by institutional fund managers?

Answer: Lack of corporate ESG disclosure and inconsistent data

Inconsistent reporting standards and voluntary disclosure make ESG data quality and comparability a persistent challenge for fund managers.

Carbon credits used in voluntary carbon markets most directly represent:

Answer: A right to emit one metric ton of CO2 equivalent

One carbon credit represents the reduction, removal, or avoidance of one metric ton of CO2 equivalent emissions.

When a fund uses 'best-in-class' ESG screening, it:

Answer: Selects top ESG performers within each sector, including otherwise controversial ones

Best-in-class screening retains sector exposure but favors the highest ESG-rated companies within each industry, including oil & gas or defense.