ESG & Sustainable Investing Flashcards
7 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 ESG & Sustainable Investing flashcards as text
A CFM candidate reads that a fund claims to be 'ESG-integrated' but has no documented process for incorporating ESG data into investment decisions. This is an example of:
Answer: Greenwashing
Greenwashing occurs when a fund or company overstates or misrepresents its ESG credentials without substantive underlying practices.
Scope 3 greenhouse gas emissions are significant for ESG analysis because they represent:
Answer: All indirect value chain emissions upstream and downstream of the company
Scope 3 covers all indirect emissions in a company's value chain — from raw material extraction through product use and disposal — and often represents 70-90% of a company's total carbon footprint.
The Science Based Targets initiative (SBTi) helps companies by:
Answer: Setting independently validated emissions reduction targets aligned with climate science
SBTi validates that corporate emissions reduction targets are consistent with the Paris Agreement goal of limiting global warming to 1.5°C or well-below 2°C.
From a portfolio construction perspective, tilting toward high-ESG-score companies may introduce which systematic risk?
Answer: Concentration risk and factor tilts toward quality, low-volatility, or large-cap stocks
High-ESG portfolios often inadvertently tilt toward quality, low-volatility, or large-cap factors because better-governed large companies tend to have stronger ESG scores.
A fund's 'ESG engagement score' is used to measure:
Answer: The proportion of holdings with which the manager has conducted ESG-related shareholder engagement
An engagement score tracks stewardship activity — specifically what percentage of portfolio companies the manager has formally engaged with on ESG topics.
Under US securities law, the SEC's climate disclosure rules require public companies to disclose:
Answer: Material climate-related risks and, for large accelerated filers, Scope 1 and 2 emissions
The SEC's finalized climate disclosure rules (2024) require disclosure of material climate risks and Scope 1/2 GHG emissions for large accelerated filers, with Scope 3 requirements removed from the final rule.
An investor applies a 'norm-based screening' approach to exclude companies that violate:
Answer: Internationally recognized standards such as the UN Global Compact
Norm-based screening excludes companies that breach global norms and standards — most commonly the UN Global Compact's principles on human rights, labor, environment, and anti-corruption.