CFM ESG & Sustainable Investing 5

Question 1

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:

Accepted Answer

Greenwashing

Answer

Greenwashing occurs when a fund or company overstates or misrepresents its ESG credentials without substantive underlying practices.

Question 2

Scope 3 greenhouse gas emissions are significant for ESG analysis because they represent:

Accepted Answer

All indirect value chain emissions upstream and downstream of the company

Answer

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.

Question 3

The Science Based Targets initiative (SBTi) helps companies by:

Accepted Answer

Setting independently validated emissions reduction targets aligned with climate science

Answer

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.

Question 4

From a portfolio construction perspective, tilting toward high-ESG-score companies may introduce which systematic risk?

Accepted Answer

Concentration risk and factor tilts toward quality, low-volatility, or large-cap stocks

Answer

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.

Question 5

A fund's 'ESG engagement score' is used to measure:

Accepted Answer

The proportion of holdings with which the manager has conducted ESG-related shareholder engagement

Answer

An engagement score tracks stewardship activity — specifically what percentage of portfolio companies the manager has formally engaged with on ESG topics.

(CFM) Certified Fund Manager Practice Test

(CFM) Certified Fund Manager Practice Test

CFM ESG & Sustainable Investing 5