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ESG Due Diligence & Materiality Assessment Flashcards

6 cards from real ESG practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is 'scope of consolidation' in ESG data collection for a multinational company?

    Answer: Defining which subsidiaries and assets are included in ESG data aggregation

    Scope of consolidation defines organizational boundaries—which entities, subsidiaries, and facilities contribute data to the parent company's ESG report, mirroring financial consolidation principles.

  2. What does 'ESG controversy screening' involve?

    Answer: Monitoring companies for specific ESG incidents, violations, or allegations that signal elevated risk

    Controversy screening uses news, regulatory, and NGO data to flag companies with active ESG incidents (spills, lawsuits, strikes) that may not yet appear in standard ESG scores.

  3. In ESG due diligence, what is 'third-party verification' designed to address?

    Answer: Providing independent assurance that ESG data and disclosures are accurate and complete

    Third-party verification (limited or reasonable assurance) by audit firms enhances credibility of ESG disclosures by providing independent confirmation of data accuracy.

  4. Which type of ESG risk is described as 'transition risk' under TCFD guidance?

    Answer: Financial risk arising from the shift to a low-carbon economy, including policy, technology, and market changes

    TCFD defines transition risks as the financial risks associated with moving to a lower-carbon economy, including carbon pricing, changing regulations, and technology disruption.

  5. What is a 'red flag' in ESG supply chain due diligence?

    Answer: Indicators of potential ESG violations such as sourcing from conflict zones or lack of audit history

    Red flags trigger enhanced due diligence—they include sourcing from high-risk geographies, audit non-compliance, or patterns of labor or environmental violations.

  6. How does 'sector-adjusted ESG scoring' improve comparability of company ESG ratings?

    Answer: It compares company ESG performance against industry peers rather than the full market universe

    Sector-adjusted scoring ensures an oil company is compared to other oil companies rather than tech firms, reflecting that material ESG risks differ dramatically by industry.