I85PREP
⌘ K
CFA Sustainable Investing study materials
CFA Sustainable Investing study resources

CFA Sustainable Investing practice questions

One question at a time. Build your CFA Sustainable Investing understanding.

First 50 of 199 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Introduction to ESG

ESG investing is best described as:

  1. excluding every company that operates in a carbon-intensive industry from the portfolio
  2. pursuing maximum financial return while ignoring nonfinancial considerations
  3. donating a fixed share of investment profits to environmental charities each year
  4. incorporating environmental, social, and governance factors into investment analysis Correct answer.

Explanation

ESG investing systematically considers environmental, social, and governance factors alongside financial factors because those factors can affect risk and return. It is broader than any single exclusionary or philanthropic strategy.

Question 2Introduction to ESG

Which of the following is most clearly a governance factor in ESG analysis?

  1. carbon emissions intensity of a company's operations
  2. independence of board directors from management Correct answer.
  3. water use in the company's supply chain
  4. employee health and safety record

Explanation

Governance factors concern leadership structure, board oversight, shareholder rights, controls, and accountability. Board independence from management is a core governance characteristic.

Question 3Introduction to ESG

Modern socially responsible investing (SRI) traces its origins to:

  1. religious traditions that screened investments against their values Correct answer.
  2. government mandates requiring pension funds to divest fossil fuels
  3. the development of modern portfolio theory in the 1950s
  4. the creation of the first ESG rating agencies in the 2010s

Explanation

Early SRI grew from religious communities that avoided investments in alcohol, tobacco, gambling, and other activities inconsistent with their values. Modern ESG investing evolved from these exclusionary roots.

Question 4Introduction to ESG

Impact investing is distinguished from other ESG approaches mainly by its:

  1. focus on excluding companies that produce controversial weapons from portfolios
  2. use of ESG scores to select the highest-rated companies within each industry
  3. intent to generate measurable positive impact alongside financial return Correct answer.
  4. reliance on shareholder proposals to change corporate behavior over time

Explanation

Impact investing requires an explicit intention to create measurable positive social or environmental outcomes in addition to earning a financial return. Measurement and intentionality distinguish it from broader ESG integration or screening.

Question 5Introduction to ESG

The UN-supported Principles for Responsible Investment (PRI) are best described as:

  1. a voluntary investor framework for incorporating ESG issues into investment practice Correct answer.
  2. a legally binding international treaty that requires companies to disclose carbon emissions
  3. a credit rating agency that assigns ESG scores to sovereign governments and corporations
  4. a stock exchange listing standard that requires companies to meet board gender quotas

Explanation

The PRI is a voluntary initiative through which investors commit to incorporating ESG issues into investment analysis, ownership practices, and reporting. It is not a treaty, rating agency, or listing rule.

Question 6Introduction to ESG

Greenwashing in sustainable investing refers to:

  1. improving a portfolio's ESG score by divesting high-emitting sectors
  2. investing only in companies with third-party verified emissions data
  3. misrepresenting the ESG characteristics of a product or strategy Correct answer.
  4. engaging with companies to improve their environmental disclosures

Explanation

Greenwashing involves making exaggerated, misleading, or unsubstantiated claims about the environmental or ESG qualities of an investment product or strategy. It can mislead investors about what the strategy actually does.

Question 7Introduction to ESG

Stakeholder theory holds that a company should consider the interests of:

  1. the board of directors and senior management only
  2. employees, customers, communities, suppliers, and shareholders Correct answer.
  3. creditors and regulators only, because they impose binding constraints
  4. shareholders exclusively, because they are the residual claimants

Explanation

Stakeholder theory says corporate decisions should account for groups affected by the firm, including employees, customers, suppliers, communities, and shareholders. It contrasts with a narrow shareholder-primacy view.

Question 8Introduction to ESG

A fund excludes tobacco, gambling, and controversial weapons companies. This approach is:

  1. negative screening Correct answer.
  2. ESG integration
  3. positive screening
  4. impact investing

Explanation

Negative screening excludes securities or sectors based on values, norms, or specific controversies. The exclusions listed are typical negative screens.

Question 9Introduction to ESG

Best-in-class ESG screening selects companies that:

  1. have no exposure to any environmental, social, or governance controversy
  2. operate only in industries that regulators classify as sustainable
  3. rank among the ESG leaders relative to peers in their sector Correct answer.
  4. have committed to achieving net-zero emissions by a specified future date

Explanation

Best-in-class screening identifies the strongest ESG performers within each sector or investment universe, allowing exposure across industries. It does not require companies to be controversy-free or to operate only in sustainable industries.

Question 10Introduction to ESG

ESG integration in portfolio management means:

  1. voting every proxy in favor of shareholder proposals related to ESG issues
  2. applying the same exclusion list to every client portfolio regardless of mandate
  3. allocating a fixed percentage of each portfolio to labeled green bonds
  4. embedding ESG risks and opportunities in financial analysis and security selection Correct answer.

Explanation

ESG integration explicitly incorporates material ESG risks and opportunities into investment research, valuation, and security selection. It is an analytical process rather than a single exclusion, voting rule, or asset allocation target.

Question 11Introduction to ESG

Active ownership by an institutional investor typically involves:

  1. engaging investee companies and voting shares on ESG issues Correct answer.
  2. rebalancing the portfolio toward higher ESG-rated sectors
  3. purchasing carbon offsets to neutralize portfolio emissions
  4. short selling companies with weak governance

Explanation

Active ownership, also called stewardship, uses investor influence through dialogue, voting, and sometimes shareholder proposals to encourage better ESG practices at investee companies.

Question 12Introduction to ESG

In ESG analysis, an issue is financially material if it:

  1. is frequently mentioned in the media
  2. affects all companies in the same industry equally
  3. is supported by a majority of shareholders at the annual meeting
  4. could reasonably affect financial performance or enterprise value Correct answer.

Explanation

Financial materiality focuses on sustainability issues that could reasonably affect a company's cash flows, risk profile, or enterprise value. Media attention or shareholder support does not by itself establish materiality.

Question 13Introduction to ESG

Double materiality, as used in sustainability reporting, requires companies to disclose:

  1. only the company's greenhouse gas emissions, water use, and waste generation
  2. two separate ESG ratings produced by two different rating agencies
  3. both how sustainability matters affect the company and how the company affects society Correct answer.
  4. only the financial effects of climate change on the company's future projected cash flows

Explanation

Double materiality combines financial materiality, meaning sustainability matters affecting the company, with impact materiality, meaning the company's effects on society and the environment. Both perspectives must be considered.

Question 14Introduction to ESG

The TCFD recommendations are organized around four core elements. They are:

  1. scope 1, scope 2, scope 3, and offsets
  2. governance, strategy, risk management, and metrics and targets Correct answer.
  3. emissions, water, waste, and biodiversity
  4. board diversity, executive pay, audit quality, and shareholder rights

Explanation

The TCFD framework structures climate-related financial disclosures around governance, strategy, risk management, and metrics and targets. These elements cover how climate risks and opportunities are overseen, managed, and measured.

Question 15Introduction to ESG

SASB standards are best described as:

  1. a ranking system for assessing sovereign ESG performance across countries
  2. industry-specific standards for financially material ESG disclosure Correct answer.
  3. a framework for measuring the carbon footprint of an investment portfolio
  4. global rules for labeling and verifying the use of proceeds of green bonds

Explanation

SASB standards identify financially material sustainability topics by industry and specify disclosure requirements for companies. They are designed to help investors compare material ESG information across peers.

Question 16Introduction to ESG

ESG ratings from different agencies often disagree mainly because they:

  1. use identical data but make arithmetic errors
  2. use different methodologies, scopes, and weights Correct answer.
  3. focus exclusively on governance factors
  4. are legally required to produce different scores

Explanation

ESG rating divergence arises because agencies define ESG differently, cover different issues, use different data sources, and apply different weighting schemes. These methodological differences can produce materially different scores for the same company.

Question 17Introduction to ESG

Compared with divestment, shareholder engagement is more likely to:

  1. influence corporate behavior while retaining voting rights and dialogue Correct answer.
  2. avoid any contact with company management
  3. require selling shares before raising concerns
  4. guarantee immediate exclusion of a company from the portfolio

Explanation

Engagement seeks to change company behavior through dialogue, voting, and collaborative pressure while the investor remains a shareholder. Divestment instead exits the holding and gives up the associated voting and engagement rights.

Question 18Introduction to ESG

Milton Friedman's shareholder primacy view implies that corporate managers should:

  1. treat environmental externalities as the central corporate objective
  2. prioritize employee and community interests over shareholder returns
  3. maximize shareholder value while respecting society's basic rules Correct answer.
  4. adopt ESG targets only when mandated by regulators

Explanation

Friedman argued that managers should pursue shareholder value within the basic rules of society, including law and ethical custom. His view does not imply ignoring legal or ethical constraints.

Question 19Introduction to ESG

Universal owners are large diversified investors that:

  1. are required by law to divest from all carbon-intensive companies in their portfolios
  2. invest only in companies with top ESG ratings
  3. hold broad market portfolios and thus internalize economy-wide externalities Correct answer.
  4. avoid engagement because their index-tracking mandate prevents them from selling holdings

Explanation

Universal owners hold diversified exposures across the economy, so the costs of negative externalities created by one company may fall on other holdings. This gives them an incentive to engage with companies to reduce systemic ESG risks.

Question 20Introduction to ESG

Empirical evidence on the relationship between ESG and financial performance is best summarized as:

  1. results are mixed and depend on the ESG measure, time period, and methodology used Correct answer.
  2. there is no credible evidence linking ESG factors to financial outcomes
  3. ESG performance always increases returns because good companies are always undervalued
  4. ESG performance always reduces returns because it constrains the investment universe

Explanation

Studies find varied results because ESG is measured differently, sample periods differ, and methodologies such as factor controls vary. The evidence does not support a universal claim that ESG always helps or always hurts returns.

Question 21Introduction to ESG

Which statement correctly distinguishes green bonds from sustainability-linked bonds?

  1. Green bonds may be issued only by governments, while sustainability-linked bonds may be issued only by corporations
  2. Green bonds tie coupons to sustainability targets, while sustainability-linked bonds earmark proceeds for projects
  3. Green bonds earmark proceeds for green projects, while sustainability-linked bonds tie coupons to targets Correct answer.
  4. Green bonds are equity instruments with stated use of proceeds, while sustainability-linked bonds are debt instruments

Explanation

Green bonds use the proceeds for eligible green projects, so the bond's environmental label depends on use of proceeds. Sustainability-linked bonds instead set sustainability performance targets and link coupon or other terms to whether the issuer meets those targets.

Question 22Introduction to ESG

Under the EU Corporate Sustainability Reporting Directive (CSRD), companies subject to the rules must report according to:

  1. the ESRS and the double-materiality principle Correct answer.
  2. the TCFD recommendations alone, without any additional sector standards
  3. only the IFRS financial accounting standards issued by the IASB
  4. voluntary guidelines issued by major ESG rating agencies

Explanation

The CSRD requires reporting under the European Sustainability Reporting Standards and applies the double-materiality principle. It also introduces assurance requirements, extending beyond voluntary TCFD-aligned disclosure.

Question 23The ESG Market

Sustainable investing is best described as:

  1. investing exclusively in companies whose products directly reduce carbon emissions
  2. excluding from the portfolio every company that has any adverse environmental impact whatsoever
  3. donating a fixed share of management fees to environmental charities each year
  4. incorporating ESG factors alongside financial factors in the investment process Correct answer.

Explanation

Sustainable investing treats environmental, social, and governance factors as additional inputs to the same risk-and-return analysis used for financial factors. It is a broad umbrella that includes exclusion, integration, thematic, and impact approaches rather than a single strategy. Reducing the universe to one product type or to philanthropy describes narrow subsets, not the discipline itself.

Question 24The ESG Market

By signing the UN-supported Principles for Responsible Investment, an asset manager commits to:

  1. incorporating ESG issues into investment analysis and decision-making Correct answer.
  2. excluding fossil fuel producers from all of the signatory's mandates
  3. guaranteeing a minimum allocation to green bonds in every mandate
  4. publishing the carbon footprint of every holding on a quarterly basis

Explanation

The PRI is a voluntary framework whose core commitment is to incorporate ESG issues into investment analysis and decision-making, alongside ownership-policy and disclosure commitments. Signatories retain full discretion over strategy, so no specific asset allocation or exclusion list is prescribed.

Question 25The ESG Market

A use-of-proceeds green bond is characterized by:

  1. proceeds that may be applied to any general corporate purpose at the issuer's discretion
  2. proceeds earmarked for eligible projects such as renewable energy or clean transport Correct answer.
  3. a coupon that automatically steps up if the issuer misses an emissions target
  4. a guarantee from a multilateral development bank covering principal repayment

Explanation

In a use-of-proceeds structure the issuer designates the funds raised to a defined pool of eligible projects, which is then described in the bond framework and reported on. Credit enhancement or penalty coupons are separate features that can attach to any bond type.

Question 26The ESG Market

In a sustainability-linked bond, the issuer typically commits to:

  1. meeting preset sustainability performance targets, with a penalty if missed Correct answer.
  2. issuing the bond at a discount to its theoretical fair value to attract ESG buyers
  3. earmarking the entire bond proceeds to a specified list of eligible green projects
  4. obtaining a guarantee from a third party against any failure to meet ESG targets

Explanation

Sustainability-linked bonds are coupon- or principal-linked to the issuer's achievement of sustainability performance targets, usually measured by key performance indicators and verified externally. The proceeds are for general corporate purposes, so the instrument is defined by the issuer-level commitment rather than by project selection.

Question 27The ESG Market

Negative screening in a portfolio typically involves:

  1. engaging with issuers to improve their environmental disclosure over time
  2. tilting portfolio weights toward issuers that show improving ESG momentum scores
  3. excluding issuers involved in specified activities such as tobacco or weapons Correct answer.
  4. investing only in the issuers with the highest ESG scores within each sector

Explanation

Negative screening removes issuers that fail defined criteria, most commonly involvement in controversial products or conduct. Selecting leaders within each sector is best-in-class, momentum tilting is a quantitative integration technique, and dialogue with issuers is stewardship.

Question 28The ESG Market

A best-in-class ESG strategy selects:

  1. issuers with the strongest ESG performance relative to sector peers Correct answer.
  2. the largest issuers in each sector regardless of their ESG performance record
  3. only those issuers that derive a majority of revenue from environmental solutions
  4. issuers that have never been involved in any recorded ESG controversy

Explanation

Best-in-class strategies rank issuers against their own sector and hold the leaders, which keeps sector exposures broadly similar to the benchmark. Revenue purity is a thematic test, size is not an ESG criterion, and a perfect controversy record is an exclusion test rather than a relative ranking.

Question 29The ESG Market

Which portfolio is most clearly a thematic ESG strategy?

  1. a portfolio that excludes the producers of alcohol, tobacco, and gambling
  2. a portfolio that integrates ESG scores into its quantitative risk model
  3. a portfolio that screens companies for gender diversity on their boards
  4. a portfolio of companies that derive revenue from water infrastructure Correct answer.

Explanation

Thematic investing targets a specific sustainability theme by concentrating on issuers whose revenues are tied to it, such as water, clean energy, or health. Exclusion lists, board-diversity screens, and score-based risk models are applied across a broad universe rather than focused on a single theme.

Question 30The ESG Market

Impact investing is distinguished from other sustainable investing approaches primarily by:

  1. a contractual guarantee that market-rate financial returns will be delivered
  2. the requirement to measure and report a specific intended positive outcome Correct answer.
  3. exclusive use of listed public equity markets rather than private markets
  4. the exclusion of any investment that offers a below-market financial return

Explanation

Impact investing requires an explicit intention to generate a measurable positive social or environmental outcome alongside a financial return, and the outcome must be tracked and reported. It can be pursued across asset classes and does not guarantee market-rate returns.

Question 31The ESG Market

ESG integration is best described as:

  1. the allocation of a fixed share of the portfolio to green-labelled assets
  2. the exclusion of the weakest ESG performers from the investable universe
  3. the use of shareholder voting to change corporate behaviour
  4. explicit and systematic inclusion of ESG factors in analysis and valuation Correct answer.

Explanation

Integration means ESG information is used directly in the analyst's forecasting and valuation work, rather than being implemented through a separate screen or product overlay. Exclusions, voting, and dedicated green allocations are distinct approaches that can coexist with integration but do not define it.

Question 32The ESG Market

Norms-based screening typically evaluates issuers against:

  1. the portfolio's aggregate carbon intensity target at each reporting date
  2. minimum standards of business practice such as the UN Global Compact Correct answer.
  3. sector revenue thresholds set by the fund manager for each industry
  4. the issuer's ESG rating relative to that of its sector peers and the wider market

Explanation

Norms-based screening tests whether an issuer complies with internationally recognised standards of conduct, such as the UN Global Compact, ILO labour conventions, or OECD guidelines. It is therefore an absolute, conduct-based test rather than a relative ranking or a portfolio-level metric.

Question 33The ESG Market

Which activity is an example of stewardship?

  1. voting shares and engaging with management on climate disclosure Correct answer.
  2. shorting the shares of companies with the highest carbon emissions
  3. rebalancing the portfolio quarterly to track a published ESG index
  4. purchasing newly issued green bonds in the primary market at launch

Explanation

Stewardship is the use of investor influence, chiefly through voting and direct engagement, to protect and enhance the value of holdings over time. It concerns the exercise of ownership rights rather than trading activity or index tracking.

Question 34The ESG Market

The EU Taxonomy is best described as:

  1. a classification system for environmentally sustainable economic activities Correct answer.
  2. a global disclosure standard for climate-related financial risks and opportunities
  3. a fund labelling regime that sorts products into three distinct categories
  4. a mandatory ESG rating scale applied to all companies listed in the EU

Explanation

The EU Taxonomy provides technical screening criteria that determine when an economic activity counts as environmentally sustainable, supporting disclosure and use-of-proceeds frameworks. Rating scales, climate risk disclosure standards, and fund labels are separate instruments that may refer to the taxonomy but are not the taxonomy itself.

Question 35The ESG Market

Under the EU Sustainable Finance Disclosure Regulation, a fund classified as Article 9 is one that:

  1. has sustainable investment as its stated objective Correct answer.
  2. reports principal adverse impact indicators only at the entity rather than product level
  3. promotes environmental or social characteristics without a sustainable investment objective
  4. applies ESG exclusions but does not promote any environmental or social characteristics

Explanation

Article 9 covers products whose objective is sustainable investment, including reduced-carbon or impact objectives, and imposes the most demanding disclosure requirements. Products that merely promote ESG characteristics fall under Article 8, while Article 6 covers those without an ESG promotion.

Question 36The ESG Market

The TCFD recommendations organise climate-related disclosures around which four pillars?

  1. scope 1, scope 2, scope 3, and avoided emissions inventories
  2. environment, social, governance, and economic resilience
  3. governance, strategy, risk management, and metrics and targets Correct answer.
  4. materiality, comparability, verifiability, and timeliness of data

Explanation

The TCFD framework asks entities to disclose how climate issues are governed, how they affect strategy, how they are identified and managed as risk, and which metrics and targets are used. Greenhouse gas scopes are metrics reported under the fourth pillar rather than pillars in their own right.

Question 37The ESG Market

IFRS S1 and IFRS S2, issued by the International Sustainability Standards Board, provide requirements for disclosure of:

  1. the principal adverse impacts of each investment fund on sustainability factors
  2. the composition and independence of the board's ESG committee and its voting record
  3. a single composite ESG score for each reporting entity and its peers
  4. general sustainability-related financial information and climate-related disclosures Correct answer.

Explanation

IFRS S1 sets the general requirements for disclosing sustainability-related financial information, and IFRS S2 adds specific climate-related requirements built on TCFD architecture. They are reporting standards for entities, not scoring models, governance checklists, or fund-level impact disclosures.

Question 38The ESG Market

Divergence among ESG ratings from different providers is most likely explained by:

  1. the absence of any common mandatory sustainability reporting standards
  2. rating providers relying only on backward-looking, publicly reported data
  3. rating providers focusing exclusively on governance-related issues
  4. differences in scope, weighting, and measurement of ESG factors Correct answer.

Explanation

Even where the same underlying disclosures are available, providers differ in which issues they cover, how they weight them, and how they normalise and score them, which produces low correlation across ratings. Convergence in reporting standards reduces the problem but does not eliminate methodological differences.

Question 39The ESG Market

Greenwashing by an investment fund most likely refers to:

  1. holding a large cash position in an ESG fund during market stress
  2. marketing a product as greener than its holdings justify Correct answer.
  3. charging higher management fees for ESG-labelled funds than for peers
  4. reporting portfolio emissions using estimated rather than reported data

Explanation

Greenwashing is a misrepresentation of the sustainability characteristics of a product, typically through overstated marketing relative to the actual portfolio or process. Estimation methods, fee levels, and temporary cash holdings are separate issues that do not in themselves constitute greenwashing.

Question 40The ESG Market

A typical ESG equity index differs from its parent benchmark mainly by:

  1. guaranteeing lower volatility than the parent index in all market conditions
  2. applying exclusionary screens and reweighting toward higher-rated issuers Correct answer.
  3. excluding every company in carbon-intensive sectors without exception
  4. holding only those companies that have issued green or social use-of-proceeds bonds

Explanation

ESG indices usually start from a parent index, remove issuers that breach exclusion criteria, and then reweight remaining constituents toward stronger ESG scores or lower carbon intensity. They do not hold only bond issuers, do not guarantee any risk outcome, and typically retain some carbon-intensive exposure in order to stay close to the parent.

Question 41The ESG Market

In sovereign ESG analysis, which factor is most distinct from typical corporate ESG analysis?

  1. the issuer's board independence and executive pay structure
  2. the issuer's supply chain labour practices and human rights record
  3. the country's institutional quality and political stability Correct answer.
  4. the issuer's product safety record and customer complaint history

Explanation

For sovereigns, governance analysis focuses on the quality of institutions, rule of law, corruption control, and political stability, which shape the willingness and ability to repay. Board composition, supply chains, and product safety are entity-level factors relevant to corporate issuers.

Question 42The ESG Market

Institutional asset owners such as pension funds and insurers have been major drivers of ESG adoption largely because:

  1. their long-dated liabilities expose beneficiaries to long-term sustainability risks Correct answer.
  2. they are required by international treaty to publish ESG metrics annually
  3. they typically have shorter investment horizons than retail investors
  4. they face lighter disclosure requirements than retail funds and exchange-traded funds

Explanation

Pension funds and insurers hold long-duration liabilities and act as fiduciaries for beneficiaries whose future outcomes depend on broad economic and environmental conditions. That horizon alignment makes climate, social, and governance risks financially relevant to their mandates rather than a marketing preference.

Question 43The ESG Market

The SASB standards are designed to provide:

  1. a taxonomy of environmentally sustainable economic activities for funds
  2. a ranking of companies by their aggregate ESG score and momentum
  3. industry-specific disclosure of financially material sustainability factors Correct answer.
  4. a global baseline for climate disclosure applicable across all industries

Explanation

SASB standards identify the sustainability issues most likely to affect enterprise value in each of roughly 77 industries, so disclosure is tailored rather than uniform. A cross-industry climate baseline is the role of the ISSB standards, while scoring and activity classification are separate functions.

Question 44The ESG Market

The ICMA Green Bond Principles set out core components that include:

  1. use of proceeds, project selection, management of proceeds, and reporting Correct answer.
  2. materiality, comparability, assurance, and public consultation
  3. coupon step-up, target verification, issuer rating, and redemption terms
  4. carbon offsetting, board oversight, external audit, and tax treatment

Explanation

The Principles specify how issuers should designate eligible projects, evaluate and select them, segregate and track the proceeds, and report on allocation and impact, supported by external review. Coupon step-ups and target verification belong to the sustainability-linked loan and bond frameworks instead.

Question 45Environmental Factors

Under the GHG Protocol, direct emissions released from kilns owned and operated by a cement producer are classified as:

  1. Scope 3 emissions
  2. Avoided emissions
  3. Scope 1 emissions Correct answer.
  4. Scope 2 emissions

Explanation

The GHG Protocol assigns emissions from sources owned or controlled by the reporting company to Scope 1, while purchased energy is Scope 2 and value-chain emissions are Scope 3.

Question 46Environmental Factors

Which of the following is best described as a chronic physical climate hazard?

  1. Sea-level rise Correct answer.
  2. Flash flood
  3. Hurricane landfall
  4. Wildfire

Explanation

Chronic physical risks are longer-term shifts in climate patterns, such as sea-level rise or sustained temperature change, that gradually affect assets and operations.

Question 47Environmental Factors

Under the ICMA Green Bond Principles, the proceeds of a green bond must be:

  1. Backed by a sovereign guarantee
  2. Repaid from carbon credit sales
  3. Earmarked for green projects Correct answer.
  4. Used for general corporate purposes

Explanation

The Green Bond Principles require that proceeds be exclusively applied to eligible green projects, with the issuer describing project categories and managing the proceeds transparently.

Question 48Environmental Factors

The TCFD recommendations are organised around how many core disclosure elements?

  1. Three
  2. Five
  3. Two
  4. Four Correct answer.

Explanation

The TCFD framework sets out four core elements: governance, strategy, risk management, and metrics and targets.

Question 49Environmental Factors

A portfolio's carbon footprint is most commonly expressed as:

  1. MWh generated per year
  2. Share of fossil reserves
  3. tCO2e per $m invested Correct answer.
  4. Revenue per tonne emitted

Explanation

Carbon footprint scales attributed emissions by the value of the investment, allowing comparison of portfolios of different sizes on a common basis.

Question 50Environmental Factors

An asset is described as 'stranded' when it:

  1. Is written down early Correct answer.
  2. Is pledged as collateral
  3. Exceeds its permitted life
  4. Is sold to a sovereign fund

Explanation

Stranded assets suffer premature or unanticipated write-downs or conversion into liabilities, for example fossil fuel reserves rendered uneconomic by policy or technology change.