Investment Mandates
A mandate is where client intent becomes an enforceable set of instructions. This domain tests how to translate objectives into guidelines, benchmarks and reporting duties, and how to spot contradictions between what a client says and what the portfolio actually does.
The governing document
The investment policy statement or mandate agreement records objectives, return target, risk tolerance, liquidity, time horizon, legal and tax constraints, exclusions, benchmark, permitted instruments, and reporting. ESG beliefs should be explicit: whether the client excludes, integrates, targets outcomes such as decarbonisation, or merely requires disclosure.
Structures and delegation
Segregated mandates allow bespoke guidelines; pooled funds offer standardised ESG policies and less customisation. Decide what is delegated to the manager and what the client retains - for example, voting instructions or approval of exclusion lists. Fee structures may include sustainability-linked elements.
Guidelines and benchmarks
Define exclusions precisely: revenue thresholds versus reserves versus involvement in activities, applied at parent or subsidiary level, with a stated data source and review cadence. Benchmark choice matters - a broad market index, an ESG-screened index, or an EU Climate Transition or Paris-Aligned Benchmark, each with different construction rules and risk profiles.
Monitoring
Mandate compliance needs monitoring, breach escalation, and reporting against both financial and ESG objectives. Regulatory overlays include IORP II for EU pension funds and SFDR disclosure obligations.
Worked example
A charity mandates: no direct thermal coal extraction above 5% of revenue, measured on the latest annual report, reviewed annually, applied to the parent group. A manager proposes a company with 4% coal revenue plus 20% coal-fired power generation. The mandate does not exclude it - the threshold concerns extraction revenue only - but the client should be asked whether generation was intended to be covered. The exam point is the ambiguity and the need to clarify it in the guidelines, not to guess.
Traps that cost marks
Writing exclusions without thresholds, data source, or review date; setting a values-based exclusion list that contradicts the benchmark and then blaming tracking error; assuming pooled funds can be customised.
Portfolio Analytics and Client Reporting
This domain tests whether you can compute and interpret portfolio-level ESG metrics and report them honestly. Marks are lost by using the wrong denominator, by quoting a number without coverage, and by implying forward-looking alignment from backward-looking data.
The core metrics
Carbon footprint = sum of portfolio weight × (investee emissions ÷ investee EVIC), expressed in tCO2e per $m invested. WACI (weighted average carbon intensity) = sum of weight × (emissions ÷ revenue), in tCO2e per $m revenue. Financed emissions = sum of weight × investee emissions. Others: fossil-fuel reserves exposure, green revenue share, implied temperature rise, scenario alignment, ESG score distribution, SDG mapping, and voting and engagement statistics.
Reporting architecture
Reports typically cover objectives, portfolio ESG characteristics versus benchmark, holdings-level data, engagement and voting activity and outcomes, climate metrics aligned with TCFD, and adverse impact indicators under SFDR. Always disclose data coverage, estimation methods and the vintage of data.
Worked example
A $100m portfolio holds $5m in a company emitting 200,000 tCO2e (Scope 1 and 2) with EVIC of $2,000m. Emissions per $m of EVIC = 200,000 ÷ 2,000 = 100 tCO2e/$m. Portfolio weight = 5%. Carbon footprint contribution = 5% × 100 = 5 tCO2e per $m invested. Financed emissions = 5% × 200,000 = 10,000 tCO2e. If that holding is 60% of covered assets, report coverage - a headline number hiding 40% of the portfolio is misleading.
Greenwashing risk
Claims must be supportable by the reported data and consistent with the mandate. Comparing a portfolio to a benchmark requires stating the benchmark and the coverage; a footprint reduction driven by selling a holding rather than by real-world decarbonisation should be labelled as such.
Traps that cost marks
Confusing the EVIC denominator (footprint) with the revenue denominator (WACI); summing metrics without stating coverage; ignoring Scope 3 double counting; presenting implied temperature rise as measured rather than modelled.