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CFA ESG Exam Questions and Answers: Practice Tests to Pass the ESG Exam

Real Exam Questions and Answers to Help You Pass the CFA ESG Exam

Are you looking to enhance your knowledge of Environmental, Social, and Governance (ESG) investing and prepare for the CFA ESG exam? Our collection of practice questions and answers is designed to simulate real exam conditions and help you build the confidence and skills necessary to succeed. By studying these questions, you'll gain a deep understanding of key ESG concepts, including ESG risk assessment, ESG integration, and sustainable finance. Our practice tests cover a wide range of topics, from ESG reporting and disclosure to ESG investment strategies. With our comprehensive study materials, you'll be well-prepared to tackle the CFA ESG exam and achieve your certification goals.

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Question #1
According to the EU's Sustainable Finance Disclosure Regulation (SFDR), 'Article 6' products:
A. have sustainable investment as an objective
B. claim to promote environmental and social characteristics
C. are not promoted as incorporating any ESG factors or objectives
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Correct Answer: C

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Question #2
Preserving and enhancing the value of assets with which one has been entrusted is the purpose of:
A. stewardship
B. monitoring dialogues
C. collective engagement
View answer
Correct Answer: A
Question #3
An appropriate adjustment to reflect an expected reduction of a company's exposure to environmental fines and lawsuits would be to reduce:
A. annual operating expenses
B. the assumed price/earnings ratio
C. the cost of capital for discounted cash flow valuations
View answer
Correct Answer: A
Question #4
A fund manager needs to engage with an investee company to discuss a voting issue. Which of the following is the fund manager least likely to make first contact with?
A. Auditor
B. Investor relations
C. Company secretary
View answer
Correct Answer: A
Question #5
Which of the following statements about the auditor's liability is most accurate?
A. In most markets outside the US, the auditor has limited liability
B. US-listed companies are prohibited from limiting auditor liability
C. Audit partners of limited liability partnerships are protected from being personally liable
View answer
Correct Answer: A
Question #6
The main ESG indices:.
A. are useful for equity portfolios only
B. rate all of the securities in a universe
C. vary in their screening methodologies
View answer
Correct Answer: C
Question #7
An active portfolio concentrated in a few securities is most consistent with:
A. a top-down engagement style
B. an issues-based engagement style
C. a company-focused engagement style
View answer
Correct Answer: C
Question #8
The Black-Litterman asset allocation model (BLM):
A. requires return estimates for each asset class
B. offers a more intuitive approach to pricing climate risk than mean-variance optimization
C. models abrupt and persistent changes in financial variables due to shifts in regulations and policies
View answer
Correct Answer: A
Question #9
The world's first formal corporate governance code emerged in:
A. Germany
B. the United States
C. the United Kingdom
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Correct Answer: C
Question #10
Which of the following requires two audit firms to lock at financial statements, rather than the usual one?
A. France
B. Germany
C. United Kingdom
View answer
Correct Answer: A
Question #11
A carbon tax is an example of a:
A. climate resilience measure
B. climate change mitigation strategy
C. climate change adaptation strategy
View answer
Correct Answer: B
Question #12
Which of the following reports formed the backbone for the launch of the Principles for Responsible Investment (PRI) in 2006?
A. The Freshfields report and the Stern report
B. The Stern report and the Who Cares Wins report
C. The Who Cares Wins report and the Freshfields report
View answer
Correct Answer: C
Question #13
An analyst believes that a company's factory will not be compliant with soon-to-be-enacted environmental regulations. Should the analyst make an adjustment to book value in his valuation model?
A. No
B. Yes, he should reduce the reported book value
C. Yes, he should increase the reported book value
View answer
Correct Answer: B
Question #14
Which of the following is one of the three pillars of the United Nations Guiding Principles on Business and Human Rights?
A. The state duty to enforce the law
B. Access to remedy for victims of business-related abuses
C. The corporate responsibility to conduct business in an ethical manner
View answer
Correct Answer: B
Question #15
Criticisms of ESG integration include:
A. funds are too inclusive of good companies
B. socio-political factors are underemphasized
C. the potential lack of emphasis on long-term improvements
View answer
Correct Answer: C
Question #16
Which of the following represents the majority of the largest asset owners?
A. Pension funds
B. Insurance companies
C. Sovereign wealth funds
View answer
Correct Answer: A
Question #17
Which of the following investors most likely have the longest investment time horizon?
A. Life insurers
B. Foundations
C. General insurers
View answer
Correct Answer: B
Question #18
Which of the following statements about green bonds is most accurate?
A. B-corporation certification is only available for green bonds issued by not-for-profit companies
B. A green bond is a fixed-income instrument tied to projects that create an environmental benefit
C. There is global consensus on the types of capital projects that fit within the scope of green bonds
View answer
Correct Answer: B
Question #19
A company with improving governance should be expected to have:
A. lower expected future cash flows
B. higher risk of negative capital allocation decisions
C. better access to capital markets in the event of new stock issuance
View answer
Correct Answer: C
Question #20
For quantitative approaches, a concern of portfolio managers is that ESG related factors and non-ESG related factors, such as quality or value, tend to have:
A. a negative correlation
B. no correlation
C. a positive correlation
View answer
Correct Answer: C
Question #21
ESG engagement is considered beneficial because it can lead to:
A. lower risk only
B. higher returns only
C. both lower risk and higher returns
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Correct Answer: C
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