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NEW QUESTION # 310
Pension funds are most likely classified as:
Answer: A
Explanation:
Pension funds are typically classified as asset owners.
* Asset owners (A): Pension funds manage and invest assets on behalf of their beneficiaries. They have significant capital and are responsible for making investment decisions, often delegating management to external asset managers.
* Fund promoters (B): Fund promoters are entities that market and promote investment funds but do not necessarily own the assets themselves.
* Asset managers (C): Asset managers are entities that manage investment portfolios on behalf of asset owners. While pension funds may have internal asset management capabilities, they are primarily asset owners.
References:
* CFA ESG Investing Principles
* Definitions of asset owners, fund promoters, and asset managers in the investment industry
NEW QUESTION # 311
A social media company faces criticism from a consumer action group for selling user data to advertising clients. A potential lawsuit will have the greatest direct effect on the company's:
Answer: B
Explanation:
Direct Effect of a Potential Lawsuit:
When a company faces potential legal action, the primary financial impact is often reflected in its liabilities, as the company may need to account for potential legal costs, settlements, or fines.
1. Liabilities-to-Assets Ratio: A potential lawsuit will have the greatest direct effect on the company's liabilities-to-assets ratio. This ratio measures the proportion of a company's assets that are financed by liabilities. When a company anticipates or incurs legal liabilities, its total liabilities increase, which directly impacts this ratio.
2. Return on Equity Ratio (Option A): The return on equity (ROE) ratio measures a company's profitability relative to shareholders' equity. While a lawsuit can indirectly affect ROE through legal expenses and potential losses, the most immediate impact is on liabilities rather than profitability.
3. Creditors Turnover Ratio (Option B): The creditors turnover ratio measures how quickly a company pays off its creditors. This ratio is less directly impacted by a lawsuit compared to the liabilities-to-assets ratio, which reflects the increase in liabilities due to potential legal obligations.
References from CFA ESG Investing:
* Financial Impact of Legal Issues: The CFA Institute discusses how legal risks and potential liabilities can affect a company's financial statements, particularly by increasing liabilities, which in turn affects ratios that measure financial leverage and stability.
NEW QUESTION # 312
Which of the following statements regarding ESG screening is most accurate?
Answer: A
Explanation:
The most accurate statement regarding ESG screening is that there is limited availability of sustainability ratings for collective funds. While individual companies often have detailed ESG ratings, collective funds, such as mutual funds and ETFs, have fewer sustainability ratings available.
ESG Data Challenges: The assessment of collective funds requires aggregating ESG data from all underlying holdings. This process can be complex and is less standardized compared to evaluating individual companies.
Limited Coverage: Many ESG rating agencies focus primarily on providing ratings for individual securities rather than collective funds. As a result, the availability of comprehensive ESG ratings for collective funds is limited.
Investor Demand: Although there is growing demand for ESG information on collective funds, the market is still developing. Rating agencies are gradually expanding their coverage, but it remains less extensive compared to individual securities.
Reference:
MSCI ESG Ratings Methodology (2022) - Highlights the challenges and limitations in providing ESG ratings for collective funds compared to individual securities.
ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the current state of ESG ratings availability for collective funds and the evolving market demand.
NEW QUESTION # 313
A bond issued to fund projects that provide a clear benefit to the environment best describes a:
Answer: B
Explanation:
A green bond is a fixed-income instrument specifically earmarked to raise money for climate and environmental projects. These bonds can fund various projects that contribute to environmental sustainability, such as renewable energy, energy efficiency, pollution prevention, sustainable agriculture, and biodiversity conservation.
According to the CFA ESG Investing curriculum, green bonds are designed to help investors fund projects that have positive environmental benefits. These bonds have specific criteria and often come with verification or assurance from third-party organizations to ensure that the funds are used appropriately and meet the defined environmental objectives.
Reference:
"Typically a green bond is a fixed income instrument tied to projects that create an environmental benefit. Issuers use proceeds for activities aimed at contributing to climate change mitigation, adaptation, or other environmental benefits such as conservation or pollution control".
NEW QUESTION # 314
Under the disclosure guide for public equities published by the Pension and Lifetime Savings Association (PLSA). fund managers are expected to report on:
Answer: B
Explanation:
Under the disclosure guide for public equities published by the Pension and Lifetime Savings Association (PLSA), fund managers are expected to report on both ESG integration and stewardship activities. Here's a detailed explanation:
ESG Integration:
Fund managers are required to disclose how they integrate ESG factors into their investment processes. This includes the identification and management of ESG risks and opportunities.
They need to provide examples of material ESG factors identified in their analysis, how these factors influence their investment decisions, and how they monitor ESG risks over time .
Stewardship Activities:
Stewardship activities involve how fund managers engage with companies they invest in to promote sustainable business practices and good governance.
This includes voting at shareholder meetings, engaging in dialogue with company management, and participating in collaborative initiatives aimed at improving ESG standards across the industry .
CFA ESG Investing References:
The CFA Institute's ESG curriculum emphasizes the dual role of ESG integration and stewardship in sustainable investing. Both aspects are crucial for ensuring that ESG considerations are fully embedded in the investment process and that fund managers actively contribute to improving corporate practices through engagement and voting .
NEW QUESTION # 315
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