Although the ESG jobs market has cooled, demand for green expertise remains buoyant, as companies grapple with net-zero targets and a deluge of new regulation.
Scores have lined up for green finance qualifications; since the first edition launched in 2019, 41,000 people have registered to take the CFA Institute's ESG exam.
Now in its fourth iteration, the CFA's sustainability test is less punishing than the standard, three-part CFA exam, boasting a pass rate between 60% and 75%, whereas only 38% passed CFA Level 1 in February 2023.
Unlike the CFA's main exams, candidates can sit the tests at any time within six months of registering (after a $795 fee).
Do you have what it takes to be an ESG expert? Try your hand at these four sample questions selected by Financial News and find out. Answers below.
In relation to ESG analysis, investors should make adjustments to the credit assessment of a company based on:
A) Solely quantitative environmental factors.
B) The sector and geographic location of the company’s assets.
C) All environmental effects on the company, irrespective of their materiality.
In the evolution of corporate governance frameworks, which practice developed most recently?
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A) Establishment of auditor oversight regulatory bodies
B) Decreasing prominence of combined CEO/chair roles
C) Establishment of, and regularly scheduled meetings of, audit committees
Which of the following is an example of an ESG-integrated valuation adjustment? Upward adjustment in:
A) Sales growth due to high employee engagement.
B) Valuation due to weak governance of a company.
C) Cost of debt for new project financing with low carbon intensity.
Which of the following best describes an ESG-related thematic focus? It:
A) Seeks to generate a positive, measurable social or environmental impact alongside a financial return.
B) Aims to invest in sectors, industries, or companies that are expected to benefit from long-term macro or structural ESG-related trends.
C) Excludes securities, issuers, or companies from the investment product based on certain ESG-related activities, business practices, or business segments.
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ANSWERS
Q1 — B is correct. Investors should consider quantitative and qualitative environmental factors, the company, the sector, and the geographic location. Investors should assess the material financial impacts caused by environmental risks.
Q2 — A is correct. Auditor oversight bodies are a relatively recent development, first established in the US under the 2002 Sarbanes-Oxley Act. The emphasis on audit committees and the separation of the chair and CEO roles started in 1991 through the work of the Cadbury Committee in the UK.
Q3 — A is correct. Practitioners assess the impact of material financial and ESG factors on the corporate and investment performance of a company and make adjustments to:
- forecast financials
- valuation-model variables (e.g. cost of capital or terminal growth rates in discounted cash flow analysis)
- valuation multiples
- forecast financial ratios
- internal credit assessments
- assumptions in qualitative or quantitative models
Rather than changing model discount assumptions, explicit sales or margin assumptions may also be adjusted. For example, an analysis of a company’s strong management of its employees (as assessed by employee engagement or satisfaction metrics) leads to an assessment of strong future customer satisfaction, which in turn leads to sales forecasts five years out being raised to above the industry average to account for this strong social factor score.
Q4 — B is correct. The ESG Disclosure Standards for Investment Products proposed by the CFA Institute highlight six main categories of products. An ESG-related thematic focus aims to invest in sectors, industries, or companies that are expected to benefit from long-term macro or structural ESG-related trends.
To contact the author of this story with feedback or news, email Kristen McGachey
