CFA Institute Sustainable Investing Certificate (formerly Certificate in ESG Investing) · International · CFA Institute
Original practice questions written to the published syllabus · not past papersMoney for climate and sustainability and the risks climate poses to money: public climate finance, green bonds, taxonomies, physical and transition risk, scenario analysis, and ESG integration in agricultural lending and investment. Agricultural finance and credit are in the Agribusiness track; this subject is the climate and sustainability layer.
In the exams: GARP SCR (whole exam); CFA Institute Sustainable Investing Certificate; UPSC CSE GS-III (climate finance)
CFA Institute Sustainable Investing Certificate
ESG factors and materiality, integration versus screening, thematic and impact investing, stewardship and engagement, ESG ratings and their divergence, green bonds and labelled products, SFDR and other disclosure regimes, and greenwashing risk.
How our questions for CFA Institute Sustainable Investing Certificate spread across the units of Climate Finance, Climate Risk & Sustainable Investment. Difficulty: 8 easy, 14 medium, 10 hard.
| Green, social, sustainability and sustainability-linked bonds | 9 | |
| ESG integration, screening and stewardship | 9 | |
| Climate scenario analysis for portfolios | 5 | |
| Physical and transition risk | 4 | |
| Climate risk measurement and stress testing | 3 | |
| Nature-related financial risk | 1 | |
| Transition plans and their credibility | 1 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
A USD 500 million sustainability-linked bond has a 5.00 per cent coupon and a 25 basis point step-up if its emissions target is missed. If the target is missed, how much extra interest does the issuer pay each year?
B. USD 1.25 million
Extra interest = 500 × 0.0025 = USD 1.25 million; the coupon becomes 5.25%. 12.50 treats 25 bp as 2.5%; 0.125 slips a factor of ten; 25.00 confuses basis points with millions.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
What does the European Green Bond Standard require that the voluntary ICMA principles do not?
D. Taxonomy-aligned proceeds plus a registered external reviewer
The EU GBS (regulation 2023, applying from December 2024) requires Taxonomy-aligned use of proceeds and external review by ESMA-registered reviewers. It has no step-up, is open to corporates, and carries no ECB guarantee.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Which is a common criticism of sustainability-linked bonds?
D. Step-ups tend to be small, targets weak and penalties late
Critics note weak or nearly met targets, small step-ups relative to abatement costs, late observation dates and call options. Proceeds are unrestricted, no IPCC certification exists, and environmental KPIs are common.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Which institution issued the first Climate Awareness Bond in 2007, widely regarded as the first green bond?
D. The European Investment Bank
The EIB issued the Climate Awareness Bond in 2007; the World Bank issued its first green bond in 2008. The GCF did not exist until 2010.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Why should implied temperature rise (ITR) results be interpreted cautiously?
D. Results vary widely between providers because methods and assumptions differ
ITR depends on choices about scopes, targets, budgets and pathways, so providers' results for the same company can differ substantially. It is not IPCC-defined, relates to emissions trajectories, and is computed for companies.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Why do many climate scenario sets understate physical risk to portfolios?
A. Damage functions omit extremes, tipping points and indirect effects
Aggregate damage functions often miss extremes, tipping points and cascading impacts; NGFS revised damages upward in later vintages. Warming does not stop in 2030, extremes are under- not over-counted, and coverage is global.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
How does ESG integration differ from exclusionary screening?
A. It weighs material ESG factors in valuation rather than excluding by rule
Integration systematically considers financially material ESG factors in analysis; it does not exclude by rule, chase top ratings or ignore returns.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
What is the main argument for engagement over divestment?
C. Owners keep influence, while sellers pass shares to less concerned owners
Engagement keeps voting and dialogue rights; divestment may have limited effect on companies' cost of capital or behaviour. Divestment is legal, engagement offers no guaranteed returns, and selling shares does not cut emissions.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Which stewardship tool involves voting on shareholder resolutions and director elections?
B. Proxy voting
Proxy voting exercises shareholder rights at company meetings. Screening, thematic investing and best-in-class are portfolio construction approaches.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
Which is a strong test of a transition plan's credibility?
B. Whether capital expenditure plans are consistent with the stated emission targets
Capex alignment shows whether resources match words. A pledge alone, offset reliance or narrow scope coverage weaken credibility.
Further reading: See the manual sources: UNFCCC decisions, ICMA principles, EU Taxonomy, PCAF, NGFS, TNFD, SBTi and the documents named in the explanation
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