CFA Institute Updated ESG-Investing Exam Questions and Answers by arwen

Working conditions on a tree plantation are most likely an example of a social issue. This encompasses aspects related to labor practices, employee welfare, and human rights.

Labor Practices: Evaluating working conditions involves assessing factors such as wages, working hours, health and safety standards, and the provision of benefits. Ensuring fair and safe working conditions is a critical social concern.

Employee Welfare: Social analysis of working conditions includes examining the treatment of workers, their access to healthcare, training opportunities, and overall well-being. Poor working conditions can lead to labor unrest and reputational damage.

Human Rights: Ensuring that working conditions respect human rights is essential. This includes preventing forced labor, child labor, and discrimination. Companies must adhere to international labor standards to uphold workers' rights and promote social justice.

References:

MSCI ESG Ratings Methodology (2022) - Highlights the importance of assessing social issues, such as working conditions, in evaluating a company's ESG performance​​.

ESG-Ratings-Methodology-Exec-Summary (2022) - Discusses the impact of labor practices and employee welfare on the social dimension of ESG analysis​​.

Under the UK Modern Slavery Act, companies are required to publish a statement on the steps they have taken to ensure that slavery and human trafficking are not taking place in their business or supply chains. The Act applies to businesses with a turnover of £36 million or more, making size the primary basis for exclusion. There are no sector-specific exclusions mentioned in the Act​​.

Free allowances in an ETS are often allocated to energy-intensive companies to prevent the offshoring of emissions, also known as "carbon leakage," where companies relocate to jurisdictions with laxer environmental regulations. (ESGTextBook[PallasCatFin], Chapter 3, Page 153)

Good corporate governance ensures that remuneration committees are primarily composed of independent non-executive directors. This structure helps prevent conflicts of interest and aligns executive compensation with long-term shareholder value creation.ESG Reference: Chapter 5, Page 236 - Governance Factors in the ESG textbook.