Newly Released CFA Institute Sustainable-Investing Exam PDF

Step 1: Understanding EU Paris-Aligned and Climate Transition Benchmarks

The EU Paris-Aligned Benchmarks (PAB) and EU Climate Transition Benchmarks (CTB) were established to help investors align their portfolios with the Paris Agreement goals. They aim to guide investments towards a low-carbon economy and provide standards for climate-related financial products.

Step 2: Key Characteristics of the Benchmarks

Paris-Aligned Benchmark (PAB): Designed to align with a 1.5°C temperature rise scenario.

Climate Transition Benchmark (CTB): Allows for a broader alignment with climate transition objectives, aiming for a less stringent pathway than the PAB.

Step 3: Common Features

Both benchmarks:

Require reductions in carbon intensity compared to a standard benchmark.

Aim to support the transition towards a low-carbon economy.

Use a sector-relative approach, meaning companies’ performances are compared to their sector averages to account for differences in sectoral emission profiles.

Step 4: Verification with ESG Investing References

Both the EU PAB and CTB use a relative approach to compare a company's performance to its sector average, ensuring that high-emission sectors still contribute to the transition: "These benchmarks use sector-relative decarbonization approaches, comparing companies within the same sector to ensure fair and achievable targets across different industries"​​​​.

Conclusion: The EU Paris-Aligned Benchmarks and EU Climate Transition Benchmarks both use a relative approach by comparing a company's performance to its sector average.

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Surface Water Usage:

Using surface water in business activities directly affects the local ecosystem and biodiversity.

It can alter water levels, temperature, and flow patterns, impacting aquatic life and surrounding habitats.

Direct Impact Characteristics:

Direct impacts are those that occur as a direct result of the company’s operations.

For example, drawing water from a river for industrial use can reduce water availability for fish and other aquatic organisms.

CFA ESG Investing Reference:

The Global Reporting Initiative (GRI) outlines that activities such as using surface water directly affect biodiversity, making it a direct impact​​.

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CDP (formerly known as the Carbon Disclosure Project) is a nonprofit organization that focuses on helping companies, cities, states, and regions disclose and manage their environmental impacts. It operates a global disclosure system that encourages transparency and accountability on climate change, water security, and deforestation.

Nonprofit Organization: CDP is structured as a nonprofit organization, meaning it operates for the public good rather than for profit. Its mission is to drive environmental disclosure and action among businesses and governments globally​​​​.

Global Environmental Disclosure: CDP runs a comprehensive environmental disclosure platform where thousands of entities report their environmental data. This data is used to assess and manage environmental risks and opportunities.

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In the green bond market, projects that are most likely to be financed include those that have clear environmental benefits. Real estate projects, especially those focusing on energy efficiency, sustainable building practices, and reducing carbon footprints, align well with the objectives of green bonds. These projects can include the development of green buildings, retrofitting existing structures to improve energy efficiency, and incorporating renewable energy sources​​​​.

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