Sustainable-Investing Reviews Questions

Compared to developed markets, ESG investing in emerging markets is most likely characterized by lower transferability of approaches and principles methods from developed markets.

Market Differences: Emerging markets often have different regulatory environments, cultural contexts, and levels of market development compared to developed markets. These differences can affect how ESG principles and methodologies are applied.

Transferability Issues: The approaches and principles developed in more mature markets may not always be directly applicable in emerging markets. Factors such as differing levels of corporate governance, environmental regulations, and social norms require adaptations to ESG strategies.

Customization Needed: Investors in emerging markets need to tailor their ESG approaches to the local context to effectively address the unique challenges and opportunities present in these markets.

CFA ESG Investing References:

The CFA Institute’s resources on global ESG investing emphasize the importance of understanding local contexts and adapting strategies accordingly. This is particularly relevant in emerging markets, where direct transferability of developed market principles may not be effective​​​​.

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In fixed income investing, both corporate and government bonds can be impacted by environmental factors at a country level. For corporate bonds, companies operating within a country are affected by its environmental regulations, policies, and natural resource management. Government bonds, directly tied to a country's economic and environmental conditions, are also influenced by such factors.ESG Reference: Chapter 7, Page 318 - ESG Analysis, Valuation & Integration in the ESG textbook.

In contrast to active investors, passive investors are most likely to start their engagement process by writing a letter to all the companies impacted by a certain ESG issue.

Passive Investment Approach: Passive investors, such as those managing index funds, typically hold a wide array of companies within their portfolios. Direct engagement with each company individually can be resource-intensive.

Broad Engagement Strategy: Writing a letter to all companies affected by a specific ESG issue allows passive investors to address concerns across their entire portfolio efficiently. This approach ensures that all relevant companies are informed of the investor's expectations and concerns regarding the ESG issue.

Active Investors: In contrast, active investors may prioritize direct discussions with senior management and the board (A) or focus on specific underperforming companies (C) for more targeted engagement.

CFA ESG Investing References:

The CFA Institute’s resources on engagement strategies for investors distinguish between the broad, systematic engagement methods used by passive investors and the more targeted, intensive approaches favored by active investors. This helps ensure effective ESG integration across different investment styles​​​​.

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In developed markets, an increase in inequality between the richest and the poorest population of a country most likely results in lower social mobility.

Lower social mobility (A): Increased inequality tends to create barriers to opportunities for the poorer segments of the population. This limits their ability to move up the socio-economic ladder, thereby reducing overall social mobility. Higher inequality often correlates with reduced access to quality education, healthcare, and other essential services, which are critical for social mobility.

Greater reliance on family structures (B): While inequality might lead to some reliance on family structures, this is not the most direct or significant consequence compared to the impact on social mobility.

Higher economic growth in skill-based industries (C): Inequality generally hampers inclusive economic growth and can exacerbate skill gaps, leading to reduced overall economic efficiency and growth.