Sustainable-Investing VCE Exam Download

Water scarcity is recognized as amajor global risk. Corporations that consume large volumes of water—especially in water-stressed areas—can severely limitaccess to clean and affordable waterfor local communities.

“Water scarcity is present on every continent… a decision to allocate more water to any one sector implies that less water will be available for other economic uses or for environmental protection.”

Wastewater treatment technology is not a complete solution, andmelting Arctic icedoesnotcontribute to usable freshwater supply.

Stock exchanges play a critical role in enhancing ESG transparency by mandating or encouraginghigher ESG disclosure standardsfor listed companies. This helps investors accessmaterial ESG informationfor better decision-making.

“Stock exchanges can increase disclosure requirements on ESG data by listed companies (as encouraged by the Sustainable Stock Exchange Initiative).”

While they may support ESG-related products, such as green bonds, theircore contributionlies inregulatory influenceover disclosures.

When companies integrate ESG into their operations, they are more likely to enhanceoperational efficiency. This happens through better resource management (e.g., energy and water use), streamlined processes, reduced regulatory risks, and improved stakeholder relationships. The ESG manual states:

“ESG integration in business practices often leads to reduced costs and improved efficiency due to reduced waste, optimized energy use, better supply chain management, and employee satisfaction.”

This integration also supports long-term value creation by aligning operations with sustainability trends, rather than increasing externalities or requiring state intervention.

Green bondsare a type of fixed-income instrument used specifically to fund projects that havepositive environmental and/or climate benefits. These may include projects in renewable energy, energy efficiency, sustainable waste management, and clean transportation.

“Green bonds… are any type of bond instrument that funds projects that provide a clear benefit to the environment such as renewable energy projects… They are typically structured as ‘use of proceeds’ bonds where the raised capital is earmarked for green projects.”

While theGreen Bond Principles (GBP)provide voluntary guidelines for issuance, certification isnot mandatory. Hence, option B is inaccurate. Option C mischaracterizes the purpose of green bonds.