Esg

Environmental, social and governance: factors outside the usual financial statements, such as emissions, labour practices and board structure, that can affect a company's risk, cash flows or cost of capital.

Where you will meet it

Esg appears in 17 learning outcomes on the CFA syllabus. A few of them:

• Set out ways to build ESG considerations into planning and constructing a portfolio
  CFA Level I · Portfolio Management

  “The investment policy statement should record a client's ESG preferences, typically among the constraints or unique circumstances, so that managers are bound by them.”

• Explain the ways ESG risks and ESG-driven investment opportunities can be found and assessed
  CFA Level II · Corporate Finance

  “Sources include company reports and sustainability disclosures, regulatory filings, news, industry bodies and ESG data providers.”

• Contrast the vehicles through which an investor can gain index-based equity exposure
  CFA Level III · Portfolio Management Pathway

  “Separately managed accounts hold the shares directly, allowing customisation such as tax-loss harvesting or ESG exclusions, but they need scale and add custody and administration cost.”

• Explain why investigating a target and drawing up a business plan are central steps when committing to a private deal
  CFA Level III · Private Markets Pathway

  “Legal, tax, operational, ESG and management reviews complete it.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with E · Glossary