CFA Institute Sustainable-Investing Question Answer
Index-based ESG strategies are typically optimized to:
A.
Minimize tracking error while keeping ESG improvement within an acceptable range
B.
Maximize ESG improvement while keeping tracking error within an acceptable range
C.
Maximize return while keeping both ESG improvement and tracking error within acceptable ranges
The Answer Is:
B
This question includes an explanation.
Explanation:
ESG index strategiesare typicallyoptimized to improve ESG scores while keeping tracking error under control. Tracking error measures how much an ESG indexdeviates from its traditional benchmark, and investorsprefer to limit large deviations.
Maximizing return (C) isnot the primary goalof ESG index investing—risk-adjusted performanceand sustainability alignment are more important.
[References:, MSCI ESG Index Construction Methodology, Morningstar ESG Index Performance Report, CFA Institute Guide to ESG Index Investing, ========, , ]
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