Free CFA Institute Sustainable-Investing Practice Exam with Questions & Answers | Set: 15

TheEquator Principlesare a widely recognized framework used by banks and financial institutions toassess environmental and social risks in project finance. These principles apply tolarge infrastructure and industrial projects.

TheHelsinki Principlesfocus on climate finance policies.

TheISSBdevelopscorporate sustainability disclosure standards, not project finance guidelines.

Thelargest driverof global greenhouse gas (GHG) emissions iscarbon dioxide (CO₂) from fossil fuels and industry, accounting for approximately75% of total GHG emissions. This includes emissions from coal, oil, and natural gas combustion for energy, manufacturing, and transportation.

While land-use change (C) contributes significantly (~10–15%), and methane (A) is a potent GHG,CO₂ from fossil fuels remains the dominant factordriving climate change.

Credit rating agencies (such asMoody’s, S&P, and Fitch) assessESG risksby analyzing a company’sinterest coverage ratio(how well earnings cover interest expenses) andcapital structure(debt-equity mix). These metrics help determinecreditworthinessand the impact of ESG-related changes on borrowing costs.

For example, a company facing environmental fines or governance scandals may see itscredit spreads widen, increasing itscost of debt.