FSA Level II Exam 2024 Questions with Correct

FSA Level II Exam 2024 Questions with Correct Answers 100% Verified Rated A+ Characteristics that shape an industry's sustainability profile - Correct Answers 1. Social License to Operate

• Use of Common Capitals
• Costs to Society or Environmental Externalities

Social License to Operate (industry characteristic) - Correct Answers The ongoing approval and acceptance of a company's activities by society, especially among local communities and civil society In exchange for license, company expected to fulfill certain social goals (or otherwise have restrictions)

• License can be extensive or special treatment
• Failure can result in regulations or suspension of activities (affecting revenue, cost of goods sold,

compliance cost, cost of capital due to higher risk) [Types of industries]

• quasi-public services (utilities, student loan providers, transport authorities, mortgage)
• extensive use of public good
• intellectual property protection (biotech, tech, media)
• fiduciary duties beyond stakeholders (finance)

[Example] Telecom company has monopoly in exchange for universal access Use of Common Capitals (industry characteristic) - Correct Answers Non-financial capitals available as source of value creation but not controlled by company 1 / 4

[Types]

• Natural capital (water, mineral deposits, forests)
• Public infrastructure (roads, wastewater systems)
• Human capital

[Examples]

• Electricity company uses a lot of water for cooling (may be required to manage water sustainably)
• Technology company that relies on highly skilled labor (strong talent retention efforts)

Costs to Society or Environmental Externalities (industry characteristic) - Correct Answers A diverse range of impacts that result from a company's operations [Types]

• Effluents and emissions that affect public health (pollution)
• Outsourcing and offshoring (degradation of ecosystems, loss of biodiversity)
• Significant GHG emissions
• High incidence of corruption
• Although these impacts may not currently affect company performance, they tend to be

internalized over time (e.g. through fines, lawsuits, additional regulations, depletion of key resources, consumer demand, brand value)

• These externalities can be positive (e.g. pharma producing imp. vaccines for public health ->

vaccines often subsidized by governments to increase consumption)

How climate change affects sectors differently:

• O&G
• Auto Parts
• Processed Foods
• Health Care
• Banks - Correct Answers O&G 2 / 4

• regulations (to limit rise of 2C, 60-80% of coil, O&G reserves are unburnable
• result equity valuation reductions by 40% (higher cost of capital, rating downgrades, difficulties

repaying debt)

HEALTH CARE

• event readiness for climate-related weather events - affects infrastructure and demand
• leads to cost to repair physical assets and lost revenue from customers

PROCESSED FOODS

• environmental impacts of their ingredient supply chains
• price volatility, consumer trends, lack of market share

AUTOMOBILES

• downstream (use-phase emissions)
• Regulations and consumer attention

BANKS

• "financed emissions" -> pressure from investors and regulations to focus
• indirect exposure through portfolio can diminish returns and reduce shareholder value

Factors that Differentiate a Company from SASB Industry Standard - Correct Answers *1. Operations (internal)*

• Major revenue streams
• Main inputs for value creation

*2. Operating environment (external)*

• Geographic footprint
• Business climate 3 / 4

• Regulatory climate
• Political climate
• Economic climate

["Pure-play" companies are those that display typical characteristics of their SICS industry] Influences of OPERATIONS on Material Sustainability Factors (internal) - Correct Answers *1. MAJOR

REVENUE STREAMS*

• not normally associated with the industry (e.g. horizontal company)
• Companies to reference SASB Technical Bulletins to see if there are revenue and market share

thresholds to assist in determining disclosure (e.g. in Tech, standard relevant if company generates 15%+ of revenue or among top 5 companies in terms of market share by revenue) [Example] Royal Dutch Shell has significant revenue from O&G Upstream, Midstream and Downstream (three dif standards for these)

*2. MAIN INPUTS FOR VALUE CREATION*

• not primarily associated with industry (e.g. company relying on HC where automation is industry

norm) [Example] If Semiconductor outsources manufacturing ("fabless"), then H&S disclosure topic may not be relevant for disclosure because not under their direct management (potentially no need to report on other related topics to manufacturing, like GHG, waste, etc.) Note - these internal factors change over time (e.g. O&G expands, semiconductor outsources more manufacturing)

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