Certified Environmental Social and Governance Analyst (CESGA) EFFAS Practice Test

Which ESG factor is primarily considered in impact investing?

1. Governance

2. Social

3. Environmental

4. All of the above

The correct answer is: All of the above

Impact investing fundamentally seeks to generate positive social and environmental outcomes alongside financial returns. This approach is rooted in the consideration of all three ESG factors: environmental, social, and governance. In the context of impact investing, environmental factors may involve assessing a company's effects on the natural world, such as resource usage, waste management, and climate change initiatives. Social factors examine a company’s impact on society, including labor practices, community relations, and human rights considerations. Governance factors pertain to the corporate governance practices that shape a company's structure, accountability, and ethical conduct. By evaluating all three categories, investors are better positioned to understand the overall impact of their investments and target those that align with their values and desired outcomes. The comprehensive approach ensures that investments not only seek financial performance but also contribute meaningfully to addressing societal and environmental challenges.