Authentic CFA Institute Certification Exam Sustainable-Investing Questions Answers

Reshoringrefers to the process of moving production or sourcing back to a company’s home country or a country with higher labor costs, typically in response to geopolitical, supply chain, or ESG concerns. This is distinct fromoffshoring, which involves shifting production to low-cost regions, andjust transition, which relates to workforce and community adaptation in climate policy shifts.

Transition risk—linked toclimate policy changes, regulatory crackdowns, and shifts in demand—poses thehighest risk to common shareholdersbecause they areresidual claimantsin the capital structure. Debtholders and preference shareholders havepriority in claims, so common shareholders absorb most of the financial impact if the coal-powered utility faces declining demand or increased regulatory costs.

The concept described isclimate sensitivity, formally defined as the change in Earth's surface temperature resulting from adoubling of atmospheric CO₂compared to pre-industrial levels. This encompassesequilibrium climate sensitivity(long-term warming after all feedback loops settle) andtransient climate response(shorter-term warming before full equilibrium). While transient climate response is a specific short-term measure, the broader principle of warming after CO₂ doubling is referred to as climate sensitivity.