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CFA Institute Sustainable-Investing Exam - Topic 4 Question 17 Discussion

A company has just been assigned a lower ESG risk than its industry peers. Compared to its current price-to-earnings (P/E), the fair value P/E is most likely:
C) adjusted higher.
A) adjusted lower.
B) not adjusted.

CFA Institute Sustainable-Investing Exam - Topic 4 Question 17 Discussion

Actual exam question for CFA Institute's Sustainable-Investing exam
Question #: 17
Topic #: 4
[All Sustainable-Investing Questions]

A company has just been assigned a lower ESG risk than its industry peers. Compared to its current price-to-earnings (P/E), the fair value P/E is most likely:

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Suggested Answer: C

A lower ESG risk profile suggestsbetter risk management and potentially greater resiliencecompared to peers. This canreduce the risk premiumdemanded by investors andincrease the fair value P/E ratio. In practical terms, investors may be willing to pay more (higher P/E multiple) for the earnings of a company perceived to be less exposed to ESG-related risks.


by Dorinda at Jun 19, 2026, 07:54 AM

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Kris
9 hours ago
I feel it's not adjusted. The P/E reflects current market conditions.
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Ruth
6 days ago
I disagree, it should be adjusted lower. Lower risk doesn't always mean higher value.
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Cherelle
11 days ago
I think the fair value P/E is adjusted higher. Lower ESG risk is a good sign.
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Mickie
16 days ago
Wait, how does ESG even affect P/E ratios?
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Felix
21 days ago
Lower ESG risk typically means better valuation.
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Maryann
26 days ago
Really? I thought it would stay the same.
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Judy
1 month ago
Totally agree, it should be adjusted higher!
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Dana
1 month ago
Fair value P/E usually goes up with lower ESG risk.
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Bernardine
1 month ago
I feel like this is tricky. If the company is seen as less risky, wouldn’t that typically push the fair value P/E higher?
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Giovanna
2 months ago
I’m a bit confused. I thought lower ESG risk meant less uncertainty, which could keep the P/E stable, but I’m not confident.
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Eladia
2 months ago
I’m not entirely sure, but I remember a practice question where lower risk led to a higher valuation. Could be similar here?
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Bev
2 months ago
I think if the ESG risk is lower, it might suggest a more favorable outlook, so maybe the fair value P/E is adjusted higher?
upvoted 0 times
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