CFA confirms it is exploring ‘GIPS-style’ standard for ESG

Note: This story was amended on October 30 to clarify that GIPS will be unaffected by CFA’s exploration of an ESG standard

The Chartered Financial Analyst (CFA) Institute – the global association of investment professionals – is looking at how to address ESG in its standards, it has confirmed.
Speaking at the CFA UK’s dedicated ESG conference in London yesterday, Daniel Murray, Chair of the CFA’s UK Board, told the audience: “We are working on a GIPS-style standard for ESG disclosure.”
Disclosure is one of the main stumbling blocks for the development of sustainable finance, with many market participants complaining of an overload of reporting frameworks and a lack of standardisation on indicators and metrics.
The CFA Institute’s standards have been influential in the investment world: its Global Investment Performance Standards (GIPS) have become a widely-accepted voluntary framework for disclosing financial performance. Nearly 2,000 organisations currently use the standard, which seeks to promote transparency and comparability in the market. Many asset owners and investment consultants require compliance with GIPS from all their asset managers.
Murray didn’t provide any further details about its plans, but a spokesperson for the CFA Institute confirmed to RI that it is “exploring the development of an ESG industry standard that would build a framework for investment managers to better communicate, and investors to better understand, the nature and characteristics of ESG-centric funds and investment strategies.”

Also speaking at the CFA UK event was Fiona Reynolds, chief executive of the Principles for Responsible Investment (PRI), who said 140 signatories currently don’t meet its minimum requirements and they need to “get up to speed or go”.

Reynolds was speaking about the future of responsible investment in a ‘fireside chat’ with CFA UK CEO Will Goodhart.During the conversation, which ranged from policy, ESG integration to climate change, Reynolds talked about the growth of the PRI and its new minimum requirements for being a member.

“Exploring the development of an ESG industry standard”

In late 2018, the PRI started to develop a ‘serious violation’ policy to remove members who put the integrity of the initiative at risk.

Reynolds said the PRI was engaging with signatories that didn’t meet its minimum requirement, with some raising their standards.

She added: “140 signatories don’t meet the minimum requirement. They need to get up to speed or go.”

Under the PRI’s new ‘serious violation’ policy, engagement with the signatory is preferred — with delisting seen as “an extreme and last resort measure”. There is also an option for the offender to voluntarily de-list itself.

Reynolds also said that going forward the PRI would review its minimum requirements and whether they needed to be ratcheted up.

The PRI said the original figure for signatories who didn’t meet its minimum standard was 185. “The PRI has been working closely with signatories who do not currently meet the minimum requirements in order to help them improve their performance. This process is about moving responsible investment forward, not delisting,” it said in the statement.

Other focus points raised during the chat were ESG data and inconsistencies, where Reynolds said the financial industry needed to come together and force change, suggesting a “TCFD for ESG data.”

Reynolds was also asked what was the one policy she would like to see to make responsible investment move. She answered: “A meaningful price on carbon across the globe”.