CFA Institute, the global association of investment professionals, is developing an ESG disclosure standard for investment products, with input from MSCI, BlackRock, the PRI and UBS and others.
A consultation on the standard is out this week, with the expected launch next year.
Margaret Franklin, President and CEO of the CFA Institute, said: “In the face of growing interest in ESG investing, we found widespread support from the investment community for the development of a standard to reduce confusion and facilitate better alignment of investor objectives with product intent. The ESG Disclosure Standards for Investment Products will add to our current offering, including the Global Investment Performance Standards (GIPS) and the Asset Manager Code.”
The CFA Institute’s standards have been influential in the investment world, with GIPS becoming a widely-accepted voluntary framework for disclosing financial performance. Over 1,800 organisations in 48 markets 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.
Chris Fidler, Senior Director of Global Industry Standards at the CFA Institute, said that asset owners see the value of receiving ESG disclosures and he expects they will require asset managers to include the ESG Disclosure Standards as part of RfPs and due diligence.
The ESG Disclosure Standard defines six “ESG-related features” that an investment product should have one or more component of:
- ESG Integration: Explicitly considers ESG-related factors that are material to the risk and return of the investment, alongside traditional financial factors, when making investment decisions.
- ESG-Related Exclusions: Excludes securities, issuers or companies from the investment product based on certain ESG-related activities, business practices, or business segments.
- Best-in-Class: Aims to invest in companies and issuers that perform better than peers on one or more performance metrics related to ESG matters.
- ESG-Related Thematic Focus: Aims to invest in sectors, industries, or companies that are expected to benefit from long-term macro or structural ESG-related trends.
- Impact Objective: Seeks to generate a positive, measurable social or environmental impact alongside a financial return.
- Proxy voting, Engagement and Stewardship: Uses rights and position of ownership to influence issuers’ or companies’ activities or behaviours.
Alongside disclosure requirements, the standard also requires third-party verification.
The consultation is open for comment till 19 October. It was written with the help of a working group of 15 individuals from organisations including BlackRock, MSCI, UBS, BNP Paribas and the IMF.
CFA Institute is seeking further finance professionals to sit on a technical committee and verification committee for the ESG Disclosure Standards, expected to be released in May 2021.