As a sustainable investing professional and a proud CFA charterholder, I have been actively advocating that ESG information is material and that considering it is absolutely consistent with CFA charterholders’ professional responsibilities and CFA Institute’s mission. So the January 10th publication of the CFA Institute’s “Positions on Environmental, Social and Governance Integration” was a important – and satisfying – milestone.
The policy statement unequivocally welcomes the consideration of environmental, social and governance issues – the foundation of sustainable investing – into the work of CFA charterholders. Indeed, it makes clear that these issues should be a part of their professional practice.
The “top-line views” that make up the policy statement map seamlessly to fundamental arguments I use when making the case for sustainable investing in purely mainstream, traditional finance terms. Using the short form of the arguments and the full text of the policy points, it looks like this:
- ESG information is material and therefore useful in investment decision making
CFA Institute Standards of Professional Conduct require CFA® charterholders to conduct appropriate research and investigation of all material information relevant to their investment analyses and portfolio management decisions, recommendations, or actions.
CFA Institute believes this requirement includes the consideration of material ESG information/considerations (ESG factoring) as an important component of a complete and thorough financial analysis for any actively managed fundamental investment portfolio.
- ESG is applicable across the investment spectrum
More broadly, CFA Institute encourages all investment professionals to consider ESG factors, where relevant, as an important part of the analytical and investment decision-making process, regardless of investment style, asset class, or investment approach.
- Investment professionals need information about ESG
CFA Institute is strongly focused on developing ESG-focused curricula and educational tools for our members and CFA® Program candidates, as well as for the broader investment management industry.
- Use of ESG information is consistent with fiduciary duty
ESG factoring is consistent with a manager’s fiduciary duty to consider all relevant information and material risks in investment analysis and decision making.
To be credible, it is essential to also recognize and acknowledge the challenges to the wider use and integration of ESG information into investment analysis. So I appreciate the fact that the policy statement discusses two of those challenges.
- We have significant and important work to do improving ESG data and disclosures
ESG disclosures and data being provided by corporate issuers, sometimes referred to as sustainability reporting, require further standardization and refinement to improve the quality, consistency, and comparability of key ESG factors across industry sectors.
- Truth in labeling – the quality and integrity of our work is non-negotiable
ESG investment products — and management services marketed as such — must include adequate and detailed disclosures explaining the specific ESG process being used, with periodic verification that the stated ESG process, analytics, and factoring are occurring.
Just as the audience watching Casablanca knew that Humphrey Bogart really was on the right side all along, I have always been confident that CFA Institute would eventually recognize that the fundamental things really do apply.