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CFA Institute Creates Task Force on ESG Standards

Standardizing the convoluted world of ESG investment products for the industry and clients is the core mission of the task force.

The CFA Institute has created a 15-member committee tasked with developing global environmental, social and governance (ESG) investment product standards. The nonprofit, which is the body behind the chartered financial analyst certification and that also serves as an investment professional association, announced its latest effort Tuesday.

“It is too broad now,” said Matt Orsagh, the senior director of capital markets policy, in speaking about the burgeoning categorizations that include ESG. “The ESG integration fund is marketed the same as an impact fund, which is marketed the same as a positive screening fund. We’re trying to get broad classifications, but narrower than we have now so grandma can have a better idea.”

Out of 200 applicants that responded to CFA’s call for ESG experts last November, the 15 members are from many sectors, including asset owners, investment managers, consultants and service providers. They originate from seven different countries but remain unnamed, at least temporarily, until CFA receives consent from everyone to release their identities.

The task force’s first order of business is to publish a consultation paper that describes the architecture of the standard. The CFA aims to define product features in an easily consumable way for clients and identify and define classes of investment products to make products more identifiable across the globe. It will standardize the type of information disclosed to clients and create assurance procedures that test the design and implementation of an investment product. The CFA is estimating a three-year time frame for development of a complete standard.

The institute made clear there were a couple of things that are out of its purview. It is not seeking to develop a standard for corporate issuer disclosure, and it is not going to attempt to create a standard that distinguishes sustainable environmental investments from products that are not sustainable. 

“The EU taxonomy is trying to do that. That’s an important part of the equation, but not one that we are focused on,” said Chris Fidler, the CFA’s senior director of global industry standards.

Moreover, these standards will not serve as a universal agreement on value. Fidler said that is an individual concern. So, the CFA has concerned itself with ensuring clients “get the information that they need to make an appropriate decision,” he said.

The institute would also like to improve investment managers’ communication of ESG investment products. Fidler recounted his own personal encounter with a financial advisor who offered him and his wife an ESG product and then failed to communicate the function of it

“After about a half-hour of the advisor explaining the product and us asking questions, I still didn’t have a good understanding of what the product would do,” Fidler said. “I didn’t know if I should expect this product to have different performance than a non-ESG product or if it would be excluding certain industries or activities on a consistent basis. And I didn’t know if the investment would have an impact on the world like beyond financial markets and my own financial life.”

Uncertain whether he himself was not adept enough to understand it or if the advisor was having an off day, Fidler said he and his wife left the meeting confused. But, in his talks with other people about ESG investment, he came to realize that many others were confused about it too.

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