The CFA Institute is calling out the lack of clarity and standardization around environmental, social and governance investment products.
In a consultation paper, the organization proposed its own set of standards, welcoming industry stakeholders to weigh in. As interest in ESG products continues to grow from both retail and institutional investors, confusion remains about the actual aims of many of these products, said the paper.
Notably, in a 2019 policy paper, the institute established that it believes “the consideration of relevant and material ESG information and risks is consistent with an asset manager’s fiduciary duty and is required for investment professionals who adhere to the CFA Institute standards of professional conduct.”
Read: Most Canadian institutional investors engaging in ESG issues: survey
As for the consultation paper, it clarified the institute doesn’t mean for the standard it proposed to define what constitutes an ESG or sustainable investment product or strategy; rather, the standard would establish what aspects of the products must be disclosed and described for potential investors to make accurate comparisons between products.
The paper proposed the standard include general disclosure requirements, ESG-related feature definitions and feature-specific disclosure requirements and a classification matrix that maps ESG-related needs to ESG-related features. It also proposed several items that should feature in each type of disclosure; for example, the benchmark a product uses would appear under general disclosures.
“The ambiguity and confusion that exist in the current ESG investment landscape can make it difficult — and sometimes impossible — for institutional investors to have constructive conversations about ESG-related needs with various stakeholders, such as trustees, boards and plan sponsors, as well as their consultants,” said the paper. “The standard would provide institutional investors with a means to identify and articulate their ESG-related needs, in accordance with their investment policy, in a clear and unambiguous way.”