CFA Institute has announced the release of its final global ESG disclosure standards for investment products, designed to enable investors and others to better understand, compare and evaluate investment products’ consideration of environmental, social and governance (ESG) issues.

The release follows two rounds of public consultation, one on the proposed scope, structure and design principles for the standards and a second, on an exposure draft of the standards. This omitted a classification of ESG-related features that had been set out in the initial consultation and so, too, the final standards are focussed on facilitating disclosure of information only.

Bruno Bertocci, managing director, head of sustainability in active equities at UBS Asset Management and chair of the CFA Institute ESG technical committee, said CFA Institute “spent more time taking stuff out than putting stuff in and I think the disclosure standards became simpler, more transparent and clearer as we went on.”

The purpose to the standards, according to CFA Institute, is to “facilitate fair representation and full disclosure of an investment product’s consideration of ESG issues in its objectives, investment process, or stewardship activities”.

They seek to contribute to solving the problem that is created by non-standardised terminology associated with incorporating ESG approaches in investment products, preconceived notions, and greenwashing.

Chris Fidler, CFA Institute

Chris Fidler, CFA Institute

“Fundamentally, the problem is that there is a communication gap between investors and investment managers,” said Chris Fidler, senior director, global industry standards at CFA Institute.

“One way to solve this communication gap is to standardise the information that should be communicated by managers about the ESG approaches used in their investment products and this is exactly what the standards do.”

Complementing SFDR

The standards are designed to complement rather than conflict with national and regional regulation, such as the EU’s sustainable finance disclosure regulation (SFDR) – Fidler has previously already said the CFA Institute standards were designed to be broader than the SFDR.

Speaking to journalists, Bertocci gave the example of how a financial market participant could use the disclosure standards to highlight features of an investment product that an investment manager is lining up as an Article 9, or so-called “dark green” product under the SFDR.

Bruno Bertocci

Bruno Bertocci, of UBS Asset Management and chair of the CFA Institute ESG technical committee

He said the EU rules did not very closely define how environmental objectives are meant to be measured in the context of an Article 9 fund, but that the CFA Institute standards “outline very clearly what an impact product is all about and what are the critical elements and what is meant to be disclosed”.

Based in part on its experience of the take-up of its Global Investment Performance Standards (GIPS), CFA Institute is expecting its ESG disclosure standards for investment products to be influential.

“If you read across from the GIPS, which are equally voluntary, asset owners and consultants have made them a de-facto must have by insisting that managers use them to calculate the performance numbers they are delivering,” said Bertocci.

“And so while they were voluntary, they became extremely powerful and global in nature because the market wanted a common standard and we think the same avenue is open for these voluntary standards.”

The ESG disclosure standards cover topics including:

  • a summary description of ESG approaches;
  • a summary description of specific ESG issues addressed by ESG approaches;
  • labels and certifications;
  • sources and types of ESG information;
  • use of an ESG index as an investment universe;
  • ESG screening criteria;
  • stewardship activities;
  • environmental and social impact objectives; and more.

Beginning, not the end

Fidler said the issuance of the standards today marked “not the end but rather the beginning”, as CFA Institute would within the next six months release additional materials, the first of which will be assurance procedures.

“Testability is a critical attribute of world-class standards,” said Fidler, “and not only have we thought about testability when we constructed the requirements of the standards, we are also developing standardised procedures for independent third parties that provide assurance on ESG disclosure statements.”

CFA Institute also plans to release a handbook that explains the provisions of the standards and provides interpretative guidance, and an optional template for ESG Disclosure Statements to facilitate easier comparison between products.

Fidler said the feedback CFA Institute received on its exposure draft was “nearly universal” in expressing a desire for such a template.

“And templates are often helpful but it’s difficult to create a one-size fits all template that is appropriate for every single investment product,” he said. “And so to avoid the problems of force-fitting, the template will be optional.”

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