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Special Report

ESG: The metrics jigsaw


​European investment professionals reject forced consideration of ESG

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Policymakers should not attempt to force ESG considerations onto investors through new rules, research by the CFA Institute has said.

The CFA surveyed 645 investment professionals and reported that, while the majority believed environmental, social and governance (ESG) factors should be taken into account in investment decisions, they rejected the idea of being legally forced into this.

Some 85% of respondents said they believed it appropriate for institutional investors to take ESG factors into account when making investment decisions.

The institute said few respondents favoured a regulatory requirement for ESG, as has been proposed by the European Commission: 60% agreed that any mandate to consider ESG factors during investment analysis should not translate into forcing the manager or client into an ESG investment policy.

However, responses were divided on the question of whether ESG considerations should be formally added to the investment manager’s fiduciary duty. The only country showing a majority in favour of this was the Netherlands with 57%, while Spain supported that idea the least, with only 34% calling it a good idea.

Nearly three quarters (72%) of respondents opposed a legislative mandate that would override what clients wanted managers to consider as relevant investment factors.

Svi Rosov, director of capital markets policy at CFA Institute and the report’s author, said: “Our survey highlights that a majority of investment professionals across the European Union are already using ESG factors in the investment analysis process, to ensure that all material impacts on the potential investment are considered.

“These ESG factors are part of the standard mix when analysts are assessing their portfolio investments, yet there is great concern whether the regulator should legally mandate ESG or any other factors considered by the investment profession.”

The EC’s sustainable finance action plan, published in May 2018, contained four proposals:

  • The mandatory disclosure of sustainability risk by financial market participants;
  • the introduction of a sustainability taxonomy, or rulebook, which would apply to products marketed as sustainable investments;
  • the introduction of low-carbon and positive carbon impact benchmarks by the EC; and
  • the amendment of existing legislation so that clients’ ESG preferences become part of investment advice provision.

In the run up to the action plan’s publication, the CFA said, some stakeholders had felt that explicit consideration of ESG factors should be made part of the fiduciary duty of investment managers.

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Readers' comments (1)

  • One of the principal functions of the government is to achieve social goals (social goods, moral behaviour), in particular those that cannot be achieved efficiently by society itself and have important external effects.

    If a government feels that society should achieve ESG goals, it is not appropriate for CFA and their clients to second guess that conclusion. They can only give expert advice on the efficiency of the (proposed) rule. Otherwise, It is a business between politicians and voters only. Rules on ESG are no different from rules on e.g. inside information.

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