Earlier this month, the CFA Institute issued the first voluntary global standards for an asset manager to consider when disclosing its Environmental, Social, and Governance (ESG) issues in its objectives, investment strategy, and stewardship activities.[1] The guidelines, which are an extension of the global investment performance standards, known as GIPS, is a 52-page report outlining product-level ESG disclosures, ESG terminology, sample ESG disclosures, and an understanding to the development of these standards.[2]
According to these standards, managers would have to disclose how ESG data is quantified or considered, indices used, objectives for portfolio-level ESG characteristics, stewardship activities, and environmental and social impact objectives. The goal of these standards is to provide investors information that is complete, reliable, consistent, clear, and accessible.[3]
The CFA Institute’s website states that these standards were made with the following intentions:
- Relevance: Helps investors, consultants, advisors, and distributors better understand, compare, and evaluate investment products and diminishes the potential for “greenwashing.”[4]
- Flexibility: Designed to accommodate the full range of investment vehicles, asset classes, and ESG approaches offered in markets around the world.[5]
- Complementary: Addresses current gaps in regulation and helps harmonize disclosure practices in different markets.[6]
Earlier this year, we wrote a blog in response to negative media attention on impact investing – more specifically on greenwashing – where we stated how crucial it is to standardize practices and reporting across the financial industry. We also recorded a webinar over the summer on Greenwashing: Separating Fact from Fiction – available here. The CFA Institute’s new ESG standards could be the first step to help highlight the well-intentioned investment managers that are currently making an impact through their investments.
[1] https://www.cfainstitute.org/en/ethics-standards/codes/esg-standards
[2] https://www.cfainstitute.org/-/media/documents/ESG-standards/Global-ESG-Disclosure-Standards-for-Investment-Products.pdf
[4] https://www.cfainstitute.org/en/ethics-standards/codes/esg-standards
[5] Ibid.
[6] Ibid.