CFA Institute seeks end to investor confusion around ESG products

By Mark Burgess | August 19, 2020 | Last updated on November 29, 2023
3 min read
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The CFA Institute has released proposed standards for environmental, social and governance (ESG) disclosures in investment products.

As ESG products become more popular, there’s “enormous confusion” around different products’ aims and what investors want from the funds, said Gary Baker, the CFA Institute’s managing director for Europe, the Middle East and Africa, in a media briefing on Wednesday.

The proposed standards are meant to “bring some order to what is a very confusing marketplace to many,” he said.

Almost seven in 10 retail investors are interested in ESG products, according to the CFA Institute’s most recent trust survey, and global ESG assets hit US$1.06 trillion as of June 30.

However, many in the industry have acknowledged the vacuum when it comes to assessing ESG standards and matching products with investor preferences. Some investors have been left wondering why their ESG funds contain oil companies or weapons manufacturers.

While certain industry efforts are focused on establishing disclosure requirements for corporate issuers, the CFA Institute is focused on defining “ESG-related features” and establishing disclosures and procedures to help investors examine products’ objectives.

The consultation paper defines “ESG-related features” as “components or capabilities of investment products that can be combined in different ways to meet different investor needs.” It outlines six such features:

  • 1. ESG integration: explicitly considers ESG-related factors that are material to the risk and return of the investment, alongside traditional financial factors, when making investment decisions.
  • 2. ESG-related exclusions: excludes securities, issuers or companies from the investment product based on certain ESG-related activities, business practices or business segments.
  • 3. Best-in-class: invests in companies and issuers that perform better than peers on ESG performance metrics.
  • 4. ESG-related thematic focus: invests in sectors, industries or companies that are expected to benefit from long-term macro or structural ESG-related trends.
  • 5. Impact objective: Seeks to generate a positive, measurable social or environmental impact alongside a financial return.
  • 6. Proxy voting, engagement and stewardship: uses rights and position of ownership to influence issuers’ or companies’ activities or behaviours.

Chris Fidler, the CFA Institute’s senior director, global industry standards, outlined the following five common client needs when it comes to ESG investing:

  • “I want to know that the ESG factors that are material to the risk and return of my investments are explicitly considered.”
  • “I don’t want to violate my personal beliefs or the mission, principles or beliefs of my organization.”
  • “I want to make investments that I believe have relatively fewer negative effects, and more positive effects, on the people and things I care about and the world in which I live.”
  • “I want to capitalize on investment opportunities related to long-term environmental or social trends.”
  • “I want to invest in specific solutions that intend to make a measurable contribution to a defined environmental or social need, problem, or goal.”

He proposed a matrix showing a product’s ESG-related features and an investor’s needs. This would allow investors to compare ESG funds based on how the products meet their specific goals and desires.

The CFA Institute is seeking input from the wider investment industry on the consultation paper before it drafts standards to be released in May 2021. Read the paper and find out more about the consultation here.

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Mark Burgess

Mark has been the managing editor of since 2017. He has been covering business and politics for more than a decade. Email him at