CFA Standards Shine Spotlight on Funds’ ESG Claims

New voluntary standards aim to help asset owners assess and compare how investment products consider ESG issues across objectives, strategy, and stewardship.

The CFA Institute has issued its Global ESG Disclosure Standards for Investment Products, designed to help investors and their advisors to better distinguish between mutual funds and similar products, which claim to integrate ESG factors.

Their release follows consultation on creating standards that are based on “the principles of fair representation and full disclosure” of ESG issues within the objectives, investment process, and stewardship activities of investment products, said CFA Institute in a statement.

The Virginia-based CFA Institute’s standards follow the introduction of the European Sustainable Finance Disclosure Regulation (SFDR). The SFDR requires asset managers selling funds in the EU-27 bloc to publish information to help investors compare and assess the sustainability characteristics of their funds. Chris Fidler, Senior Director for Global Industry Standards at the CFA Institute, told ESG Investor earlier this year that the standards will – and indeed should – overlap with SFDR.

Further jurisdictions are also working on similar standards as well. This includes the UK, where the government’s recently released Greening Finance: A Roadmap to Sustainable Investing proposal will require creators of investment products to face new requirements to report on sustainability impacts, risks, and opportunities under the UK Green Taxonomy, which is still in development.

The CFA standards apply to all types of investment vehicles, asset classes, and ESG approaches. They reportedly “aim to support investors with information that is complete, reliable, consistent, clear, and accessible”.

“The complexities of the ESG investing landscape remain vast. We must identify ways to mitigate greenwashing and preserve the integrity of the information being shared about ESG investment products to make them more understandable and comparable to the end investor,” said Margaret Franklin, President and CEO of the CFA Institute.

Two rounds of public consultation informed the first edition of the Global ESG Disclosure Standards for Investment Products. In August 2020, CFA Institute published an initial Consultation Paper seeking industry, regulatory, and public comment on the proposed scope, structure, and design principles for the Standards.

In May 2021, CFA Institute released an Exposure Draft of the Standards. The Standards are jointly approved by CFA Institute and its ESG Technical Committee.

After the second consultation, CFA Institute said the proposed framework will take account of the risk of information overload on the part of asset owners and other users of the disclosures. In its general principles, the draft called on managers to avoid over-generalisation or excessive irrelevant information that could obscure important details.

“Although there are differing regulations in global markets to address transparency for investors on ESG matters, it is important that a global approach exists to enable investor protection,” said Paul Andrews, Managing Director for Research, Advocacy, and Standards at the CFA Institute on the release.

“Such regulation does not always comprehensively cover all market participants. The standards fill these market needs, facilitating disclosures that will drive communication between the buyers of investment products.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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