Exposure draft from CFA Institute outlines proposed disclosure framework for ESG-focused investment products.
The CFA Institute has released for public comment its proposals for a new disclosure framework aimed at improving comparability between ESG-focused investment products.
The institute, the global association for investment professionals, intends its voluntary ESG disclosure standards to be used by investment managers to describe the ESG characteristics of funds and other products in a clearer and more consistent fashion, bringing greater transparency and accessibility to the sustainable investment market.
Feedback on the principles, requirements and recommendations outlined in the exposure draft of the CFA Institute’s ESG Disclosure Standards for Investment Products is requested by 14 July, with the aim of releasing a final version in time for COP26 in November.
Chris Fidler, Senior Director for Global Industry Standards at the CFA Institute, said the new disclosure framework responded to market need.
“We’ve heard from investors and investment management firms that more guidance is needed. People want to have a way to bring greater clarity to the conversations that are having about ESG products,” he said.
The CFA Institute has designed the new disclosure standards to be universally applicable, by harmonising product-level disclosure requirements in existing regulations and voluntary standards, filling in gaps where necessary.
“There isn’t a global standard right now that covers all types of investment products, all asset classes, all types of ESG strategies, and that works in all markets. We feel this will help to harmonise some of the efforts that have come before, prevent further fragmentation, and bring the world together, when it comes to investment product disclosures,” said Fidler.
The exposure draft, which incorporates feedback from an earlier round of consultation with CFA Institute members, contains disclosure requirements and recommendations across nine different elements of an investment product’s strategy. These include overall objectives, benchmarks, sources of ESG information, exclusions, and portfolio-level criteria.
But the proposed framework takes account of the risk of information overload on the part of asset owners and other users of the disclosures. In its general principles, the exposure draft calls on managers to avoid over-generalisation or excessive irrelevant information which could obscure important details. It also asks for feedback on use of a template to standardise the structure of disclosures to better facilitate comparison.
“We hope to bring more consistency and clarity about the information disclosed. When a manager discloses the information required by the standards, we expect it to result in a three-to-five-page disclosure,” said Fidler.
“Investment management professionals need to be clear and precise about the way their products work because they affect the financial health of the investor.”
The draft standards – which are intended for product-by-product use, rather than applied by managers universally – were written input from a technical committee composed of 18 international volunteers with ESG expertise, as well as experience as asset owners, asset managers, consultants or service providers.
Fidler said the CFA Institute regards the disclosure standards as a bridge for communication for buyers and sellers of ESG-focused investment products. “We want to know from asset owners: Is the information in the draft the right set of information? And we want to know from asset managers: is it feasible to provide this information?” he said.
