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CFA Institute ESG Disclosure Standards Consultation Paper

            Click here to view CFA Institute consultation paper


In January 2020, CFA Institute formed an ESG Working Group to help develop proposals for the core concepts of a voluntary, global industry standard: the CFA Institute ESG Disclosure Standards for Investment Products (the "Standard"). The ESG Working Group consists of 15 volunteers who have wide-ranging industry experience and deep expertise with investment products that have ESG-related features.  

The development of the Standard was prompted by increasing awareness of ESG matters among investors and greater availability of ESG data and information that can be used in decision-making; as well as concerns that the inconsistency and variation in ESG-related disclosures, terminology, and investment approaches contribute to confusion and misunderstanding. 

The purpose of the Standard is to provide greater transparency and comparability for investors by enabling asset managers to clearly communicate the ESG-related features of their investment products.  The Standard will establish fundamental requirements and disclosure requirements for investment products with ESG-related features, procedures for independent examination of disclosures, and a classification of ESG-related features by ESG-related needs.  The Standard will therefore primarily focus on disclosure requirements for investment products with ESG-related features so that investors can more comprehensively evaluate whether an investment product will meet their needs, or not. It is distinctly different from other standards that seek to establish disclosure requirements for corporate issuers, prescribe requirements for the labeling or rating of securities or investment products, or define best practice for a particular strategy or approach. 

The proposed core concepts of the Standard are outlined in the Consultation Paper on the development of ESG Disclosure Standards for Investment Products released by CFA Institute on 19 August 2020. This Consultation Paper is attached.   In understanding the scope, it is important to note that CFA Institute is not seeking to define what constitutes an ESG or sustainable investment product or strategy or to make determinations about the relative strength of any one ESG-related investment approach versus another. Rather, the Standard will establish disclosure requirements so that investors can more easily understand the features offered by a particular investment product and make comparisons among investment products. 

Consultation Paper   

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 goes on to propose definitions for six ESG-related features, listed briefly here. The features are expected to serve as a backbone of the Standard in that they are a mechanism to connect investor needs and disclosure requirements. 

  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: Aims to invest in companies and issuers that perform better than peers on one or more performance metrics related to ESG matters. 
  4. ESG-Related Thematic Focus: Aims to invest 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 behaviors. 

This Consultation Paper sets forth several proposals for the design of the key elements of the 

Standard. The proposals include  

  1. general disclosure requirements 
  2. ESG-related feature definitions and feature-specific disclosure requirements  
  3. a classification matrix that maps ESG-related needs to ESG-related features 
  4. procedures for independent examination of ESG-related disclosures 

    The Standard is expected to have four primary types of users: asset managers, investors, consultants and advisors, and database providers. Asset managers can use the Standard for clearly communicating ESG-related product features. Investors and consultants/advisors can use the Standard to discuss, assess, and compare investment products with ESG-related features. Database providers can use the Standard to improve investment product search functions. 

    The goal for the Consultation Paper is to elicit feedback from the wider investment community on the proposed scope, structure, and design principles of the Standard in order to help shape the Exposure Draft, and then ultimately the ESG Disclosure Standards on Investment Products (release date May 2021).  The proposed format of the feedback is expected to be provided on a pre-drafted response form which is set up with reference to the 44 questions posed within the Consultation Paper.                

    CFA Institute ESG Disclosure Standards Consultation Paper Response Request commentary for member and other interested parties.

    CFA Societies and members around the world are encouraged to participate in the consultative process by submitting comment letters and engaging in local stakeholder outreach. 

    To this end and given the notable depth of knowledge of ESG matters within the South African marketplace, CFA Society South Africa has decided to establish a Consultation Paper Response Team in an effort to co-ordinate and collate responses from South African stakeholders and members. Delphine Govender, CFA, board member of CFA Society South Africa, will chair this response team working group and provide the link between both the local society and CFA Institute. 

Click here to view submission sent to CFA Institute