Can this new training programme help avoid investment greenwashing?

With glob­al ESG assets surg­ing, investors need the right knowl­edge to make the best deci­sions. The Char­tered Finan­cial Ana­lyst (CFA) Institute’s Cer­tifi­cate in ESG Invest­ing aims to meet this demand. 

Accord­ing to Bloomberg, glob­al ESG assets are on track to hit $53tn by 2025, over a third of the $140.5tn in total assets under man­age­ment (AUM). Against that back­drop, it’s more impor­tant than ever that asset man­agers and oth­er invest­ment pro­fes­sion­als have the right skills at their fin­ger­tips. 

For exam­ple, how can those invest­ing these vast amounts of mon­ey, be they insti­tu­tions or retail investors, know that they’re not the vic­tims of green­wash­ing? Assess­ing and ver­i­fy­ing the sus­tain­able ele­ment of stocks and invest­ments is dif­fi­cult, not least because reg­u­la­tions and the basis of cal­cu­la­tions are con­stant­ly evolv­ing.

Accord­ing to research pub­lished in July by finan­cial con­sul­tan­cy Duff & Phelps, 45% of val­u­a­tion experts believe a lack of a stan­dard­ised and recog­nised mea­sure­ment sys­tem is the biggest threat to effec­tive ESG dis­clo­sures for busi­ness­es. The new course aims to meet this chal­lenge.

Analytical ability

The course was orig­i­nal­ly cre­at­ed by CFA Soci­ety of the UK, part of the glob­al CFA Insti­tute. How­ev­er, it’s now being mar­ket­ed and award­ed in finan­cial hubs around the world, aim­ing to give those in invest­ment roles the abil­i­ty to analyse and inte­grate mate­r­i­al ESG fac­tors into their analy­sis. Accord­ing to CFA Insti­tute, the course is also suit­able for any­one look­ing to improve their under­stand­ing of ESG issues in func­tions like sales and dis­tri­b­u­tion, wealth man­age­ment, prod­uct devel­op­ment, finan­cial advice, con­sult­ing and risk. 

Sev­en months after the certificate’s world­wide launch under CFA Insti­tute, more than 11,500 can­di­dates have reg­is­tered, com­ing prin­ci­pal­ly from the UK, fol­lowed by the US, Switzer­land, France, Hong Kong and Sin­ga­pore.

The self-study course requires approx­i­mate­ly 130 hours of study, cul­mi­nat­ing in a two hour, 20-minute com­put­er-based exam com­pris­ing 100 ques­tions at a super­vised cen­tre or via super­vised online test­ing. It looks at the his­to­ry of ESG and puts it into con­text before explor­ing each of the three top­ics in depth. It then exam­ines how to analyse and eval­u­ate data and how to inte­grate these fac­tors into the invest­ment process.

Can­di­dates are asked mul­ti­ple choice ques­tions. Some are rel­a­tive­ly sim­ple and fac­tu­al, such as: “Which of these least reflects how qual­i­ta­tive ESG data is used in com­pa­ny analy­sis?” Oth­ers are more nuanced, like: “Which of the fol­low­ing state­ments is gen­er­al­ly accept­ed as not true for com­pa­nies which score well on ESG met­rics rel­a­tive to com­pa­nies scor­ing less well?” 

The pass rate is between 70% to 80%. Course devel­op­ment has been prac­ti­tion­er-led, says Nick Bartlett, head of prac­tice analy­sis at CFA Insti­tute. “We rely on our ESG pan­el for their insights because this is a fast-mov­ing sec­tor.”

The qual­i­fi­ca­tion is focused on foun­da­tion­al com­pe­tence, Bartlett adds, with demands around the lev­el of an under­grad­u­ate degree or a first job. “There are two main tar­get areas – those peo­ple who are actu­al­ly involved in inte­grat­ing ESG con­sid­er­a­tions into the invest­ment process and those who need to under­stand it,” he notes. 

Business benefits

There are ESG invest­ing cours­es from uni­ver­si­ties and the Prin­ci­ples for Respon­si­ble Invest­ment (PRI) Acad­e­my. But hasn’t this offi­cial, indus­try-led qual­i­fi­ca­tion been slow to launch? “We’ve been devel­op­ing ESG resources and cours­es for quite a long time now,” says Bartlett. “It’s just that we’re real­ly see­ing the inter­est in this mar­ket now.”

Busi­ness­es can ben­e­fit great­ly when their staff gain a CFA ESG cer­tifi­cate, says Tim Garza, direc­tor of insur­ance strat­e­gy and solu­tions at Duco, a finan­cial data ser­vices provider. “ESG isn’t a sim­ple con­cept for insur­ance firms, as the way com­pa­nies man­age their poli­cies and prac­tices in this sec­tor are con­stant­ly evolv­ing. The CFA exam will help insur­ance pro­fes­sion­als get up to speed with these issues and help pre­pare them to adapt to the fast-mov­ing world of ESG invest­ing.”

Jonathan Wood is CEO of C2 Cyber, which helps stake­hold­ers to accu­rate­ly quan­ti­fy the ESG matu­ri­ty of organ­i­sa­tions not list­ed on a pub­lic stock exchange. He says the cer­tifi­cate suf­fers from an imbal­ance between the envi­ron­men­tal, social and gov­er­nance fac­tors.  

“This reflects a ten­den­cy for sus­tain­abil­i­ty to be seen as syn­ony­mous with envi­ron­men­tal­ism,” he argues. “If the last cou­ple of years has taught us any­thing it is that gov­er­nance should not be over­looked,” he adds, point­ing to the Boohoo scan­dal. When it was report­ed that work­ers at some of Boohoo’s Leices­ter fac­to­ries were being paid as lit­tle as £3.50 an hour, fund man­agers and retail investors sold their shares to dis­tance them­selves from a com­pa­ny that had demon­strat­ed a wor­ry­ing lack of gov­er­nance. 

“Going for­ward, the Cer­tifi­cate in ESG Invest­ing should recog­nise the crit­i­cal role gov­er­nance plays in the ESG mix,” Wood says.

Global challenges

The cer­tifi­cate might be recog­nised glob­al­ly but ESG report­ing stan­dards still aren’t, says Dr Zhenyi Huang, research fel­low at the Bayes Busi­ness School.  “There’s sig­nif­i­cant vari­abil­i­ty in leg­is­la­tion and data incon­sis­ten­cy across juris­dic­tions,” she says. “Giv­en that many of the ESG met­rics are high­ly asso­ci­at­ed with local reg­u­la­tions and nation­al cul­ture, it would require much indi­vid­ual judge­ment when apply­ing the knowl­edge to a spe­cif­ic mar­ket con­text.”

The con­tents of the CFA qual­i­fi­ca­tion are under con­stant review. A group of prac­ti­tion­ers in senior roles – head­ing ESG teams and work­ing as invest­ment ana­lysts and port­fo­lio man­agers – meets annu­al­ly, says Bartlett. “They’ll be review­ing the out­puts we get from our prac­tice analy­sis and our research, and they’ll make deter­mi­na­tions as to how the syl­labus should evolve.”

Growth is being dri­ven by increased demand as more asset man­agers and oth­ers ask for train­ing. How­ev­er, there’s also a sup­ply-side ele­ment, with more ESG infor­ma­tion and data becom­ing avail­able, dri­ven to some extent by tech­nol­o­gy like arti­fi­cial intel­li­gence. As a result, this rapid­ly evolv­ing new qual­i­fi­ca­tion looks set to become a “must-have” for suc­cess­ful invest­ment pro­fes­sion­als.