CFA Institute releases final ESG disclosure standards

The CFA Institute has released its final ESG disclosure standards for investment products.

The voluntary standards, which were developed after two rounds of public consultation, aim to ensure full and fair disclosure of environmental, social and governance considerations in products’ objectives, investment processes and stewardship activities.

The group hopes that standardizing disclosures will address a variety of problems that have accompanied the rise of ESG investing — including investor confusion due to overlapping product categories and a lack of standard terminology — along with greenwashing, which is when firms intentionally or inadvertently mislead investors about a product’s approach to ESG investing.

“We’re proud to release the first edition of the standards after a multi-stage development process to ensure the result is additive, has impact and is meaningful to the industry,” said Margaret Franklin, president and CEO of the CFA Institute, in a release.

“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,” she said, adding that the standards represent a step in that direction.

The CFA Institute standards focus on products and don’t cover asset managers’ ESG disclosures at the firm level. They also don’t address the naming or labelling of investment products; nor do they target issuers’ ESG reporting.

The standards are designed to be used in a wide range of investment products, including investment funds, ETFs, insurance-based investments and managed account strategies.

They are also intended for all asset classes (public and private, debt and equity, real estate and infrastructure), active and passive strategies, and for various approaches to ESG (such as exclusion, screening, impact investing and stewardship).

“Although there are differing regulations in global markets to address transparency for investors on ESG matters, it is critically important that a harmonized, global approach exists to enable investor protection. Furthermore, such regulation does not always comprehensively cover all market participants,” said Paul Andrews, managing director for research, advocacy and standards with the CFA Institute, in a release.

“The standards fill these market needs on a global scale, facilitating important disclosures that will drive greater communication between the buyers of investment products and an industry marketing increasing numbers of funds and strategies that offer an ESG-centric approach,” he said.

In a research note released last month, Fitch Ratings said the proposed creation of the International Sustainability Standards Board could enable the adoption of a globally accepted framework for disclosing material sustainability information by companies generally, and financial institutions in particular. The board is expected to launch at the United Nations’ COP26 global climate summit, and Canada has put in a bid for the board’s headquarters.

Here at home, the Responsible Investment Association continues to work on a fund certification framework that would encompass labelling and performance thresholds.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.