The CFA Institute’s proposed ‘Environmental, Social and Governance (ESG) Disclosure Standards for Investment Products’ has defined six ESG-related features to serve as the standard’s backbone.
In an announcement CFA said the proposed standard would define and classify ESG-related features and establish disclosure requirements and procedures for independent examination.
“The standard will 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,” CFA said.
It said it differed from existing standards that set disclosure requirements for corporate issuers, prescribe requirements for the labelling or rating of securities or investment products, or define best practice for a strategy or approach.
The six ESG-related features were:
- ESG integration: Explicitly considers ESG-related factors that are material to the risk and return of the investment when making investment decisions.
- ESG-related exclusions: Excludes securities, issuers, or companies from the investment product based on certain ESG-related activities, business practices, or business segments.
- 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.
- 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.
- Impact objective: Seeks to generate a positive, measurable social or environmental impact alongside a financial return.
- Proxy voting, engagement and stewardship: Uses rights and position of ownership to influence issuers’ or companies’ activities or behaviours.
CFA president and chief executive of CFA Institute, Margaret Franklin, said: “With growing interest in ESG investing, support is widespread from the investment community for the development of a standard to reduce confusion and facilitate better alignment of investor objectives with investment products.
“Setting global industry standards to ensure transparency and safeguard trust is integral to our mission and will help consumers to make more informed decisions about investing in ESG products.”
CFA called on the investment community to help shape an exposure draft which was expected to be released in May 2021.
