Talk about alphabet soup: CFAs are about to get schooled on ESG.
CFA Institute, whose eponymous exams are a requirement for many professional analysts and money managers, is planning to update its 2017 curriculum to include more focus on corporate ethics, risk management and environmental, social, and governance (ESG) issues after feedback from its investment management practitioners.
CFAs are "telling us loud and clear that investors are demanding ESG, and there's increasing academic evidence that sustainable companies are better-managed companies and have higher risk-adjusted returns," Steve Horan, managing director of credentialing for the Charlottesville, Virginia-based institute, said in an interview.
The change stems from the institute's recently-completed annual survey of 2,000 investment managers. The curriculum, used as a basis for exams to obtain the chartered financial analyst credential, has had a "heavy" focus for years on governance, Horan said. The curriculum additions aim to ensure analysts are also trained in understanding how to incorporate material social and environmental issues into investment models and strategies.
"Up to now, there hasn't been a substantial amount of raw material — sustainability information — to do a standardized analysis," Horan said. "There's more coalescence around the data and information now. We're able to do case studies and we're starting to see analysts build models around this."
The new curriculum will also include descriptions of common ESG investment strategies, such as inclusion methods that pick companies making a positive impact, exclusion strategies that remove "sin stocks" or fossil fuels from investment, and active engagement approaches where investors work to influence corporate managers.
Many CFAs say they are already incorporating some ESG metrics into their roles, ranking board accountability, human capital and executive compensation as most concerning to them in a survey last year.
This article was provided by Bloomberg News.