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.
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.
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.
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.