CFA unveils global ESG standards to address greenwashing

The standards, which are the result of a two-and-a-half year process, are meant to be used by investors to compare ESG products globally

(Financial News London) – The CFA Institute has launched ESG disclosure standards designed to curb greenwashing in the asset management sector.

The new standards, which are the result of a two-and-a-half year process including industry wide consultation, apply to all types of investment vehicles, asset classes and ESG approaches.

They are meant to be used by investors, consultants, advisers and distributors to better understand and compare ESG investment products.

The standards’ debut comes amid growing concerns that a rapid rise in ESG product launches is fuelling greenwashing, where asset managers fall short on the claims they make about sustainable investment.

“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,” said Margaret Franklin, president and chief executive of the CFA Institute, a worldwide association of investment professionals.

Over the next six months, the CFA will publish a handbook with an explanation and interpretation of the standards, as well as a standardised template that asset managers can use to prepare ESG disclosure statements.

Some regions across the world have already introduced rules designed to tackle greenwashing, notably the European Union with its Sustainable Finance Disclosure Regulation, which came into force in March.

Under SFDR, asset managers have to sort funds into different categories — articles six, eight and nine — based on how they engage with sustainability.

In the UK, asset managers will also soon have to provide comprehensive detail about their green credentials under the Sustainability Disclosure Requirements.

However, the CFA standards are the first that apply globally.

Chris Fidler, a senior director responsible for codes and standards at CFA Institute, said the ESG disclosure standards were designed to “complement not conflict” with existing regulations.

“Regulation doesn’t completely solve all the problems for all market participants,” said Fidler.

“Their scope is also often limited in a way that global standards are not. These standards are limited to a portion of information investors need for selection. They were designed to address a particular disclosure gap.”

Bruno Bertocci, chair of the CFA Institute’s ESG technical committee, added: “These are market-led, voluntary disclosures. In many markets, such as the US, regulators prefer that.”

“It also raises the stakes — a manager that makes claims and has a disclosure about those claims would be loathe not to be carrying them out. That’s what the regulators are looking for.”

By: David Rickett