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New Reports by CFA Institute and the PRI Find That Risk and Client Demand Are Driving ESG Integration

Findings show there are many methods to ESG integration, no “one size fits all” model

New York City, United States 13 Sep 2018

CFA Institute and the PRI are proud to announce two ESG integration reports aimed at helping investors better analyze ESG data and integrate ESG metrics into their investment process. The reports, ESG Integration in the Americas: markets, practices and data, and Guidance and case studies for ESG Integration: Equities and Fixed Income, are the result of a nearly two-year collaboration between CFA Institute and the PRI, focused on exploring the current state of ESG integration in all corners of the globe. Reports on EMEA and APAC to follow in the coming months.

The reports will help investors learn from their local peers about how they practice ESG integration across different asset classes through a look at local best practices. They also explore the barriers to ESG integration and the drivers of ESG integration in markets around the world. The ESG integration in the Americas report focuses on ESG integration in Brazil, Canada and the United States. 

Main findings

  • There is no “one best way” to do ESG integration and no “silver bullet” to ESG integration.
  • Investors should focus on ESG analysis, not ESG investing. ESG investing is often used as a marketing slogan, whereas ESG analysis is a fundamental part of investment analysis and requires a disciplined and tangible approach to be fully integrated into the investment process.
  • Governance is the ESG factor most investors are incorporating in their process; Environmental and social factors are gaining acceptance, but from a low base.
  • ESG integration is farther along in the equity world than in fixed income.
  • Portfolio managers and analysts are more frequently incorporating ESG into the investment process, but rarely adjusting their models based on ESG data.
  • The main drivers of ESG integration are risk management and client demand while the main barriers include a limited understanding of ESG issues and a lack of comparable ESG data.
  • Buyers should beware of products that claim to be ESG investment products. Investors need to do research when investing in anything called “ESG” or “sustainable,” to ensure they agree with the methodology behind those designations.
  • Asset owners and asset managers should strive to do a better job of educating each other about how and why they integrate ESG data in the investment process.
  • Investors and companies need to work together to agree on the reporting of material ESG issues only and to promote the standardization of ESG data.

”ESG integration is increasingly seen as an essential part of complete fundamental investment analysis,” said Paul Smith, President and CEO of CFA Institute. “We know our that our members and many investors around the world are hungry for guidance on how to best integrate ESG data in the investment process. We hope these reports can serve as a fundamental educational tool.”

“The reports show that while investors acknowledge ESG data has come a long way, we still have work to do when it comes to advances in quality and comparability of data,” said PRI CEO Fiona Reynolds.  “Feedback also told us that a commonly agreed ESG reporting standard would produce more quality data.” 

Notes to editors:

Methodology

The research that went into these reports includes;

  • surveying 1,100 financial professionals, predominantly CFA members, around the world;
  • running twenty-three workshops in seventeen major markets;
  • interviewing many practitioners and stakeholders;
  • publishing 33 case studies written by equity and fixed-income practitioners;
  • analyzing Bloomberg’s ESG company disclosure scores;
  • reviewing data from the PRI’s reporting framework, the largest global database of information on investors’ ESG practices. 

About CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organization is a champion for ethical behavior in investment markets and a respected source of knowledge in the global financial community. The end goal: to create an environment where investors’ interests come first, markets function at their best, and economies grow. CFA Institute has over 148,000 members in 163 countries and territories, including 142,000 CFA charterholders, and 148 member societies. For more information, visit www.cfainstitute.org.

About the Principles for Responsible Investment (PRI)

The PRI is the world’s leading proponent of responsible investment. It works to understand the investment implications of ESG factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the long-term interests of its signatories, of the financial markets and economies in which they operate, and ultimately of the environment and society as a whole. Visit the PRI website for more details: www.unpri.org.