INTERVIEW with Gary Baker, Managing Director for EMEA at the CFA Institute

| CFA Institute shortly published a consultation paper on ESG Disclosure Standards for Investment Products. How do they differ from or enhance other similar industry standards and initiatives?

The CFA Institute ESG Disclosure Standards for Investment Products will differ from other industry standards and initiatives in several important ways. First, our standard will focus on disclosures for investment strategies and funds offered by investment management firms rather than disclosure of ESG data by companies or issuers. Second, our standard will seek disclosure of information about how asset managers incorporate ESG factors into their products’ objectives, policies, constraints, and strategies rather than disclosure of environmental and social impacts as is the primary focus of the SFDR. Third, our standard will have procedures for independent third parties to examine products’ disclosure so that investors can have some level of assurance that the disclosures are a fair representation of the product. Investors must have transparency into the design of an investment product so that they can determine if the product aligns with their needs. This type of information is helpful even when the product carries a label that requires the product conform to certain minimum standards.


| How exactly do the CFA Institute ESG Disclosure Standards intend to be broader than the EU’s SFDR requirements?

The difference is centred around the scope of investor needs that will addressed.

SFDR is concerned primarily with sustainability – more specifically, helping investors understand if the product invests in economic activities that have an adverse impact and the degree to which the product invests in economic activities deemed “sustainable.”  The focus on sustainability is obvious and logical considering that SFDR is a part of a large program to bring private capital in alignment with EU policy objectives.  SFDR could be viewed as a mechanism that ensures the classifications of the EU taxonomy gets into the hands of investors.  However, in addition to the policy motivation, there is clearly a market demand from investors to have more information about sustainability to inform their investment product choices. This effort is applaudable and the EU is a leading voice when it comes to sustainability.

However, sustainability is not the only “extra-financial” factor that investors consider when selecting investment products.  In addition to sustainability, which is closely related to beliefs about fairness and equity, investors also consider their other values/religious beliefs, their philanthropic desires, their expectations about the future, their reputation, their goals to shape the world, and of course their financial needs.  These are not easily untangled.  Our standard recognizes this full spectrum of needs and aims to provide information to investors so they can better assess how a product would meet their particular set of needs – whatever they may be. And the way we intend to do this is to have managers provide information about the product’s objectives, policies, constraints, and methods.


| Many jurisdictions currently work on ESG-related standards aiming at leadership in the field. What is the particular aim of the CFA Institute in coming up with an ESG investment product standard?

CFA Institute intends to remain apolitical in the sense that we want to focus on financial materiality, which also underpinned our series of research on ESG Integration.


We do not claim that this standard will participate in the decarbonization of the economy for example. Our intention here is to provide a standard that is understandable by asset owners, investors and asset managers around ESG investing. By focusing on disclosures at fund or product level, our aim is to facilitate the dialogue between investors who wish to invest according to specific ESG or sustainability criteria and the professional asset managers who will report on what they were able to achieve using a set of pre-determined and pre-agreed definitions and factors.


This is perhaps where CFA Institute is most relevant and where we can add most value as compared to parallel initiatives; i.e. act as an unbiased actor between the different parties interested in ESG investing by creating a practical standard usable and understandable by these various parties.


| When does the CFA Institute consultation period end and when can we expect the new standard to be released to the market?

The consultation period will close 19 October 2020.  At that time, we will evaluate the feedback we have received and use it to develop an Exposure Draft, which is an initial version of the actual requirements.  We aim to release the Exposure Draft in May 2021 for another 60-day consultation period.  We will use the feedback on the Exposure Draft to develop the Final Draft, which we plan to release in November 2021.

Any individual, group, or organization from anywhere in the world is welcome to submit comments. We know from experience that it is vital to have diverse perspectives in the formulation of global standards. Additionally, CFA Institute is calling for volunteers for an ESG Technical Committee, which will guide development of all requirements within the Standard, and an ESG Verification Subcommittee, which will guide development of requirements specific to independent examination. Volunteers need not be CFA charterholders® or members of CFA Institute. Applications will be accepted through 23 September 2020.


| about

Gary Baker is Managing Director for EMEA, as well as being responsible for Global Research, Advocacy and Ethics at CFA Institute.  Based in London, he joined in 2016 following a 30-year career in institutional equity research working in Asia, Australia, US and Europe.  Gary is a graduate of Cambridge University and is a CFA Charterholder.