The issuers of a world-renowned accreditation for financial analysts said that demand for specific expertise in sustainable investing is growing despite recent criticism of ESG.
The CFA Institute (CFAI), which issues charters that are recognised as a mark of financial analytical proficiency the world over, is offering a certificate in sustainable finance. It will teach candidates how to read ESG data, analyse metrics and apply those skills to portfolio and risk management, as well as other tasks.
The six-month, self-taught and online Climate Risk, Valuation, and Investing Certificate is an extension of its Certificate in ESG Investing foundational programme that the US-based organisation has been running for some time. It’s been enriched in response to demand for a more encompassing qualification as financial institutions clamour for ESG-focused analytical skills.
“It became very apparent that the industry was in need of guidance and investment professionals were in need of guidance about how to specifically integrate aspects of climate disclosures and climate risks within their analysis,” Richard Fernand, the London-based head of course and certificate management at the CFAI, told ESG Insight.
The politicisation of ESG has coincided with data suggesting a slowing of investment into the sector, although few reports indicate that substantial amounts of capital have been removed from sustainability funds. The enduring appeal and recognition of its importance was reflected in a Bloomberg survey published this week that found 90 per cent of investors and 67 per cent of corporate executives questioned expected higher returns from their ESG bets in the next five years. It also found a majority of the 250 C-suite executives and 250 senior investors were willing to risk greenwashing scrutiny in pursuit of sustainable investments.
Fernand said that while the CFAI recognised that ESG had become a political football in recent months, it was nonetheless incumbent upon the institute to teach the skills necessary to make sense of the data.
“People have become more aware recently and no matter what your political perspective might be around climate change, there is a recognition that there are risks that require analysis and there are increased disclosures coming from corporates that you need to incorporate,” he said. “Our focus is really on objective mainstream science, but also then on the objective way of incorporating that into analysis.”
The CFAI, which was formed in 1947 to professionalise the investment industry, offers several additional course in specific areas of analysis besides its core programme.
Concentrating initially on climate, the course will teach students the nuts and bolts of sustainable investment, from the science that underpins the need for green markets to how to create a net-zero portfolio. The programme will emphasise the data challenges that set ESG apart from other investment strategies. They’ll be educated on the unique requirements for dealing with directly reported raw data, ratings and derived data. They will also be taught to be mindful of the shortcomings in ESG data quality, from the paucity of some datasets to the assumptions built into derived data.
“We’ll definitely be making them aware of the different kinds of data and the factors that they should be thinking about while using it – so that means ‘buyer beware’,” said Sonia Gandhi, senior director for education at the CFAI. “We also realise that when it comes to integrating climate data and metrics, there is really no one size fits all.
“So, we are getting perspectives from different firms to be incorporated in this curriculum so that our learners have sight of what is going on and how different firms are using different approaches, given their unique circumstances.”
Fernand said many challenges are not unique to ESG data.
“This is a theme we recognise across the CFA programme, which is that analysts need to be able to triangulate on data and therefore build up a picture, recognising that there’s no data that is 100 per cent reliable. The same concept applies to financial data reported by a company; we have for many years, taught analysts to be sceptical of numbers until the numbers seem to fit a coherent story.”
Professionals from industry and academia have written the course, which will be based around five courses. The basics of climate science are taught first, then students examine the regulatory response and corporates’ obligations to that. The investment opportunities inherent in the climate emergency and the incorporation of those into analysis and valuations form another pillar. The same principles are then explored with regard to alternative assets. In the final course, students bring all this together to create a net-zero portfolio, considering the value of corporate engagement and stewardship.
Candidates will sit a final, online multiple-choice assessment.
“We are teaching all this with one objective – that they should be able to go back to their jobs and be able to apply these learnings,” said Gandhi.
The curriculum will be updated as the ESG space changes and new data and metrics are created. Students will also get a first-hand view of new developments in the space through regular remote discussions with investment professionals and other speakers.
“We’re always scanning the market,” said Fernand. “We have a process called ‘practice analysis’ whereby we are constantly in touch with market professionals and we’ve got a network of 200,000 members that enables us to get input from the market about what people are doing and how terminology and practices are changing.”
Those updates are likely to see the incorporation of biodiversity into investment strategies soon, said Fernand.
The newly updated course won’t provide successful candidates with the CFA designation, but they will be entitled to apply a digital badge to their online profiles. It’s open to non-chartered analysts as well as qualified professionals.
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