CFA Institute: How to take the next steps in ESG integration

Investment organisations need to improve their handling and analysis of ESG data and ensure it is truly embedded across their processes, the institute says 

The UK is a leader in environmental, social and governance investing - but the investment sector needs to do much more to improve its effectiveness, according to new research by CFA Institute. 

The research found that 85% of CFA Institute members took ESG factors into account when investing, up from 73% three years ago. This growth was driven by client demand, the institute said, with 69% of retail investors and 76% of institutional investors having interest in ESG investing. 

However, it also highlighted several areas for improvement for asset managers and other organisations to boost sustainable investing further. 

CFA Institute said investment organisations, investment professionals, and the industry could support sustainable investing through education, collaboration and improved use of data. 

ESG knowledge and skills needed to be developed to a critical threshold across the industry, the institute said so that sustainable thinking was embedded in all investment settings. Companies and organisations could support this effort through providing training and hiring new resources as needed. 

The body also suggested that organisations should dedicate more efforts to integrating ESG and sustainability into their investment models, as well as strengthening collaborations within and across organisations to help drive engagement. 

CFA Institute said that investment organisations also needed to reduce the structural limitations that could prevent the efficient handling of data, as well as improve training so investment professionals are adept at evaluating all forms of ESG data. 

The report, The Future of Sustainability in Investment Management: From Ideas to Reality, explores the influences driving the sustainability trend and sets out implications for investment firms, including the need to better integrate sustainability data and to develop expertise to meet client expectations.  

The research includes perspectives from over 7,000 industry participants, including investment clients, investment practitioners, and ESG specialists. 

Margaret Franklin, president and chief executive of CFA Institute, said: “Incorporating sustainability in investment management has become part of our industry’s mission to serve society by improving long-term outcomes. 

“This moment represents a valuable opportunity for organizations to address this challenge and help shape a future worth investing in. As the focus on sustainability in investing gathers increasing momentum, it will eventually dictate the sustainability of investing itself.” 

Rhodri Preece, senior head of industry and research for CFA Institute, added that the demand for sustainable investing had been “catalysed by societal expectations, and accelerated by the Covid-19 pandemic”.  

“Investment firms that incorporate sustainability into their business models need access to specialist knowledge to enrich their investment capabilities and to bridge the data gaps,” Preece said. 

“Education and training in the ESG space, along with the rise of alternative data sources and enhanced disclosure frameworks, will equip firms to deliver on the potential of sustainable investing.”