Think Big to Succeed in SRI, Says CFA Institute

Successful sustainable investing strategies will require “system-level thinking” across the investment industry, according to a new report from CFA Institute.

The report – The Future of Sustainability in Investment Management: From Ideas to Reality – highlighted that the Covid-19 pandemic had “emphasized the urgency of sustainability issues” at a macro level.

Similar to the 2007-09 Global Financial Crisis, the CFA Institute report said the events of 2020 had highlighted the “interconnectedness” of the financial system and how corporate actions could affect and be affected by the wider system in which companies operate.

Linked to this, CFA Institute said alternative data sources and new technologies would be crucial in the future to analyze sustainable investing issues effectively.

Nearly three quarters (71%) of attendees at a series of sustainability themed roundtables said alternative data sources would improve the robustness of environmental, social and governance (ESG) investment analysis.

In addition, three in five (62%) said active management would “thrive” in the ESG sector due to the “often subjective and contextual nature” of sustainability data.

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

“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 research for the institute, added: “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.

“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.”

The institute polled more than 4,400 retail and institutional investors and 2,800 CFA Institute members from around the world.

CFA Institute recently received criticism from asset managers around its planned introduction of a new ESG investing standard. It launched a plan for its own definitions and reporting system for ESG products in August.

However, organizations including the Investment Company Institute pushed back on the plan, saying yet another standard would add confusion at a time when global regulators were still formulating their own rules.