CFA Program vs. Certificate in ESG Investing
The CFA program is one of the most respected professional certifications in finance. Stories of candidates struggling in Level 2 or despairing of the writing portion in Level 3 are famous in the analyst forum. The ESG certificate, on the other hand, is still in its infancy but is rapidly growing in popularity. In this blog post, we highlight which certificate is better suited for you.
Passing all three levels of the CFA exam is mandatory to become a CFA charterholder
The CFA Designation
The CFA exam is divided into three levels, each of which must be passed in order to become a CFA charterholder. The first level focuses on the fundamentals of investment, including ethics and professional standards, investment tools and concepts, and asset valuation. The second level focuses on portfolio management and wealth planning, and the third level focuses on advanced investment analysis and portfolio management.
To prepare for the CFA exam, individuals must complete a substantial amount of self-study using study materials provided by the CFA Institute or CFA Approved Prep Providers. The CFA Exam Study materials are designed to provide a comprehensive understanding of the material and are updated regularly to ensure that they are aligned with the latest industry trends and developments. In addition to study materials, candidates can also use practice exams, study groups, and other resources to help them prepare for the exam.
| Level I | Level II | Level III | |
|---|---|---|---|
| Level Requirement | CFA Program enrollment requirements | Pass Level I CFA exam | Pass Level II CFA exam |
|
Question Format |
Multiple choice questions | Vignette-supported multiple choice questions | Vignette-supported essay questions and vignette-supported multiple choice questions |
| Exam Results Availability | Within 60 days of taking the exam | Within 60 days of taking the exam | Within 90 days of taking the exam |
| 10 Year Avg. Pass Rate | 41% | 45% | 52% |
Source: CFA Institute
Enrollment Criteria and Requirements for CFA Program
In order for potential candidates to enroll in the CFA program, they must meet a handful of criteria set forth by the CFA Institute. Once these are met, candidates can register for the program and schedule the Level 1 exam. Candidates need to meet all of the five requirements below:
1. Meet One of the Following Enrollment Requirements:
Bachelors Degree: Completed a bachelor's program or equivalent program and have received a degree from the college/university.
Undergraduate Student: The chosen exam window is less than 23 months before the bachelor's degree or comparable program's graduation month.
Professional Experience: A minimum of 4,000 hours of professional experience and/or higher education acquired in at least three consecutive years prior to registering for the Level I examination. Education and work experience cannot be completed at the same time. Assume that higher education requires 1,000 hours per year if you have a combination of work experience and higher education to meet the required hours and years.
2. Holder of an International Travel Passport:
CFA Institute requires that every CFA Program candidate have a valid international travel passport. Those without a passport will not be able to register or sit for exams.
3. Able to Take the Exam in English:
CFA Program exams are only offered in English. Exams require English proficiency for reading comprehension and formulating answers to complex financial scenarios.
4. Meet the Professional Conduct Admission Criteria:
All candidates in CFA Program must complete a Professional Conduct Statement form to attest that they are in compliance with this requirement.
5. Live in a Participating Country:
There are some countries with which CFA Institute cannot work. Review the OFAC Policy to check if there are any sanctions on your country
CFA Level 1
The Chartered Financial Analyst (CFA) Level 1 exam is the first of three levels required to become a CFA charterholder. It assesses the candidate's knowledge and understanding of basic investment concepts such as ethics and professional standards, investment tools and concepts, and asset valuation. The exam is made up of multiple-choice questions and is typically given 4x a year. The exam is designed to be difficult, therefore candidates spend on average 300 hours of study per exam level. The level 1 exam covers a wide range of topics, so applicants must have a solid foundation in investing theory and practice. Candidates who pass the Level 1 test will be able to take the Level 2 and Level 3 exams.
| Topic | Exam Weight |
|---|---|
| Ethical and Professional Standards | 15-20% |
| Quantitative Methods | 8-12% |
| Economics | 8-12% |
| Financial Statement Analysis | 13-17% |
| Corporate Issuers | 8-12% |
| Portfolio Management | 5-8% |
| Equity Investments | 10-12% |
| Fixed Income | 10-12% |
| Derivatives | 5-8% |
| Alternative Investments | 5-8% |
Source: CFA Institute
Exam: The Level I examination includes 180 multiple-choice questions spread across two 135-minute sessions. Between sessions, there is an optional break. To receive an exam result, candidates must attend both sessions.
First session (2 hours, 15 minutes): 90 multiple choice questions, covering the topics of ethics & professional standards, quantitative methods, economics, and financial statement analysis
Second session (2 hours, 15 minutes): 90 multiple choice questions, covering the topics of corporate issuers, equity, fixed income, derivatives, alternative investments and portfolio management
For the multiple choice questions, two basic formats are used 1) Sentence completion with three unique choices 2) Questions with three unique choices
CFA Level 2
CFA Level 2 is frequently recognized as the most difficult CFA level to complete. While Level 2 covers the same ten topics of investment analysis and ethics as Level 1, the key challenge in Level 2 is being able to apply that knowledge more comprehensively and precisely under time constraints. Candidates must also become comfortable to answering the multiple choice questions based on vignettes (small case studies) introduced at Level 2. Applicants must understand how to efficiently respond to vignettes, which can be up to two pages long. Unlike Level 1, the Level 2 exams are held twice a year. Officially, CFA Level 2 requires on average 328 hours of preparation (2019 Candidate Survey), but in our experience, candidates spend much more time on Level 2 (350-400 hours). Personally, I had taken two full weeks off in the run-up to the exam to study the content in depth.
| Topic | Exam Weight |
|---|---|
| Ethics | 10-15% |
| Quantitative Methods | 5-10% |
| Economics | 5-10% |
| Financial Reporting & Analysis | 10-15% |
| Corporate Finance | 5-10% |
| Equity | 10-15% |
| Fixed Income | 10-15% |
| Derivatives | 5-10% |
| Alternative Investments | 5-10% |
| Portfolio Management | 10-15% |
What's notable about the recently modified CFA Level 2 topic weights is that the ten topics can be tested evenly at 10% weighting each, which was probably done to prevent applicants from skipping topics.
CFA Level 3
In contrast to Level 2, which is mainly quantitative and calculation-based, the major challenge in CFA Level 3 is the more qualitative character of the questions, paired with 50% of the exam being a constructed-response (written, non-multiple choice) style. According to the most recent survey, candidates spend on average 344 hours on Level 3. However, we have seen a wide range of hours. Candidates who were better able to handle the written part (constructed response) required fewer hours. In our opinion, it is best to write some sort of script on how best to answer the questions. Personally, I created a schema that I followed to make sure I was able to answer all the points in question.
| Topic | Exam Weight |
|---|---|
| Ethics | 10-15% |
| Quantitative Methods | – |
| Economics | 5-10% |
| Financial Reporting & Analysis | – |
| Corporate Finance | – |
| Equity Investments | 10-15% |
| Fixed Income | 15-20% |
| Derivatives | 5-10% |
| Alternative Investments | 5-10% |
| Portfolio Management | 35-40% |
Similar to Level 2, the CFA Institute allowed space to test all topics (ex. PM & Fixed Income) evenly. This prevents candidates from skipping a topic. The CFA Level 3 exam consists of vignettes (mini case studies or item sets) with multiple-choice questions and constructed response (essay) questions in total. These are split into:
First session, 2 hours 15 minute exam time with 8-11 constructed response questions;
Second session, 2 hours 15 minute exam time with 44 multiple-choice questions.
Constructed-response questions are basically non-multiple choice questions, where you’ve to write concise answers to the questions and show your calculations, if applicable. The second session is the same format as Level 2’s item-set questions
Final Step, the CFA Charterholder
Candidates who have passed all three levels must meet the work experience requirements. The experience must relate directly to the investment decision-making process or to the creation of a work product that adds value to the process. Candidates who possess the required work experience must provide 2-3 professional references that should comment on their work experience and personal character. The final step is then to apply to become a charterholder. Once the application is approved, candidates can call themselves CFA charterholder.
The ESG Investing Certificate exam concentrates exclusively on the principles and practices of ESG investing
CFA Institute Certificate in ESG Investing
When it comes to comparing CFA to the CFA Institute's Certificate in ESG Investing, one of the main differences is the focus of the exam. The CFA exam is broad and covers a wide range of topics related to investment management, while the ESG investing certificate exam focuses specifically on ESG investing and its principles. While, the CFA exam is the prerequisite to the ESG certificate, with the later diving deeper into the topic of ESG. The latter would be an added value to the CFA charterholders, to stand out in the industry with a deeper understanding of sustainable investing.
Additionally, the CFA exam requires significantly more study time and is more rigorous than the ESG investing certificate exam. The CFA exam is also more expensive than the ESG investing certificate exam, but it is also more widely recognized and respected in the industry.
| Time Limit | Location | Exam Format |
|---|---|---|
| To be completed within 2 hours and 20 minutes | In-Person or Online | 100 multiple choice questions |
Source: CFA Institute
Fees
| CFA Program | ESG Certificate | |
|---|---|---|
| One-Time Enrollment Fee | $350 | - |
| Registration Fee | $900-$1200 | $795 |
| Rescheduling Fee | $250 | $595 |
Source: CFA Institute
Hours Required
To complete the full CFA program, candidates need on average more than 900 hours. In our experience, 900-1200 hours is quite realistic. On average, it takes CFA candidates 4 years to complete the program. The ESG certificate, on the other hand, requires 100-130 hours of preparation and can be completed within 2-6 months.
In Conclusion
In summary, the CFA exam is a rigorous and challenging professional certification for investment professionals. It requires a significant commitment of time and resources to prepare for and pass, but it is also highly respected and valued in the industry. On the other hand, the CFA Institute's Certificate in ESG Investing is a specialized certification that focuses specifically on ESG investing, which is a growing area of focus in the industry. Both certifications will open different doors in the industry and will be beneficial in different ways.
Brainie provides a powerful and effective e-learning experience that combines the expertise of industry professionals with the official CFA Institute syllabus to give you the best chance of success for the CFA Institute Certificate in ESG Investing. Save time and money with our e-learning platform, and start your journey to becoming a CFA ESG certified professional today.