The Importance of the CFA ESG Certification

The CFA ESG certification is not just a necessity for the financial industry, it's a game-changer for companies. It empowers investors and companies with the knowledge and understanding of the impact of Environmental, Social and Governance issues, and the power to effectively integrate it into their decision making process, giving them a competitive edge in the industry.

Even today, many investors still disregard ESG concepts when making investment decisions.

This is not surprising since, on the one hand, many players are not yet familiar with the various terms and concepts around ESG and, on the other hand, ESG investing has its origins in philanthropy and is thus considered social investing, an area that traditional asset managers typically do not yet target.

However, the reality is that capital is desperately needed to address the challenges facing current and future generations. Much has already been discussed about what the problems are, so there is little added value in highlighting them further. Needless to say, action is needed because the status quo offers no solution.

“This is an opportunity for our industry to champion positive change, and respond to a growing desire from clients that want to make a real difference alongside attractive long term returns.”

Columbia Threadneedle Investments

Learn the basics

To combat the first of the main root causes, the lack of familiarity with ESG terms, CFA Institute has introduced the CFA Institute Certificate in ESG Investing or CFA ESG. The idea is to provide an overview of the different terms, starting with what ESG is, thus clarifying what environmental, social and governance actually mean, highlighting the underlying idea, the main issues within the segment and the concepts found to address the shortcomings. The CFA ESG curriculum then moves to the different phases of ESG in an investment environment. It typically begins with the first phase, research, which highlights the various providers. The second phase is about integration, and the final phase is about the post-investment phase, stewardship and engagement. Although ESG is probably most developed for public equities, the CFA Institute curriculum also touches on various asset classes, from fixed income to real estate and private equity. As mentioned at the outset, the CFA Institute Certificate in ESG Investing should not be viewed as a comprehensive guide to help you become an ESG champion. Rather, it should be viewed as a starting point to help get the basics right and know where to apply the various elements. In conversations with ESG newcomers, most indicated that the CFA ESG certificate was very helpful in understanding the concepts and that the subject of ESG became much clearer afterward.

No finance background needed

Interestingly, we also found that many candidates are not employed in the financial sector, but work in a variety of industries (it is worth noting that no financial modeling experience is required for the exam). This is also consistent with feedback from a recent CFA Switzerland Society event, where ESG experts emphasized that understanding ESG is needed not just for finance functions, but for the entire value chain. Companies are also increasingly concerned with ESG. Both customers and investors are increasingly aware of ESG. Active owners are beginning to question IRs and corporate’s management about ESG practices and reporting. As a result, both investors and corporates need to understand and address the key ESG issues. Lack of reporting or transparency will be increasingly penalized by (ESG) rating agencies, as the lack of reporting will lead to a sub-par ESG rating, which in turn is likely to trigger engagement from active owners.

Probably ESG is just the beginning

To say that 2022 was a challenging year for ESG investing is probably an understatement. The energy crisis and geopolitical tensions highlighted underinvestment in fossil and renewable energy sources. From a European perspective, countries were highly dependent on a single source of energy while reducing nuclear-derived energy and not adequately filling the gap with renewables. This led to a surge in energy prices, which gave fossil fuel companies greater profits and drove up their valuations. At the same time, after a rally in 2020, renewables experienced a bit of a dip, significantly lagging relative performance versus traditional investors. Critics will argue that this spells the end of ESG investing. However, regulatory pressure provides a backdrop that clearly points in the opposite direction. At the same time, traditional investors view ESG as an additional form of analysis. Understanding what issues a particular sector or company faces is critical, otherwise an investment manager is unlikely to be able to adequately assess the risks of the investments. Impact investing is an evolution of ESG investing that examines the positive contribution of each investment to society and the environment.

The role of Brainie

Brainie was founded to help CFA ESG candidates pass their ESG certificate. With our question bank or Q-bank, we have created a tool to help candidates practice before the exam. As a CFA Institute preparation provider, our questions are based on the official CFA Institute syllabus and are always updated to the latest version. In addition, we provide summary notes and mock exams to complement the learning experience and increase the chances of success. But our mission does not end there. We aim to guide the responsible investing journey by providing first-hand insights, highlighting trends and recent developments, and expanding our platform to include future learning and developments (such as the Climate Certificate).

Stay tuned