CFA Institute research finds sustainability in investment management at pivotal juncture

• Demand will drive growth if industry adapts

CFA Society Sri Lanka President Dinesh Warusavitharana, CFA

CFA Institute Senior Head of Industry Research Rhodri Preece, CFA

The COVID-19 pandemic has focused investors on the interconnectedness of the financial system and intensified discussions on sustainability. CFA Institute, the global association of investment professionals, has released a new global research study that examines the state of sustainable investing and how this trend – accelerated by the COVID-19 pandemic – will shape the investment industry over the next decade. 

Among the findings, 85% of CFA Institute members surveyed now say that they take environmental, social, and governance (E, S and/or G factors) into account when investing, up from 73% just three years ago. This growth has been driven by client demand, with 69% of retail investors and 76% of institutional investors having interest in ESG investing.

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 sustainability expertise to meet client expectations with innovative products. The research includes perspectives from over 7,000 industry participants, including investment clients, investment practitioners, ESG specialists, and more.

Although the future of sustainable investing includes many unknowns, the report advances three important tenets where sustainable investing goes further than its forerunners:

• It is additive to investment theory and does not mean a rejection of foundational concepts.
• It develops deeper insights about how value will be created going forward using ESG considerations.
• It considers many stakeholders.
• The report concludes with actions that investment firms and professionals can take to advance the transition toward sustainability in investment management.

“Incorporating sustainability in investment management has become part of our industry’s mission to serve society by improving long-term outcomes,” said CFA Society Sri Lanka President Dinesh Warusavitharana CFA. “The current environment presents a unique opportunity for organisations 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.”

In addition to these findings, the report focuses on four key areas of sustainable investing

• The rise of alternative data and its importance in sustainability analysis: Technology is a necessary foundation for competitive advantage in ESG analysis, with more data sources becoming available and more differentiation among data. 71% of roundtable participants believed that the rise of alternative data will make sustainability analysis more robust, while 62% agreed that sustainability is an area where human judgement and active management will thrive, highlighting the often subjective and contextual nature of sustainability data.
  
   
• Increased demand for sustainable investing expertise: There is a relative scarcity of sustainability talent in the investment industry. CFA Institute used LinkedIn Talent Insights and found that the supply of expertise among core investment roles is limited but growing quickly. Of the 1 million LinkedIn investment professional profiles examined, fewer than 8,000 list ESG as an area of expertise. However, CFA Institute found that this figure has increased 26% in the last year. Meanwhile, a review of 1,000+ portfolio manager job posts on LinkedIn found that approximately 18% mentioned the desire for sustainability-related skills.
  
   
• Investor demand is driving firms to change their investment models and expand product offerings: Among the various ways to incorporate ESG into the investment process, ESG integration and best-in-class approaches are more popular than negative or exclusionary screening, highlighting the evolution of ESG techniques, enabled by improvements in data. Future growth opportunities in the product space include ESG index tracking and quant funds, ESG thematic products, ESG multi-asset products, climate transition strategies, long-term engagement, and better benchmarks.
  
   
• The relevance of systems thinking in sustainability analysis: The COVID-19 pandemic has emphasised the urgency of sustainability issues, highlighted the interconnectedness of the financial system, and how corporate value creation both affects, and is affected by, the ecosystem in which it operates. The integration of sustainability issues will require a more widespread application of system-level thinking. 

“The demand for sustainable investing continues unabated, driven by push and pull factors, catalysed by societal expectations, and accelerated by the COVID-19 pandemic,” said CFA Institute Senior Head of Industry Research Rhodri Preece, CFA. “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.”

In line with CFA Institute’s focus on ESG, CFA Society Sri Lanka will be launching several initiatives to increase awareness about ESG investing in Sri Lanka. The society based its flagship event; Capital Market Awards this year on a theme relating to ESG titled ‘ESG: Investing with Purpose’. The keynote speech for this event was delivered by RBC Global Asset Management Senior Portfolio Manager of Global Equities Benjamin Yeoh, CFA who explained why ESG matters, particularly in the context of the asset management industry, and the value it provides to investors as well as society at large. 

The ceremony also included a panel discussion featuring key personnel from Commercial Bank of Ceylon PLC, MAS Holdings and Acuity Knowledge Partners discussing the progress and unique challenges faced when adopting ESG in their businesses. 

CFA Society Sri Lanka also organised a webinar in collaboration with the Institute of Chartered Accountants of Sri Lanka. The objective of this was to encourage corporates to be more environmentally and socially responsible by embracing the concept of ESG. Speaking at the event, specialists in the field including CFA Institute APAC Advocacy Head Mary Leung, and International Finance Corporation Senior Environmental and Social Development Specialist Ruby Ojha, among others, provided insights to the audience.

The report, ‘The Future of Sustainability in Investment Management: From Ideas to Reality’ can be found on https://www.cfainstitute.org/research/survey-reports/future-of-sustainability.

For further information please contact [email protected] or CFA Society Sri Lanka [email protected].