ESG investing has exploded in popularity over the past several years. It was incorporated into the investment strategies of $40.5 trillion worth of assets under management as of 2020, while sustainable debt – ranging from green, blue, or brown bonds – recently crossed the $2 trillion mark. Although it is more important than ever to understand these investment opportunities, the majority of people are not familiar with ESG terminology, nevertheless ESG investing.
A survey conducted by Allianz Life Insurance Co. in 2019 found that 85 percent of Americans did not know what ESG stood for, while 69 percent of baby boomers, 64 percent of GenX, and 71 percent of millennials did not understand how to evaluate whether investment prospects were aligned with their values. Thankfully, the AIF and CFA Institutes have launched education initiatives to help raise awareness and arm investors with the tools needed to align their values with their financial decisions.
As the educational division of AIF Global, an economic think tank that aims to “foster the exchange of best ideas, practices, and information among institutional asset owners globally,” the AIF Institute’s function is to provide these institutional investors with a customized education. In line with that goal, the Institute announced the launch of the Center for ESG and Sustainable Investing last month. With a focus on environmental, social, and governance topics in both the private and public sectors, the Center will prepare research and thought leadership on the most pressing matters facing investors today. Its creation is therefore very much a reaction to the emerging popularity of ESG, coming “at a time when investors are increasingly recognizing, prioritizing, and integrating ESG and sustainability in their investment programs and portfolios…The Center will further these key discussions,” as President of the AIF Institute, Melissa Waller, reflected in the press release. In particular, the minds behind the Center hope to provide practical assistance to institutional investors that will help them assess and incorporate sustainable policies into their portfolios. Those minds include some well-known, household names; both BlackRock and Natixis Investment Managers are founding faculty members associated with the Center’s development.
The Center for ESG and Sustainable Investing is not a standalone hub, however. It’s the second of four ‘Centers of Excellence’ slated for 2021 – with the others being the Center for Insurance, the Center for Private Capital Investing, and the Center for Financial Innovation. Each of these Centers will have “innovation labs” where faculty will help the investors to take advantage of AIF’s platform and resources. As Sharmila Kassan, executive director of the AIF Institute, expanded on in the press release: “We will begin our focus in the innovation labs on critical ESG aspects still developing in the industry, including measurement and data, climate factors, benchmarking, implementation models, and ESG-focused investment policies—resulting from our dialogue with over 50 of the world’s largest institutional investors at this Center’s first faculty board meeting.”
Meanwhile, the CFA Institute is a nonprofit, professional association that offers financial education and certifications, such as the Chartered Financial Analyst (CFA) certificate, to those in the investment world. While it is neither related to the AIF Institute nor even the same type of organization, it too seeks to educate investors in ESG. And, a mere four days after the AIF Institute’s press release, the CFA Institute issued one of its own, announcing the global launch of its Certificate in ESG Investing. Again, overwhelming investor demand for ESG is the origin story for this program. The CFA Institute surveyed 7,000 members of the investment industry and released a study in December, which found that 76 percent of institutional investors and 69 percent of retail investors are enticed by ESG. These staggering levels of interest have also been proven by the success of the certificate in Western Europe, where it was launched by the CFA Society of the United Kingdom (CFA UK) in September 2019; since then, 5,000 people have registered for it. Plus, the certificate is already recognized by the Principles for Responsible Investment (PRI), an independent global supporter of responsible and sustainable investment that is backed by the United Nations.
The Certificate in ESG Investing will operate as a new qualification that can be attained by investment managers. Once the certificate is available in global financial hubs in September 2021, candidates can pay the $665 registration fee and start the recommended 130 hours of studying to take the 140-minute, computer-based exam within the year. On an individual level, this certificate will provide these professionals with the education and competence to incorporate ESG into their investment decisions. And since there are no formal prerequisites for obtaining the certificate, it is also a promising avenue for those who want to learn more about ESG across a variety of different businesses. On a societal level, it will enable the investment industry to engage in more comprehensive analysis and will place more focus on sustainability for the world at large.
As the president and CEO of the CFA Institute, Margaret Franklin, CFA, noted in their press release, “we are seeing a real acceleration of interest in ESG investing – a major development that will shape the future of finance – while increased demand from clients and investment management firms has fueled the need for education.” Based on the current trajectory, these initiatives from the AIF and CFA Institutes are just the beginning of the sustainability-focused education to come.