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CFA Ups Ante On Integrating Climate Risk

Jackie Bennion, Deputy Editor, 28 September 2020

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Financial professionals need the best tools and training for climate change analysis says a new report from the CFA Institute that illustrates how fund managers are already incorporating climate-risk disclosure into investment decisions.

The CFA Institute is urging the industry to put climate change risk at the heart of investing. It comes the same week as the Big Four accountancy firms of EY, PwC, KPMG and Deloitte announced they were working together on a set of common ESG reporting standards they hope will be adopted by next year's annual audits to stiffen corporate resolve. Bank of America's chief executive Brian Moynihan as head of the International Business Council is leading the push.

Surveying some of its 180,000 global members for a new report titled Climate Change Analysis in the Investment Process, the CFA found intent more than action the status quo. While 75 per cent of C-level executives surveyed believed climate change was important, only about 40 per cent are currently incorporating climate change into their investment decisions.

Like other professional bodies, it is working to close that gap.

The report also shares useful case studies from global investment management firms illustrating how they have factored climate change into the investment process and some of the best-practice analysis available to investors.

Acknowledging the need to account for climate impact and get measures rapidly in place, CFA president and CEO Margaret Franklin said: “Financial professionals need to be equipped with the best tools and training around climate change analysis. This report will be a resource to investors and financial professionals in that process.”

Its recommendations lead on:
Putting a price on carbon: The body urged policymakers to design carbon market regulations that deliver transparency, liquidity, easy access and standardisation across jurisdictions to create reliable carbon pricing.

Include carbon price expectations in analyst reports: It urged investment professionals to account for carbon pricing in their climate risk analysis.

More transparency and disclosure on climate metrics: It noted that the industry is largely coalescing around the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD) as the “most relevant and succinct climate-related disclosure standards" for addressing material risks.

Engage with and educate companies and clients on physical and transition risks: It concluded that investors should engage with issuers to ensure that climate data, scenario analysis, and related disclosures are sufficiently thorough to measure risks. Also, that wealth managers should be educating themselves about what an efficient allocation of capital means in relation to helping tackle the existential threat.

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