CFA ESG Certificate 2023

Copyright
	Authors
		UNIT AIMS
	Introduction
		ESG Update
	Foreword by Marg Franklin
Introduction to ESG Investing
	Introduction
	What Is ESG Investing?
		Long-Termism and ESG Investing
		The Definition and Scope of ESG Issues
	Types of Responsible Investment
		Responsible Investment
	Macro-Level Debate on ESG Integration
		Macro-Level Debate on Integrating ESG Considerations
	Financial Materiality of ESG Integration
		Efficiency and Productivity
		Reduced Risk of Fines and State Intervention
		Improved Ability to Benefit from Sustainability Megatrends
	Challenges in Integrating ESG Factors
	ESG Factors’ Influence on Financial Performance
	Putting ESG Investing into Practice
		Investment Decisions
		Shareholder Engagement
		Policy Engagement
	Key Initiatives
		United Nations Initiatives
		Reporting Initiatives
	Key Facts
	Further Reading
	Self Practice and Self Assessment
	Solutions
The ESG Market
	Introduction
	History of ESG Investing, Including Modern Responsible Investment
		A Brief History of Sustainability
		Early Phase of ESG Investing
		Modern Responsible Investment
	ESG Investing in Numbers
	Market Drivers of ESG and Challenges in ESG Integration
	Asset Owners
		Pension Funds
		Insurance
		Sovereign Wealth
		Individual (Retail) Investors and Wealth Management
	Asset Managers, Fund Promoters, and Financial Services
		Investment Consultants and Retail Financial Advisers
		Investment Platforms
		Fund Labelers
	Policymakers, Regulators, Investees, Governments, Civil Society, and Academia
		Examples of Policy and Regulatory Developments across the Globe
		Investees
		Governments
		Civil society
		Academia
	Key Facts
	Further Reading
	Self Practice and Self Assessment
	Solutions
Environmental Factors
	Introduction
	Key Environmental Issues
		Climate Change
		Pressures on Natural Resources
		Pollution, Waste, and a Circular economy
	Systemic Relationships between Business Activities and Environmental Issues
		Systemic Risks to the Financial System: Physical and Transitional Risks
		The Relationship between Natural Resources and Business
		Supply, Operational, and Resource Management Issues
		Supply Chain Transparency and Traceability
	Key “Megatrends” and Drivers Influencing Environmental Change in Terms of Potential Impact on Companies and Their Environmental Practices
		Growth of Environmental and Climate Policies
		International Climate and Environmental Agreements and Conventions
	Assessment of Materiality of Environmental Issues
		Corporate and Project Finance
		Public Finance Initiatives
		Asset Management
	Approaches to Account for Material Environmental Analysis and Risk Management Strategies
		Levels of Environmental Analysis
		Analyzing Environmental Risks
	Applying Material Environmental Factors to Financial Modeling, Ratio Analysis, and Risk Assessment
	Opportunities Relating to Climate Change and Environmental Issues
		Circular Economy
		Clean and Technological Innovation
		Green and ESG-Related Products
		Blue Economy
	Key Facts
	Further Reading
	Self Practice and Self Assessment
	Solutions
Social Factors
	Introduction to Social Factors
	Social and Environmental Megatrends
		What Are Social Megatrends?
		Globalization
		Automation and Artificial Intelligence (AI)
		Inequality and Wealth Creation
		Digital Disruption, Social Media, and Access to Electronic Devices
		Changes to Work, Leisure Time, and Education
		Changes to Individual Rights and Responsibilities and Family Structures
		Changing Demographics, Including Health and Longevity
		Investor Initiatives: Equitable Circulation of COVID-19 Vaccines
		Urbanization
		Religion
		Environmental Megatrends with Social Impact
	Key Social Issues and Business Activities
	Internal Social Factors
		Human Capital Development
		Working Conditions, Health, and Safety
		Human Rights
		Labor Rights
	External Social Factors
		Stakeholder Opposition and Controversial Sourcing
		Product Liability and Consumer Protection
		Social Opportunities
		Animal Welfare and Antimicrobial Resistance
	Identifying Material Social Factors for Investors
		Country
		Sector
		Company Level
	Application of Social Factors in Investments
		Materiality or Risk Assessment
		Quality of Management
		Ratio Analysis and Financial Modeling
	Key Facts
		Megatrends
	Further Reading
	Self Practice and Self Assessment
	Solutions
Governance Factors
	Corporate Governance: Accountability and Alignment
		What is Governance? Why Does It Matter?
	Formalized Corporate Governance Frameworks
		Corporate Governance Codes
	Shareholder Engagement and Alignment
	Characteristics of Effective Corporate Governance: Board Structure and Executive Remuneration
		Board Structure, Diversity, Effectiveness, and Independence
		Executive Remuneration
	Characteristics of Effective Corporate Governance: Transparency, Capital Allocation, and Business Ethics
		Reporting and Transparency
		Financial Integrity and Capital Allocation
		Business Ethics
	Structural Corporate Governance Differences in Major World Markets
		Corporate Governance in Australia
		Corporate Governance in France
		Corporate Governance in Germany
		Corporate Governance in Italy
		Corporate Governance in Japan
		Corporate Governance in the Netherlands
		Corporate Governance in Sweden
		Corporate Governance in the UK
		Corporate Governance in the USA
	Corporate Governance and the Independent Audit Function
		Reviewing Financial Statements, Annual Reports, and Wider Reporting (Including Sustainability Reports)
		The Independence of Audit Firms and Conflicts of Interest
		Auditor Rotation
		Sampling and Audit Work
		Enhanced Auditor Reports
		Auditor Liability
		Internal Audit
	Corporate Governance and the Investment Decision-Making Process
		Integrating Governance into Investment and Stewardship Processes
	Key Facts
	Further Reading
		Recommended Books on Individual Scandals
	Self Practice and Self Assessment
	Solutions
Engagement and Stewardship
	Stewardship & Engagement: What's Involved and Why It's Important
		What Is Stewardship? What Is Engagement?
		Why Engagement?
		Engagement in Practice
	Codes/Standards & Engagement Styles
		Code Revisions 2020
		Code Provisions
		Engagement Styles
		Styles: Top-Down and Bottom-Up
		Styles: Issue-Based and Company-Focused
	Effective Engagement: Forms, Goal Setting
		Forms of Engagement
		Strategy and Tactics: Goal-Setting
	Effective Engagement: Objectives, Practicalities, Escalation, Collective Strategies
		Setting Engagement Objectives
		Practicalities of Engagement
		Escalation of Engagement
		Collective Engagement
	Special Considerations: Proxy Voting, Asset Classes
		Voting
		Asset Classes
		Corporate Fixed Income
		Sovereign Debt
		Private Equity
		Infrastructure
		Property
		Fund Investments
	Key Facts
	Further Reading
	Self Practice and Self Assessment
	Solutions
ESG Analysis, Valuation, and Integration
	Why Investors Integrate ESG
		Why Investors Integrate ESG
		Meeting Requirements under Fiduciary Duty or Regulations, or Meeting Client and Beneficiary Demands
		Lowering Investment Risk and Increasing Investment Returns
		More Tools and Techniques to Use in Analysis and Improving the Quality of Engagement and Stewardship Activities
		Reputational Risk at a Firm Level
	The Different Approaches to Integrating ESG
		Qualitative ESG Analysis
		Quantitative ESG Analysis
		Highlights between the Quantitative Approaches and Qualitative Approaches and Terminology Confusion
		Tools and Elements of ESG Analysis
		Elements of ESG Integration
		Differences between Company or Business Analysis and Security Analysis
	Typical Stages of Integrated ESG Assessment (Research and Idea Generation Stage)
		Research and Idea Generation Stage
	Typical Stages of Integrated ESG Assessment (Scorecards Can Be Used to Assess ESG Risk and Opportunity, and Materiality Assessments and Risk Mapping)
		Materiality Assessments and Risk Mapping
		Using the SASB as a Baseline Framework in a Materiality Assessment
	Valuation and Company Integrated Assessment Stage and the Challenge of Company Disclosure on ESG Topics
		Model Adjustments Based on ESG Assessment
	Investment Decision and Portfolio Construction and ESG Integration Techniques in Practice (Seven Cases)
	Discussion of Private Markets, Real Estate, and Infrastructure; Discussion of ESG in Fixed Income and Differences to Equity; and Challenges to ESG Integration
		Discussion of ESG in Fixed Income and Differences to Equity
		Challenges to ESG Integration
		Challenges from Incomplete Datasets and Identifying and Assessing ESG Data
		Investment Firm Culture Challenge
		Criticism for ESG Integration
	Range of ESG Integration Databases and Software Available
		Areas of Focus for Investors Compared to Rating Agencies
	Mutual Fund and Fund Manager ESG Assessment, Company ESG Assessment and Rating, Primary and Secondary ESG Data Sources, and Other Uses of ESG and Sustainability Systems Data
		Company ESG Assessment and Rating
		ESG Index Providers
		Primary and Secondary ESG Data Sources
		Other Uses of ESG and Sustainability Systems Data
		“Big Data” Analysis of Multiple ESG Factors
		Resource, Supply, and Operational Risk Mitigation
		Modeling Future Sustainability Scenarios, Including Climate Change, Wage Growth, and Social Effects
	Fixed Income, Credit Rating Agencies, and ESG Credit Scoring
		Different Levels at Which ESG Factors Can Affect Bond Price Performance and Credit Risk
		Continuing Evolution for Credit and ESG Since PRI Releases
		Global and Regional Credit Rating Agencies
		Corporate Credit Risk Assessments
		Certain Fixed-Income Investors Use QESGs
		Green Bonds Considered a Different Class of Credit
		Sovereign Credit Risk Assessment
		ESG and Credit Ratings: Discussion over Relationship
		Potential Bias in Ratings
	Key Facts
		Conclusion
	Further Reading
	Appendix
		Sustainalytics and Its ESG Products
		The Sustainalytics’ ESG Risk Rating
		Unmanaged Risk: How Sustainalytics Arrives at the Scores
		Calculating the Final Unmanaged Risk Score
		MSCI ESG Research
		MSCI ESG Risk Score
		MSCI ESG Opportunity Score
		MSCI Controversy Assessment
		MSCI Data Sources
		MSCI Final Letter Rating Summary
		MSCI ESG Research
	Self Practice and Self Assessment
	Solutions
Integrated Portfolio Construction and Management
	Introduction to Integrated Portfolio Construction and Management
	Integrating ESG: Strategic Asset Allocation Models
	Integrating ESG: Asset Manager Selection
	Approaches to Integrating ESG: Portfolio Level Framework
	Approaches to Integrating ESG: Role of Analysts, Portfolio Managers, and Internal and External Research
		Role of Analysts
		Role of Portfolio Managers
		Complementing Internal Research with External ESG Resources
	Approaches to Integrating ESG: Quantitative Research Developments in ESG Investing
	The Evolution of ESG Integration: Exclusionary Preferences and Their Application
		Universal Exclusions
		Conduct-Related Exclusions
		Faith-Based Exclusions
		Idiosyncratic Exclusions
		Applying Exclusionary Preferences
	ESG Screening within Portfolios and across Asset Classes: Fixed Income, Corporate Debt, and ESG Bonds
		Fixed Income (Government, Sovereign, Corporate, and Other)
	ESG Screening within Portfolios and across Asset Classes: Green Securitization and Sovereign Debt
		Green Securitization
		Sovereign Debt
	ESG Screening within Portfolios and across Asset Classes: Listed and Private Equity
		Listed Equity
		Private Equity
	ESG Screening within Portfolios and across Asset Classes: Real Assets — Real Estate and Infrastructure
	Integrating ESG Screens within Portfolios to Manage Risk and Generate Returns
		Integrating ESG to Manage Portfolio Risk
		Integrating ESG to Generate Investment Returns
	Quantitative Approaches That Embed ESG Factors
		Efforts to Develop Standards for ESG Investing: EU Regulatory Implications
		Other Efforts to Develop Standards for ESG Investing
	Applying ESG Screenings to Individual Listed and Unlisted Companies and Collective Investment Funds
		Listed Companies and Collective Investment Funds
		Unlisted Companies and Collective Investment Funds
	Managing the Risk and Return Dynamics of an ESG Integrated Portfolio: Optimizing Portfolios for ESG Criteria, Strategies, Objectives, Investment Considerations, and Risks
	ESG Strategies, Objectives, Investment Considerations, and Risks: Full ESG Integration, Exclusionary Screening, and Positive Alignment
		Full ESG Integration
		Exclusionary Screening
		Positive Alignment or Best-in-Class
	ESG Strategies, Objectives, Investment Considerations, and Risks: Thematic and Impact Investing
		Thematic Investing
		Impact Investing
	Integrating ESG in Passive Portfolios and Established Datasets
		Relying on Established Datasets
	Key Facts
	Further Reading
	Self Practice and Self Assessment
	Solutions
Investment Mandates, Portfolio Analytics, and Client Reporting
	Introduction: Accountability to Clients and Alignment with Them
		Accountability to Clients and Alignment with Them
	Clarifying Client Needs: Defining the ESG Investment Strategy
	Fully Aligning Investment with Client ESG Beliefs
	Developing Client-Relevant ESG-Aware Investment Mandates
		The RFP Process
		Investment Integration
		Engagement and Voting
		Outsourcing
		Collective Action
		Assessing the Quality of Engagement and Voting
	Tailoring the ESG Investment Approach to Client Expectations
	Holding Managers to Account: Monitoring Delivery
	Holding Managers to Account: Measurement and Reporting
	Key Facts
	Further Reading
	Appendix: SFDR Disclosures and CFA Institute Disclosure Standards
		Global ESG Disclosure Standards for Investment Products
		SFDR Disclosures
	Self Practice and Self Assessment
	Solutions