Is there a fundamental contradiction at the heart of the powerful global association that represents 120,000 financial analysts and fund managers?
The US-based Chartered Financial Analyst Institute (CFA) readily acknowledges that the cause of the financial collapse was due to the industry losing its moral compass and calls for it to reconnect with its original purpose, which is the “means to ensure societies flourish.”
Given that we will be unable to flourish unless we face up to the scale of sustainability challenges, that would surely mean integrating environmental, social and governance (ESG) issues into the very heart of the CFA’s training and exam programme, in which over 140,000 people enrolled globally last year.
But the course only briefly touches on ESG issues and does not even mention key emerging risks to the financial markets, such as the carbon bubble, which some argue could lead to another collapse.
This is of more than passing interest. If the most influential programme that prepares new blood for careers in all the world’s key financial centres does not make it clear that ESG issues are important, then the leaders of tomorrow are unlikely to recognise their responsibilities to society at large.
This continuing primacy within CFA’s training programme of a shareholder-centric model of investing is increasingly becoming a focus of criticism from progressive leaders in the financial sector.
Steve Waygood, chief responsible investment officer at Aviva Investors says that driving sustainability into the CFA’s training programme, as well as other education initiatives, is vital if the City is going to help drive moves to a low carbon economy. Currently, to pass the CFA exams, “you have to fail at ESG,” he says.
Saker Nusseibeh, chief executive officer at Hermes Asset Mangement, who sits on a CFA advisory council, is also calling for reform, saying the body “should be under a lot of external pressure to rethink what they teach their guys.”
When I spoke to John Bowman, CFA managing director and co-head of education, he assured me the organisation is working hard to ensure financial companies rediscover their sense of purpose and says a “return to fiduciary culture is probably the most important message of our time and certainly one we want to be at the seat of the table that is debating it.”
But he says the reason ESG issues are not embedded into the core charter holder training, is because they are still considered “cutting edge” and that it is the industry, rather than the CFA itself, that decides when the curriculum should change.
“The CFA programme is not meant to lead on the frontier,” he says. “It’s never been designed to do that and I don’t think employers want us to teach every new trend or process out there. I mean should we be adding bitcoin, for example, to the curriculum right now? I don’t think so.
“We don’t sit in an ivory tower and decide what needs to be tested. The syllabus is driven by lots of conversations; with our charter holders, with those individuals that are running banks, investment organisations or regulating in policy roles. They’re the ones who tell us on a continuous basis what needs to be tested.”
Given the importance of switching flows of capital to developing a low carbon economy, does the CFA believe that the curriculum should incorporate climate change?
Bowman says some asset owners, such as sovereign wealth funds and larger pension funds, are getting “much more vocal about these issues and assets continue to concentrate into the hands of these more socially responsible and socially vocal organisations, but I just don’t think we’re at the point yet that we could confidently incorporate a prescriptive analysis for a syllabus around this because I think we’re still very much in the formative stage of what the impact will be.”
Let’s be blunt. This tip-toeing around the subject is just not good enough. If the CFA waits for the industry alone to determine whether sustainability issues have reached the mainstream before it starts embedding them into its degree level entry programmes, then it is always going to be locking the stable door after the horse has bolted. It needs to become more proactive and shake up the system of committees that determine how the training courses are constructed.
In particular, it should engage experts from outside the industry in order to bring different perspectives into the debate. After all, would the emperor in the classic children’s story ever have voluntarily admitted he was naked?
For established analysts and fund managers who do show an interest, the CFA does offer voluntary training in a host of issues ranging from Islamic finance to ESG. But it must recognise that it can no longer hide behind the current consensus driven approach for its mandatory exams, as this leads to the lowest common denominator. Instead, it should think about its own moral responsibility for driving sustainability principles into the hearts and minds of the new leaders in the industry who will determine whether the world’s financial flows hasten our destruction or help us find salvation.
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