Prediction: ESG in 2017 and beyond will become a more important factor for active managers to consider

Marquette's AIM Program Adds More ESG Content to Curriculum

During the fall semester, students in Dr. David Krause's Applied Investment Management course (FINA 4320) had an assignment that requires the evaluation of a current AIM equity holding's environmental, social and governance (ESG) rating.

Investors are increasingly recognizing the need to consider environmental, social and governance (ESG) factors as part of their investment process.  While there has been some research that has produced evidence that ESG factors favorable impact companies’ market values, most of these studies have been aimed at the largest capitalization U.S. firms.  

The AIM assignment attempted to look at the ESG evaluation of some of the small cap firms pitched by the students during the fall semester. Dr. Krause indicated that this will continue in the spring semester and that the students' equity pitches will include ESG factors in their analysis.  

Dr. Krause stated, "The CFA has updated the 2017 curriculum to include a revised focus on ESG factors. I predict that in 2017 and beyond that we will see an increase in the amount of actively managed equity and fixed income funds that will be including ESG analysis in their evaluation of management and firm risk exposure."

From the CFA web site:

"CFA Institute and ESG Issues in Investing

We believe that every investment analyst should know about the risks and opportunities of environmental, social, and governance (ESG) issues. We help investment professionals better understand ESG issues in investing through our educational programs and learning opportunities for continuing professional development.

The ESG investing ethos embodies our efforts to promote a fiduciary culture and a more sustainable form of capitalism through our Future of Finance initiative. This is a global effort to shape a more trustworthy, forward-thinking financial industry that better serves society.

ESG content in the CFA^® Program curriculum

The CFA Program curriculum discusses important ESG and socially responsible investing (SRI) issues across Levels I, II and III, such as: ESG risk exposure analysis, corporate governance valuation implications, and positive and negative SRI screen impact on portfolio style characteristics.

We regularly analyze the practice of investment management our global membership to develop and enhance the CFA Program curriculum to meet the needs of employers in the industry. We continue to evaluate the volume and emphasis of ESG issues in the CFA Program curriculum."

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