Insider Perspective: CFA Institute Annual Conference

Geneva/London 20, May: Last week, the CFA Institute held its 72^nd Annual Conference in London where over 600 finance and investment professionals gathered to discuss the ways in which various forms of “disruption” are forcing finance community to explore new opportunities for resilience and success in a rapidly changing world.

The event was a strong opportunity for the World Business Council for Sustainable Development (WBCSD) and its members to bring important messages about sustainability and systems transformation to one of the largest and most influential mainstream financial audiences.

The conference featured keynotes by economists, best-selling authors, leading researchers and successful practitioners with breakout sessions on FinTech, sustainable investing, private wealth management and investing in emerging markets.

While the conference focused largely on technological and geopolitical disruption, the need for investment managers to take better account of environmental, social and governance (ESG) challenges was also a key theme.

WBCSD was present to help participants understand the need to prepare for ESG disruption, and the tools available to help.  

The opening address from His Royal Highness the Prince of Wales called for investment professionals to incorporate ESG considerations into their investment decisions and to focus on long-term business resilience.

Plenary sessions focused on “reinventing capitalism, trends and opportunities for investment managers” as well as the “key disruptors in the global markets.”

In her keynote, Anne Richards, CEO of Fidelity, talked about how, in this day and age, it’s unquestionably harder for life to flourish on earth, and a system that does not appropriately allocate resources will only make this worse.

She argued disruption is nothing new, it has always been present, it’s simply the pace at which we are experiencing disruption that has changed. We are seeing technological change, aging populations and climate change affecting business every day.

Because of this, she said, profit maximization is being challenged and the shareholder primacy theory is in question. She called for the entire finance industry to collaborate to improve the way in which capital is allocated to reward more sustainable companies.

In its session, WBCSD was able to explain to conference participants the urgency of the sustainability issues we face, the need for the finance and investment community to consider the ESG performance and to think about how their investments can support sustainable outcomes.

Most importantly, industry and regulators are pushing for action on ESG performance and investment. For example, the PRA, Bank of England issued its latest supervisory statement which calls on banks and insurers to enhance approaches for managing financial risks from climate change.

At the same time, the Network for Greening the Financial System is focusing on accelerating the work of central banks and supervisors following the acknowledgment by its 34 members, some of the world’s largest central banks, that climate-related risks are a source of financial risk.

Finally, the EU Commission’s Sustainable Action Plan, aims to “integrate sustainability considerations into its financial policy framework in order to mobilize finance for sustainable growth.”

All of this clearly indicates that the tides are changing and investors will have to start considering disruptive risks and opportunities arising from ESG-related issues.

In her “showcase presentation,” Lois Guthrie, Director of WBCSD’s Redefining Value program, demonstrated the opportunity for investors to work directly with WBCSD to help companies improve data quality and disclosure, echoing what the Prince of Wales said in his opening call to action, “Investors need better data. But better reporting is pointless unless it influences decision making.”

With a focus on data quality, there were understandably questions around transparency and trust – but most agreed that investors today need to make better decisions and have a willingness to change. 

Joss Tantram, also a Director of WBCSD’s Redefining Value Program, explained the need for corporates to disclose better and more material information to the capital markets in order for them to use it appropriately in their decision-making. He presented how the new ESG Disclosure Handbook can support the finance community in fully understanding company performance.

If companies make better decisions and disclose more reliable information to the markets, the investment community should direct their capital flows towards those companies who are more sustainable.

At a conference focused on disruption, it was also appropriate to highlight that “black swan” events – such as extreme weather events are more frequent and severe than ever before. As these shocks happen more frequently, the global economy will be negatively impacted.

As such, WBCSD circulated its guidance on applying enterprise risk management to environmental, social and governance (ESG)-related risks – co-developed with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) – to demonstrate a practical way in which corporates and investors can broaden and strengthen their view of “risk”.

In a strong call to action to participants, Guthrie said, “We need you as the finance community to consider how your investments can contribute to a wider global shift towards sustainability. The finance community has a vital role to play in sustainably financing the future of business.”

Disruption is uncomfortable, but the finance industry needs lean into that discomfort to overcome challenges and see the opportunities. Because business as usual is no longer an option.