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This article delves into the latest CFA ESG exam curriculum, shedding light on the importance of ESG integration, the key topics covered, and the potential impact it holds for aspiring investment professionals striving to make a positive difference in the world of finance. TABLE OF CONTENTS Introduction to ESG InvestingThe ESG Market ChangesEnvironmental Factors ChangesSocial Factors ChangesGovernance Factors ChangesEngagement and Stewardship ChangesESG Analysis, Valuation, and Integration ChangesESG Integrated Portfolio Construction and Management ChangesInvestment Mandates, Portfolio Analytics, and Client Reporting ChangesOverview of 2024 Certificate in ESG Investing Curriculum UpdatesIn 2024, CFAI simplified the structure of the Certificate in ESG Investing curriculum including refreshed content, new case studies, and additional practice questions.
2024 Certificate in ESG Investing Exam Topics and WeightsCurriculum TopicTopic WeightLearning Outcomes Introduction to ESG Investing 8-15% 7 The ESG Market 8-15% 3 Environmental Factors 8-15% 9 Social Factors 8-15% 6 Governance Factors 8-15% 6 Engagement and Stewardship 5-10% 7 ESG Analysis, Valuation and Integration 20-30% 14 Integrated Portfolio Construction and Management 10-20%10Investment Mandates, Portfolio Analytics, and Client Reporting5-10%7Detailed Updates For the 2024 Certificate in ESG Investing Curriculum Below are summaries of what candidates are expected to know for each topic area and what has been updated in the latest version of the ESG curriculum. Topic 1: Introduction to ESG InvestingThe Introduction to ESG Investing topic tests candidates' understanding of responsible investing and ESG factors within sustainable investing. In this topic area candidates will have 8 new self-practice questions to use as well as new content about: Blackrock’s implementation of 2020 ESG commitmentsThe percentage of the world’s largest corporations who signed the Paris AgreementA case study about a Brazilian water depletion case New costs for corporate issuers and institutional investors for climate-related disclosures and reportingUpdates on the growth of new PRI signatoriesThe recognition of the launch of ISSB reporting standards for 2024There was also some content that was removed in this topic area including: Exhibit 3 – Guide to ESG reporting that was simplistic and duplicitousExhibit 5 illustrative/hypothetical example of benchmarking that was poorly constructed by MSCIA Coca-Cola water depletion case study example from 2004A 2014 study analyzing data from the global climate database provided by CDP The quote “estimated that companies experience an average internal rate of return of 27%80% on their low-carbon investments”A 2014 reference to Walmart increasing their fleet efficiency by 87%Greenwashing references as there is new content in other chaptersAn explanation of what a meta-analysis is Topic 2: The ESG MarketThe ESG market topic tests candidates’ understanding of the ESG market in terms of RelevanceSizeScopeKey driversChallengesRisks and opportunitiesIn this topic area candidates will have 7 new self-practice questions to use as well as new content including: A revised HSBC case study with their greenhouse gas reduction targetsInformation about how UK university endowment funds are banning fossil fuel investmentsRevised fund flow data in USNew EU and UK examples of corporate disclosure guidelines and requirementsNew examples of Investor protection regulations account for sustainabilityNew overviews of TCFD, ISSB, CSRD, SFDR, MiFID and other global regulatory initiativesNew overview of UK’s Ten Point plan and TCFD-aligned disclosures and Sustainability Disclosure Requirements (SDR)Common Ground Taxonomy (CGT) published by EU and People’s Bank of ChinaSingapore Green Finance Action Plan and Green Finance Industry TaskforceASEAN Taxonomy for Sustainable Finance frameworkAustralia – Council of Financial Regulators (CFR) measuresNew Zealand - Financial Sector (Climate-related Disclosures and Other Matters) Amendment BillUS – ERISA approving ESG considerations by fiduciariesBelow is a summary of the content that was removed from this topic area: LOS 2.1.1 which asked candidates to explain the history of ESG Investing The entire 2nd section which was about the history of ESG InvestingThe 2015 survey from PRI about investment mandate clausesThe case study of Insurer (Munich RE) with 2007 citationsThe shortened EU , USA case studyArticle 173 of French Energy Transition Law Topic 3: Environmental FactorsThe environmental factors topic tests candidates' understanding of Environmental factorsSystemic relationshipsMaterial impactsMegatrendsApproaches to environmental analysis at the country, sector, and company levels.In this topic area candidates will have 7 new self-practice questions to use as well as new content including: A rewritten LOS (3.1.1) including the explanation on the crossing of planetary boundaries concerning climate change, GHG emissions, Climate Sensitivity, Transient Climate response, Carbon budgets, fresh content in depletion of natural resources, biodiversityA new LOS (3.1.7) which asks candidates to describe and explain key methodologies that apply to biodiversity and its valuation, risk management, and interconnectedness with environmental factors and nature-related risks A new IPCC graphic – Human activities are responsible for global warming.A new IPCC graphic – Emissions Reductions needed to limit global warming to various temperatures.A new case study on climate scenarios – Business as usualA new graphic on main candidates for Tipping elementsA new graphic on scaling up climate actionA revised graphic on projections of GHG emissions under various scenarios up to 2050 and indications of emissions gaps & global warming implications.A new graphic on change in CO2 emissions per capita.The Kunming-Montreal Global Biodiversity FrameworkThe Net-Zero Industry Act and the Green Deal Industrial PlanA new case study -The “Just Transition’ -Sustainability in SocietyThe TNFD: LEAP assessment framework and additional info on disclosure framework approachA new graphic - IRA : Energy funding by theme and source.A new graphic – Price evolution in selected ETSsA new graphic on Scope 1,2,3 emissions • Graphic -Temperature alignment -Key design judgments in alignment methodologies.A new graphic- Global Investment in energy transition by sectorA new case study – But what if your Electric Vehicle is coal-powered.A new case study enhancement – What is “Green”?A new graphic - Emissions of selected energy technologiesThere was also quite a bit of information removed from this topic area including: The superfluous content on economic activities & ecosystems from 3.1.1The graphic on GHG emission by economic sectors • Case study – Race to net zero – shortenedThe graphic on the green recoveryThe graphic on the circular economy in detailThe graphic on clean energy technology’s level of readiness & applicability in various sectorsThe graphic on EV adjustment for physical climate risk by industryThe graphic on the systemic relationship between a company’s value chain and impact on its financial performance caused by a change in weather conditions.The graphic on investor framework for climate-related scenario analysisTopic 4: Social FactorsThe social factors topic tests candidates' understanding of Social factorsSystem relationshipsMaterial impacts and approaches to social analysis at the country, sector, and company levelsIn this topic area candidates will have 15 new self-practice questions to use as well as A new section on Diversity, Equity, and Inclusion (DEI) and reference to the CFA Institute DEI CodeA new reference to the importance of DEI strategies as part of human capital management strategies Topic 5: Governance FactorsThe governance factors topic tests candidates' understanding of Governance factorsKey characteristicsMain models and material impactsIn this topic area candidates will have 14 new self-practice questions to use as well as An improved section on “Major Corporate Scandals: Governance Failures and Lessons Learned”A new content section on governance in emerging markets by adding India, South Africa, and Brazil. New references to companies issuing “sustainability reports” as a review of their ESG related performance.There were also some content removals from this topic section including: The HIH case study with 9 (more in-depth) case studies remaining in the chapter (down from 10 in 2023 (v4) and 15 basic ones in 2022 (v3)The section on “Corporate Governance in Germany” as parts of it are covered elsewhere in the chapter and to allow for new countries (Brazil, India, and South Africa) Topic 6: Engagement and StewardshipThe engagement and stewardship topic tests candidates' understanding of the main principles and methods for establishing engagement and stewardship among institutional asset management firms. In this topic area candidates will have 5 new self-practice questions to use as well as A new introduction sectionNew content about shell, plc proxy voting case regarding energy transition strategy and stakeholder engagementNew examples of successful engagement strategies New discussions of varying quality of investment manager stewardship reports from top managersNew discussions of AXA’s engagement success New mentions of stewardship codes in Hong Kong SAR, India, South Africa, and the ICGN network Additional details of UK Stewardship code and recognizing systemic issues and risks Enhanced discussions of engagement; goal-setting and resourcesNotes on software providers that track engagement activity and outcomesEnhanced Climate Action 100+ pollution discussionsNew content about debt engagement strategies for conditions and disclosuresA new exhibit showing overlapping interests of debt and equity holdersNew considerations of concerns for property developers and operators to stranded asset riskThere were also some content removals from this topic section including: Information related to activism that overly associated it with hedge funds and short-term value creationNon-testable paragraphs of prose relating to history of stewardship“disinvestment” as it was not defined or contrasted against any difference vs. “divestment”10 key features of Investor Forum (which had too much detail and too UK centric)2016 FRC Assessment of UK Code signatoriesBehavioral challenges in formulation coalitions among investors to solve engagement issues Topic 7: ESG Analysis, Valuation, and IntegrationThe ESG analysis, valuation, and integration topic tests candidates' knowledge of how to analyze ESG factors and apply them to develop valuations and approaches to integrate them across a range of asset classes. In this topic area, candidates will have 5 new practice questions to use as well as notice extensive streamlining in how the syllabus is presented. There were also some notable content additions including: Lessons 2-5 were restructured and rewrittenNew discussions were added about discount and terminal growth rates in a DCF model and changes to them based on ESG risk factors. A new case study of an oil & gas company, with a quantitative model with changes in inputs based on ESG risk factors.New mentions of World Bank Sovereign Data Portal, ISSB (including the two new sustainability standards IFRS S1 and S2) which will over time replace the SASB standards, AI, and natural language processing (NLP) with three uses casesNew examples of emerging markets, alternative investments, and sustainability-linked bondsThere will also be less content in each LOS for this topic because some of it was deemed out of scope. The removal highlights are: Differences between “quantitative analysis and securities analysis” Discussions on intangible vs. tangible assetsInvestment firm culture challenges Topic 8: ESG Integrated Portfolio Construction and ManagementThe ESG integrated portfolio construction and management topic asks candidates to understand how to construct and manage an ESG integrated portfolio and how to apply ESG screens to the main asset classes and their sub-sectors. In this topic area, candidates will have 6 new self-practice questions to use. Some content removals aimed to reduce redundancy and out-of-scope topics such as: Physical vs. transition risks Discussions of ESG vs. Credit ratingsThe Black Litterman modelSome portfolio risk/return commentaryDiscussions of EU sustainable finance strategy regulations Topic 9: Investment Mandates, Portfolio Analytics, and Client ReportingThe investment mandates, portfolio analytics, and client reporting topic tests candidates' understanding of why mandate construction is relevant and important to ESG investing and how ESG screens can be used to generate investment return and manage portfolio risk. In this topic area candidates will have 10 new self-practice questions to use. Readability issues were also addressed by adding new headers and rearranging content. New content for this section includes: A new LOS "Explain examples of greenwashing by financial market participants and the regulatory and reputational consequences of making misrepresentations" Information about how resources are assigned to stewardship in the context of engagement and votingA new section on greenwashing; definitions, misrepresentations, consequences, using data to combat, ability to assess indirect and direct impacts, “greenhushing”, “scopewashing”, competency greenwashing, misleading statements, ESA commentary, regulations, EU GCD, EU Ecolabel, UK Green Claims Code, FCA, IOSCO, ESG ratings, French, US and Japan treatmentNew greenwashing case studies on HSBC, DWC, Nestle, Coca-cola, Exxon-Mobil, Walmart, VolkswagenInformation about Danish FSA treatment of greenwashingThere was also some content removed from this topic area including: A dated case study of (example #4) that noted that ESG application to commodities and money market fund is “in its infancy”An overview of ESG Investment approachesSections about outsourcing and collective action concerning alternatives to building stewardship resources internallyInformation about the outsourcing of proxy voting coverage and direct engagement similar to Ch. 6 coverageSections that may have conflated ESG scoring and performance and risk attributionWho Makes Changes To The CFA ESG Exam Curriculum?The CFA Institute makes changes to the curriculum for the Certificate in ESG Investing Exam annually. Certificate in ESG Investing Exam InformationThere were some changes to prices, question format, requirements, and recommended duration for studying for the Certificate in ESG Investing Exam. CFA ESG Certificate Program Details >> How To Prepare For Certificate in ESG Investing Exam Curriculum ChangesAs you get ready for the CFA ESG Certificate exam, make the Kaplan Schweser ESG Certificate prep package—complete with ondemand videos, practice questions, and mock exams—the centerpiece of your mission to earn a passing score. |
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