CFA ESG Certificate
Should a ESG Transformation Consultant sit take the CFA ESG Certification?
I have put this review together to encourage ESG transformation professionals to consider the CFA ESG certification, not only to augment their skills as programme managers but to also manage the inevitable interdependencies between their programmes and wider sustainability initiatives.
I will cover a few points including a quick intro to ESG, the CFA registration process, learning materials, target audience and content quality.
A brief overview on ESG:
ESG is the acronym for Environment, Social & Governance. These three topics form the core pillars for sustainability. For example, if we reduce our carbon emissions (E), empower social wellbeing (S) and enable effective corporate governance (G), we have a better chance of protecting the future for life on earth. However, it goes deeper where each of these 3 pillars drill down into several further areas for attention. These factors are all so deeply interconnected, for example, if corporate governance (G) is weak there is heightened risks of impropriety and other economic risk exposures as we saw in 2008, with a catastrophic collapse of a global financial system. Furthermore, such weaknesses have lead to increased exposure to social injustices (S) such as child labour, employee rights abuses, disease control and other consequential impacts downstream. Again, such weaknesses in governance could have a consequence downstream to the price of commodities such as wheat which, coupled with corruption, leads to hunger and poverty. This overarching spectrum of challenges in sustainability emerges from our insatiable appetites for consumption which has lead to a breach in our planetary boundaries (E). Through 17 Sustainable Development Goals, (SDGs) the United Nations have essentially defined a new road map for the planet and its inhabitants. It all starts with making businesses accountable to their interactions with the environment and society with an ultimate intention to slow down the rate of destruction and of course, protect the generations to come.
Registration & study time:
The sign up process was pretty straight forward costing around £470 at the time and now around £485. You receive the online PDFs and for an extra fee (approximately £47.50) you can get the hard copy too which arrived a few days later. Note that the book is not available without the exam, so the total cost today would still be under £550 in total. I would expect this price to continue as the qualification will be absorbed into the global CFA Institute’s portfolio of learning.
The recommended study time is 130 hours which is about 2 - 2 1/2 hours a day (week days) for about three months and if you only like studying on weekends, it works out to about 2.5 hours every weekend for about a year. If you don’t complete the exam within 12 months of registration, then you pay again. Therefore, the course is certainly not too mentally draining, but absolutely requires a concentrated dedicated effort. For most existing financial professionals, I would expect the course could be completed well within 3 months.
Target audience:
This course is not designed, nor intended for transformation professionals. It is designed for asset managers (and I guess, all buy/sell side professionals) where there is an increased demand to report the impacts that their underlying assets have on planetary boundaries and social wellbeing. However, it could be argued that an asset manager who currently holds the full prestigious CFA charter (3 years of study) would already possess the necessary expertise in portfolio construction. Therefore, fund management activities such as strategic allocation, engagement with issuers, alpha attribution and of course the integration of political and social risks is part of their day job anyway. So, whilst this ESG certificate would take 130 hours for most, I believe a CFA charter holder could probably finish this in a few weeks and simply use this qualification as an opportunity to get a slightly deeper context in the nature of the ESG factors that they need to integrate.
The CFA ESG learning demonstrates the challenges that asset managers are tasked with in solving for those ESG exposures in potentially multi-billion dollar portfolios. It further highlights the abyss of challenges that emerge from scarcity in ESG data, ESG tools and the hurdles of balancing ratings/scores with proprietary tools to maximise ESG coverage in a portfolio. (incidentally, we can help here!) So yes, the CFA ESG course is ultimately designed to help asset managers integrate the ESG factors into their portfolios, not only to achieve superior returns but to also support the increasing appetites for sustainable-linked investments.
However, if you are a transformation professional with a history in programme/project management or business analysis (specifically in risk and finance) then I would still recommend that you consider taking this certification too. There is something to be said about environmental scientists (and IT professionals for that matter) running large scale business transformations with no formal training in some kind of delivery methodology. Unfortunately, the same goes for fund managers too. ESG isn't really something you can run as a desk project. An important thing to note is that if you as a project/programme manager can help asset managers with the coordination and programme required to build their ESG capabilities, say with proprietary ESG engine; then you will be well prepared to help support most other sectors too. The CFA ESG qualification therefore becomes an absolute must read for transformation professionals working, not only in financial services but all sectors.
The content & exam - good points and bad points too:
The CFA UK suggest that you will need a some kind of basic background understanding in corporate finance and fund management as a prerequisite to this course. This is of course true, but we can emphasise the word ‘basic’ here. Finance can become incredibly complex, but this certificate doesn’t require any detailed knowledge of derivatives, macro economics or financial engineering concepts. However, whilst it doesn’t get complex to such a degree, you will still need a decent grasp on valuation concepts in finance. For example, you will need to understand corporate financial statements, basic valuation models such as DCF, WACC, asset classes and market functions as a prerequisite to this course.
Each of the 9 chapters ends with a welcomed summary. Across all chapters there is a total of 396 footnotes all hyperlinked to the required websites. Furthermore, each chapter also ends with some comprehensive further reading links to academia and publications. I had wished though, that some of the links were updated with the 2020 versions of articles. Quite often, a further reading link, or footnote link would take you to a 2017, 2018 publication when it could have directed you to a more recent 2020 publication. The CFA do however caveat the material in that all links are live at the time of publishing the course, but it would be great if the links were also up to date where possible. Regardless, the stale links will not impact your study at all. They were still totally brilliant and an exceptionally useful reference point. Another very useful section is the end of chapter self-assessment. There are 15 questions at the end of each chapter, and I guess its just a personal preference as to whether there should have been more.
The next issue may be a minor point for most, but it bothered me so I would rather mention it than not. It is evident that the course requires some maturity in structure. It lacks some of those formalities of an academic textbook and can often feel more like 9 chapters of a colloquial blog rather with an ineffective approach to hierarchical structures. For example, a chapter might start well, with a Title, Header, Sub-header-1 followed by the relevant text and then continue to Sub-headers-2 or even Sub-header-3 as you would expect. However, these header styles were inconsistent across chapters and quite often you find the content would sometimes dissolve with no traceability back to its main header-theme. There really should have been a structure like, for example, Chapter 1 header 1.1, 1.2, 1.3, or header 1.1, sub-headers 1.1.1, 1.1.2, 1.1.3, 1.2, 1.2.1, 1.2.2 and so on. This could have shaved off hours of study. All that said, the authors message didn't always dissolve and despite the occasional frustration with missing punctuation or inexcusable typos; the author would always conclude the theme in beautiful way, where eventually it all culminates into perfect sense. The CFA have clearly used the industry platinum standard of authorship, but missed a structural nexus point that would bring this colloquial style of writing up to a more academic standard.
Another downside was the specimen paper. This was literally all over the place, with many table contents misaligned and an instance where a missing plural changed the meaning of the entire question/answer. Unfortunately, there was no redemption for the specimen paper which has simply not been proof read nor study-friendly and probably not forest friendly at 67 pages (because you will need to print it as its not easy to keep screen-scrolling pages between scenario and question). Given that the specimen paper was somewhat deficient on quality, despite passing it first time with about 70%+, I ensured that I didn’t book the exam until I was hitting 100% in the specimen paper.
The exam itself is 100 questions over 2 hours and 20 minutes. However, whilst this may seem like 84 seconds per question, it is not entirely the case. The exam seems to be typically structured as follows:
Standard multiple choice: Candidates are to select 1 answer from 4 options. They are typical multiple choice questions. There are around 78 such questions. On average each question should take about 52 seconds per question, or about 67 minutes in total.
Short item set – Candidates are given 12 questions based on 3 short scenarios (this means 4 questions are associated with each scenario). Each scenario requires about 3 minute of reading time and each question takes about 2 minutes to answer. So for one scenario that means ((3 mins reading time + (2 mins x 4 questions))= 11 minutes per short scenario question. That means you need to allocate about 33 minutes to answer 12 questions based on about 3 short scenario questions.
Long item set – Candidates are given 10 questions based on 2 long scenarios (this means 5 questions are associated with each scenario). Each scenario requires about 5 minutes of reading time and each question taking about 3 minutes to answer because you need to keep referencing back to a pretty lengthy scenario. Tip = Use the highlighter pen feature during the exam. So for one scenario that means ((5 mins reading time + (3 mins x 5 questions))= 20 minutes per long scenario question. That means you need to allocate about 40 minutes to answer 10 questions based on these 2 long scenario questions.
Also note that you won’t necessarily get the questions in that order. It may be say, 10 Standard, 1 Short and 1 Long, then maybe, 20 more standard, 1 short scenario and final long scenario, then maybe 30 more standard and so on. After the exam, you may get an automated email reminder to sit the exam, several months after the student has actually passed the exam. It seems to be something erroneous in their system and I was told to ignore this email.
You will find areas in the material which need to be clarified with say, for example, conflicts in terminology. To resolve a students questions, the CFA provide an opportunity to “ask the author”. However, with a 5 day turnaround, it is a suboptimal solution where a student may actually need to understand these points before diving deeper into the proceeding content or chapter. I felt that some kind of Q&A forum, would have been so useful as I can imagine many questions are often repeated and a community of experts could answer them, rather than relying on one point of contact. Also, a forum would gain valuable history and google authority.
To conclude on the content, it was necessary to communicate these negative points to keep the review honest. However, the CFA ESG Certificate has been one of the best and most enlightening courses which I have studied. Seldom do you find a book with such a potent wealth of information. Whilst I expect the content to mature over time, the benefits far outweigh any of the negative points. Accordingly, whilst I believe it is a fundamental pre-requisite for fund managers, especially the traditional firms; I would highly recommend that transformation professionals in finance consider taking this certification too.
A note for programme, project managers and business analysts in Financial Services:
Like we saw the influx of demand for Risk professionals to deliver those #BASEL initiatives back in 2008, the demand for ESG expertise has now J-curved. As a transformation consultant in Risk, it was always challenging to find good Risk BAs and PMs to lead a tranche of work that required some basic understanding of say quantitative risk exposures. Now, with ESG, I expect those same challenges will be revisited. It will eventually be very difficult to find good resources who understand the aggregation of ops risk models for sustainability. Accordingly, I would conclude that this material is probably your best chance to get well ahead of this inevitable continuing demand.