The initial step when drafting a client's investment mandate is most likely clarifying the client's ESG investment beliefs. This step is fundamental in ensuring that the investment strategy aligns with the client's values and objectives.
Step-by-Step Explanation:
Defining Investment Beliefs:
Clarifying the client's ESG investment beliefs involves understanding their values, priorities, and objectives related to ESG issues. This step is crucial to tailor the investment strategy to the client's specific needs and preferences.
According to the CFA Institute, establishing a clear understanding of the client's ESG beliefs helps in setting the framework for the overall investment approach and ensures alignment with their long-term goals.
Creating a Statement of Investment Principles:
This involves drafting a Statement of Investment Principles (SIP) that outlines the client's ESG beliefs and how these will be integrated into the investment strategy. The SIP serves as a guiding document for the investment manager.
The CFA Institute emphasizes that a well-defined SIP provides clarity and direction, ensuring that ESG considerations are consistently applied in investment decisions.
Operational Implementation:
Once the client's ESG beliefs are clarified, the next steps involve defining how ESG performance will be measured and reflected operationally in the fund manager's approach. However, these steps come after the initial clarification of beliefs.
The Principles for Responsible Investment (PRI) report suggests that aligning investment mandates with client beliefs and strategies is essential for effective ESG integration across asset classes.
Ensuring Alignment:
Ensuring that the client's ESG beliefs are accurately reflected in the investment approach requires continuous engagement and review. This helps in maintaining alignment with the client's evolving objectives and market conditions.
The CFA Institute notes that ongoing dialogue and review processes are vital to ensure that the investment strategy remains aligned with the client's ESG beliefs and delivers on their expectations.
[References:, CFA Institute, "Environmental, Social, and Governance Issues in Investing: A Guide for Investment Professionals.", Principles for Responsible Investment (PRI) reports on aligning investment mandates with ESG beliefs., , , , , ]
