Example: Amy Black, CFA works for Beta Fund Management, a medium-sized UK-based asset manager. Amy has been studying sustainable laws and regulations for the UK asset management industry with external education activities and study programmes, though the last one of these was over 2 years ago. She has now been assigned to a new ESG thematic fund that is expected to focus on compliance of national sustainability laws and regulations when making investment in the products covered. Amy is thrilled to start communicating with clients and potential clients and disclosing to them what the eligibility criteria will be and which laws and regulations the fund will follow when making investments for them. She starts her marketing and communication activities, however, without checking what the updates are from the local regulators in terms of sustainability, as she believes she already has all the relevant knowledge and information from her previous education programmes and studies.

Comment: Even though Amy has dedicated much time to studying and updating herself on sustainability laws and regulations, Amy could be in violation of Standard I(A) Knowledge of the Law because she failed to stay informed and check the most recent applicable local laws and regulations before starting to communicate and engage with clients and potential clients. Amy must be aware of the evolving requirements in this new and dynamic area of the investment sector which apply to her activities and the new fund. She should have sought guidance from appropriate, knowledgeable, and reliable sources, such as the official websites of regulators and legislations and approved external service providers as sourced and contracted with by Beta Fund Management.

Example: Mark Smith, CFA works for Acme Fund Management, a medium-sized UK-based asset manager. He has successfully run a UK equities retail fund for 7 years, building an impressive track-record of risk-adjusted returns and peer out-performance. Mark believes much of his success lies in the thorough integration of ESG analysis in the team’s security selection. To date the fund has only been sold domestically but, with its success, Anna Dombrandt, CFA, Acme’s Marketing Director, wishes to sell the fund in other jurisdictions by adding new share classes in foreign currencies.

Comment: The fund complies with all current UK sustainability reporting requirements. In marketing the fund overseas, Smith and Dombrandt will need to comply with selling restrictions and regulations in those relevant countries. These regulations may include sustainability reporting requirements that are either already in place or coming into force in the near-term. To comply with these reporting requirements, Smith and Dombrandt may need to adapt its sustainability reporting both at the fund and potentially also at the firm level. Failure to do this would expose Acme to potential regulatory censure and fines in these new jurisdictions and would be a breach of Standard 1(A) Knowledge of the Law.

Example: Tony d’Souza, CFA, works as a sales director for XYZ Asset Management based in Europe, which has an existing sustainability fund being marketed to potential investors in Europe. Since the fund's launch some years ago, the EU has introduced minimum standards for sustainability funds being marketed to investors in Europe. D’Souza discusses this with her line manager, Paulette Akimwola, CFA, who concludes that the team does not need to make an assessment of whether the existing fund is in compliance with the standards because the fund was launched prior to the introduction of the EU’s minimum standards. D’Souza does not agree with this and feels it is unethical.

Comment: This is a violation by Akimwola of Standard I(A) Knowledge of the Law, and in order to remain in compliance with the Standards, d’Souza should dissociate themselves from the violation by not taking any part in the marketing of the sustainability fund until an assessment vis a vis the minimum standards has been made. If XYZ Asset Management continues to market the product into Europe, d’Souza should seek legal advice around their requirements to report the potential unethical actions to the local regulator(s).

Example: ABC fund is an ESG-focused fund and currently invests in DEF, a company investing in energy-efficient buildings overseas. DEF satisfies the requirements of a local ‘best practice’ code allowing it to be independently certified as providing positive environmental impact. However, a scientific study from a leading academic in the field finds that one of the innovative building materials that DEF has widely used has side-effects which, if true, would invalidate DEF’s sustainability claims. After researching the matter, the independent assessor withdraws its sustainability certification of DEF. Yet the buildings continue to generate reliable revenues at an attractive growth rate ahead of inflation. ABC fund decides that because the requirements of the local ‘best practice’ code are not legally mandatory in the countries where DEF operates or in its own jurisdiction and because a lack of scientific consensus remains as to the sustainability of the specific building materials widely used by DEF, they will retain the investment. ABC fund believes that if DEF’s assets were located within own their jurisdiction, then it would have retained its positive impact certification.

Comment: While the overseas code’s requirements are not mandatory under local law, the withdrawal of the certification means that ABC must give careful consideration to divesting the holding in DEF. If the certificate is required under the terms of the fund mandate then the DEF holding must be sold. Any justification to retain the DEF holding either on the basis of the lack of scientific consensus, or the fact ABC’s own jurisdiction may have retained the certificate, should be carefully scrutinised to ensure it is not being used as an excuse to reach a desirable conclusion. If the fund continues to keep the asset, there should be suitable disclosure and an explanation as to why they have reached the decision that the asset remains in compliance with their mandate.

Example: David Dell is the sustainability analyst at ABC asset management; he is tasked with recommending sustainable investments and advising on ESG risks across ABC’s fund range. A few years ago, ABC adopted ESG practices and an in-house sustainability methodology based on current science and best commercial practice. The methodology stipulates exclusions and a set of core metrics for all funds to follow and monitor. David developed a spreadsheet to apply these rules and monitor ESG and sustainability issues at the company level. He uses the output of this to provide data to his legal and marketing departments to ensure compliance of ABC’s fund reporting and product labelling. Some of ABC’s funds are invested in utilities with exposure to nuclear projects since the fund manager has identified nuclear power as part of a climate change positive energy solution. The fund also excludes investments in oil & gas companies that are undertaking new fossil fuel developments but makes an exception for those investing heavily in transitioning to renewables; the in-house methodology identifies these companies as environmentally and sustainability positive. ABC asset management is subject to local market reporting regulations for the funds it sells in a number of jurisdictions. Contrary to the view of ABC’s fund management team, Utopia, one of their target markets announces its decision to classify all nuclear and gas related revenues as unsustainable in its Green Taxonomy.

Comment: The change in fund reporting rules in Utopia creates a conflict with ABCs in-house methodology for the purposes of their fund reporting to clients in Utopia. As a result, the process David uses to provide data internally is no longer consistent with Utopian local law on disclosures and David is likely to breach Standard I(A) Knowledge of the Law if ABC continues to market the fund there.

Example: Dr. Bart, CFA is an analyst at an asset manager, Eurnoe Group. She wrote her PhD thesis on the benefits of diversity, the conclusion of which was that companies with diverse senior management outperformed on average and had higher EPS numbers than firms with lower diversity. In her new role as an investment analyst, Dr. Bart is keen to put her theory into practice and decides to speak to the lead fund managers of the Eurnoe’s Duvnee fund. They like her idea of using a gender and race screen and agree that if she could produce robust data to support it they would allow her to run a small fund in their part of the Eurnoe group. Encouraged, Dr Bart attends the AGMs of all the companies that the Duvnee fund invests in. She records the name, assumed race and gender of each senior management company representative she meets and records this on her work computer. After three years, the correlation analysis shows a strong-fit: the stock prices of the most diverse firms clearly out-performed. Impressed, the Duvnee fund managers start to use the diversity screen for their fund going forward. Dr Bart is then contacted by the Eurnoe’s compliance officer questioning Dr Bart’s retention of personal information of company representatives; they ask her to delete the information to avoid a violation of GDPR regulations. Dr Bart refuses arguing they form the basis for the fund’s investment decisions and that under Standard V(C) she needs to maintain these records for 7 years.

Comment: Dr Bart is correct that she is required to keep the records for a minimum of seven years under Standard V(C) or longer if local regulations require her to do so. However, the compliance officer is also correct as under GDPR legislation, in certain EU jurisdictions Dr. Bart requires the permission of the senior company representatives to collect and retain their personal data. Under CFA guidance the EU jurisdictional law will override the CFA Institute’s Codes and Standards and take precedence. To continue incorporating diversity analysis in the investment process for her fund whilst maintaining compliance with applicable law, Dr. Bart should seek the permissions required by GDPR.

Example: Marcus Marc, CFA is a fund manager looking to ensure its sustainability fund portfolio complies with a new regulation.  This regulation requires that at least 80% of a fund's investments need to be aligned to a certain net-zero pathway in order to be labelled and marketed as sustainable. After performing a detailed review, Marcus finds out that only 78% of the portfolio can be deemed to be aligned with the net-zero pathway criteria. With the pressure of potentially losing several clients and his bonus as a consequence, Marcus decides to submit a form to the regulator claiming that at least 80% of its fund meets the required criteria by tweaking and manipulating some of the underlying information. He also makes the same claim to the market by releasing a statement. 

Comment: Marcus is in violation of both Standard I(A) Knowledge of the Law in respect of the regulator and Standard I(C) Misrepresentation in respect of his communications to clients. Even though Marcus only tweaked a relatively small amount of information, he has still sought to deceive his regulators and investors respectively with a false claim and statement that could lead to severe legal and reputational consequences for him and his firm.