Investing Standards

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As climate change and environmental risks become increasingly prevalent, investment standards are changing to reflect the impact on investors’ portfolios. The EU green taxonomy is one such classification system, intended to establish voluntary performance thresholds for companies and industries. It aims to improve transparency and help investors select more environmentally responsible companies. However, it has its own set of issues.

There are several organizations that provide metrics that measure the impact of investments. While not all metrics are created equal, the best ones evaluate investments using the same criteria. These metrics have evolved from simple approaches to avoid risk caused by companies to complex evaluations of positive performance. In short, investing standards can help investors make informed decisions. However, they cannot provide a complete picture of a firm’s performance, nor do they guarantee that an investment will be profitable.

Financial regulators have established different standards for retail investors and sophisticated investors. The latter tend to be wealthy and experienced, and they understand the risks associated with investing in unlisted securities. This allows them to absorb losses better than retail investors. These investors are often referred to as professional clients in the EU and accredited investors in the US.

Increasing transparency of ESG reporting standards is one way to make sure investors are receiving high-quality information. The CFA Institute, for instance, provides guidelines for investment professionals to meet these standards. In addition, the CFA Institute has set up the Global ESG Disclosure Standards, which require investment firms to disclose information on ESG issues and stewardship activities. The institute also provides additional resources, interpretive guidance, and procedures to help ensure the standards are adhered to.

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