UNEP FI Asset Management Working Group The - UNEP Finance ...

of care to the client by failing to raise and take into account ESG considerations. The duty of care as a professional is
much more onerous than that of a non-professional as the person to whom the duty is owed is placing trust in the
skills of the professional, and the professional is exercising discretionary powers far beyond those to be expected of a
non-professional or layman.” The report looks specifically at fiduciary and corporate law in the UK and US. Quayle
Watchman Consulting said three main factors in the UK supported the case for a legal backing for ESG consideration.
The first, it said, was commentary from Lord McKenzie during the passage of the UK Pensions Bill in 2008 that there
was no reason in law why trustees could not consider social and moral criteria in addition to their usual criteria of
financial returns, security and diversification. The second it said was the ‘obligation’ on pension fund trustees to say in
their Statement of Investment Principles what the fund’s guidelines are on responsible investment and to what extent
social, environmental or ethical considerations are taken into account. The third it said was the potential related
precedent of the 2006 Act on corporate directors’ duties that it said could also cover pension trustees. The Act
includes a duty for directors to run their business with regard to the impact on the community and the environment.
The report said: “It is arguable that the duties of pension fund trustees are similar to company directors’ common law
statutory fiduciary duties but, if anything, because of the special relationship between trustees and beneficiaries, are
more extensive and more long-term than the duties of company directors.”
US law firm, Arnold & Porter in its commentary, said: “It does not appear that current US law forbids integrating ESG
considerations into an asset manager’s decision making process, so long as the focus is always on the value inuring
to the beneficiaries and not on achieving unrelated objectives—even if positive collateral benefits result.” It added: “So
long as ESG considerations are assessed within the context of a prudent investment plan, ESG factors can (and,
where they implicate value, risk and return, arguably should) constitute part of the asset management process.” The
report said that pension funds could look to base ESG policies on specific international law treaties, conventions or
voluntary guidelines or principles, such as the Universal Declaration of Human Rights, ILO conventions, World Bank
or IMF guidance and policies, the Equator Principles, the Carbon Principles, the Private Equity Council Guidelines for
Responsible Investment, the UN Global Compact Principles, and industry or agricultural standards, for example, in
relation to coffee, cocoa, palm oil or sustainable forestry. The UNEP FI report is due to be discussed at the Principles
for Responsible Investment (PRI) Annual Event in Sydney, Australia, which starts today and convenes many of the
world’s largest institutional investors representing more than $18 trillion in assets.
Link to download report
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