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

Legally Binding Disclosure of Environmental Risks
Moves Closer to Reality
Fri Jul 17, 2009 1:00pm EDT
A new United Nations report suggests advisors to institutional investors may end up in court if they ignore
environmental and social concerns.
Meanwhile, the Securities and Exchange Commission may reportedly consider whether to force public
companies to tell their investors about the financial and physical risks they face from climate change.
The developments this week come as climate change legislation works its way through Congress. The
centerpiece of the bill is a greenhouse gas cap-and-trade program that will put a price on carbon and impact
energy-intensive industries the greatest. It is also a tumultuous time economically, with the world still reeling
from a deep global recession in which assets have shrunk in value and investors have left the market.
Many in the responsible investing realm see the economic crisis as an opportunity to recast some of the basic
tenets of fiduciary responsibility, according to the Asset Management Working Group of the United Nations
Finance Initiative. Making decisions that account for environmental, social and governance (ESG) issues should
be the default practice for all asset managers advising behemoth institutional investors, such as pension funds,
foundations and insurance companies, according to their report, “Fiduciary Responsibility: Legal and Practical
Aspects of Integrating Environmental, Social and Governance Issues into Institutional Investment.”
Raising ESG issues with clients, even if not specified as material to the tender, would be expected, according to
co-author Paul Watchman, who was also the principal author of the “Freshfields Report,” (PDF) the original legal
interpretation from UNEP FI that examined the link between fiduciary law and ESG issues. “If the consultant or
asset manager fails to do so, there is a very real risk that they will be sued for negligence on the ground that
they failed to discharge their professional duty of care to the client by failing to raise and take into account ESG
considerations,” Watchman said.
Responsible investors in the U.S. may soon learn more environmental information from the pubic companies
into which they sink their money. Climate Wire reported this week the SEC, which has long resisted calls to
require for companies to divulge climate change risk, is holding private meetings with investor advocacy groups
to explore how much climate change disclosure companies should provide. "The staff is going to be working on
it this year," SEC Commissioner Elisse Walter told Climate Wire, adding that it would be too speculative to
predict when, or if, the commission would formally adopt new disclosure standards. "We have a lot of internal
education to do," she said. "This obviously is not an agency populated with climate experts, and we're going to
talk to everyone who is knowledgeable in the area, who's willing to talk to us. We'll educate ourselves, and then
we'll decide -- the staff will decide -- what to put before the commission or not."
Ceres, a Boston-based network of NGOs and investors that advocates sustainable business practices, has long
pressured the SEC on climate change disclosure. The chorus continues growing louder, with new calls
ranging from pension funds to the National Association of Insurance Commissioners and the State of New York.
A new disclosure requirement from the SEC would force companies across the country to measure their
impacts, evaluate whether they are material to them, and report their findings, which could lead to a mass
corporate scramble to create and analyze greenhouse gas inventories.
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