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This article is courtesy of www.benefitscanada.com
UN to investors: the world is in your hands
July 17, 2009 | Jody White
The world is now at a point where environmental, social and corporate governance
(ESG) issues should be of paramount importance to institutional investors, and advisors
should have a fiduciary duty to make such issues the default investment option, according to a report
by the United Nations.
Fiduciary responsibility: Legal and practical aspects of integrating environmental, social and
governance issues into institutional investment, by the Asset Management Working Group of the
United Nations Environment Programme Finance Initiative, draws a line in the sand for institutional
investors and their advisors, challenging them to use their considerable power to effect change
through their investments.
At the top of the group’s action list is what it refers to as the "natural resources crisis," and the report
suggests that responsible investing would have a threefold effect:
- It would make a major contribution to reviving the world economy, saving and creating jobs, and
protecting vulnerable groups;
- It would reduce carbon dependency and ecosystem degradation, putting economies on a path to
clean and stable development; and
- It would encourage sustainable and inclusive growth and end extreme poverty by 2015.
The report calls for the general adoption of the Principles of Responsible Investment, (PRI)—which
were developed in 2006 in conjunction with the UN— along with several legal actions to be
implemented in order to bring about change:
1. Advisors to institutional investors should have a duty to proactively raise ESG issues within the
advice that they provide, and that a responsible investment option should be the default position.
“Responsible investment, active ownership and the promotion of sustainable business practices
should be a routine part of all investment arrangements, rather than the optional add on, which many
consultants appear to treat it as,” states the report’s authors.
2. All asset manager and asset owner signatories to the PRI should be required to embed ESG issues
in their legal contracts and should commit to integrating such issues into investment analysis.
3. All consultant, asset manager and other service provider signatories to the PRI should make a
commitment to proactively raise ESG issues within their advisory and client take-on process.
The report argues that the most important aspect of the PRI is that institutional investors—who
collectively represent approximately US$18 trillion in assets under management to date—have
endorsed Principle 4, which states: “We will promote acceptance and implementation of the
principles within the investment industry, including possible concrete actions such as incorporating
principles-related requirements in requests for proposals and aligning investment mandates,
monitoring procedures, performance indicators and incentive structures accordingly.”
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