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

July 22, 2009
UNEP Hones Legal Argument for ESG Incorporation
in Investments in New Study
by Robert Kropp
Report by the United Nations Environment Program Finance Initiative's Asset Management Working
Group serves as a sequel to landmark Freshfields study, which established legal case for ESG criteria
in investing. First in a two-part series.
Whether asset managers have a fiduciary, and even legal, responsibility to incorporate environmental, social,
and governance (ESG) issues into the investment decisions they make on behalf of their clients has long been a
matter of debate. If the purpose of investing is to secure a financial return, can ESG criteria be said to be
material? When seeking financial returns on behalf of their clients, what investment horizon should asset
managers consider? Do asset managers place themselves at risk of being sued if failure to incorporate ESG
criteria in investment decisions leads to losses due to such factors as climate change?
A report recently issued by the United Nations Environment Program Finance Initiative (UNEP FI) seeks to
provide updated information on the legal ramifications of ESG criteria in investment management, as well as
describe the growing support for such ESG initiatives as the Principles for Responsible Investment (PRI) among
both asset owners and managers.
Entitled Fiduciary Responsibility: Legal and Practical Aspects of Integrating Environmental, Social and
Governance Issue into Institutional Investment (Fiduciary II), the report argues that consultants may well have a
legal duty to proactively raise ESG issues with their clients. The report also recommends that ESG issues be
embedded into legal contracts between asset owners and asset managers.
27