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

Is Responsible Investing a Must, or a Should? UNEP
FI on Fiduciary Responsibility
By: Alan Petrillo | Friday, July 24th, 2009
Institutional investors may have a fiduciary duty to consider environmental, social, and
governance (ESG) factors, according to a new study from the United Nations Environment
Programme Finance Initiative (UNEP FI). In reporting on “Fiduciary Responsibility,” Social
Funds’ Robert Kropp expressed the uncertainty that still surrounds the question of ESGrelated
fiduciary responsibilities:
“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.”
As the case for managers’ ESG-related obligations under securities and trust law is still
open, UNEP FI says, ESG proponents should encourage clients to demand integration from
their advisors. For now, asset owners, not courts, must drive ESG integration – though
lawmakers may yet embed responsible investing into managers’ obligations.
“We need to live off the interest”
In his introduction to the 101-page report, Achim Steiner of UNEP FI says that the
economic crisis “requires us to review the economic models this century has inherited
from the last one.” He places particular emphasis on the environment, declaring that “we
are living off the Earth’s capital – we need to live off the interest.”
Towards this end, “Fiduciary Responsibility” describes how some shareholders have begun
to consider the ESG performance of the companies they invest in. While the report does
not prove that ESG integration is a fiduciary duty, it does offer practical reforms that
would help create such duties. For example, UNEP FI calls out signatories of the Principles
for Responsible Investment (PRI): “…In order to maintain their membership, all asset
manager and asset owner signatories [should be required to] embed ESG issues in their
legal contracts.”
UNEP FI also says that government should redefine the work of fiduciaries:
“Global capital market policymakers should also make it clear that advisors to institutional
investors 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.
“Furthermore, policymakers should ensure prudential regulatory frameworks that enable
greater transparency and disclosure from institutional investors and their agents on the
integration of ESG issues into their investment.”
Commentary on ESG and Fiduciary Duty
“Fiduciary Responsibility” is the sequel to a 2005 UNEP FI study, called the “Freshfields
report” after the consultants who prepared it, that helped spur the creation of the PRI.
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