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U.N. to managers: Ignore ESG issues at own legal peril By Barry B. Burr Source: Pensions & Investments Date: July 14, 2009 Investment managers and consultants could face negligence lawsuits if they don’t consider environment, social and corporate governance issues when making investment decisions for pension funds and other clients, according to a new United Nations report. “In tendering for investment mandates, it would be expected that the investment consultant or asset manager would raise ESG considerations as an issue to be taken into account and discussed with the client, even if the pension fund had not specified ESG considerations as material to the tender,” Paul Watchman, CEO of Quayle Watchman Consulting, said in the report. Mr. Watchman was a legal consultant on the report. “If the investment 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,” he said. Among the recommendations in the report, “Advisers 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. Therefore, 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.” The report, “Fiduciary Responsibility: Legal and Practical Aspects of Integrating Environmental, Social and Governance Issues into Institutional Investment,” was prepared by the asset management working group of the United Nations Environment Programme’s Finance Initiative, which is a partnership of the U.N. and some 180 investment firms, banks, and insurance companies. The group includes AIG Investments, BNP Paribas Asset Management, Calvert Investments, ClearBridge Advisors, HSBC Global Asset Management, Mitsubishi UFJ Trust & Banking, Nikko Asset Management Japan and Pax World Management. 8
UNEP Report on Green Investments Wins Asset Managers Support 14 July 2009: The UN Environment Programme Finance Initiative (UNEP FI) Asset Management Working Group, a partnership between UNEP and over 180 financial institutions worldwide, has released a report titled “Fiduciary Responsibility - Legal and Practical Aspects of Integrating Environmental, Social and Governance Issues into Institutional Investment.” The Group of 180 asset managers represents approximately US$2 trillion in assets under management and argue that integrating environmental, social and governance (ESG) considerations into investment decisions is no longer a luxury, but a legal responsibility. The report underlines how the world’s largest institutional investors, including pension funds, insurance companies, sovereign wealth funds, mutual funds and foundations, have a central role in assisting the transition to a low-carbon and resource-efficient green economy. It also states that professional investment advisors and service providers, such as investment consultants, asset managers and institutional investors may have a far greater legal obligation to incorporate ESG issues into their investment services or face “a very real risk that they will be sued for negligence.” [UNEP press release] [The report] 9
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