About the project
In January 2016, the PRI and UNEP FI, with the generous financial support of The Generation Foundation, launched a four-year project to end the debate on whether fiduciary duty is a legitimate barrier to the integration of environmental, social and governance (ESG) issues in investment practice and decision-making.
This followed the original publication in September 2015 of Fiduciary Duty in the 21st Century by the PRI, UNEP FI, UNEP Inquiry and UN Global Compact. The report concluded that “Failing to consider all long-term investment value drivers, including ESG issues, is a failure of fiduciary duty". It also acknowledged that despite significant progress, many investors have yet to fully integrate ESG issues into their investment decision-making processes.
The project had three main components:
Between 2016 to 2019, the project:
As the project’s final report demonstrates, the programme has produced extensive evidence showing the critical importance of incorporating ESG standards into regulatory conceptions of fiduciary duty. Investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge.
This followed the original publication in September 2015 of Fiduciary Duty in the 21st Century by the PRI, UNEP FI, UNEP Inquiry and UN Global Compact. The report concluded that “Failing to consider all long-term investment value drivers, including ESG issues, is a failure of fiduciary duty". It also acknowledged that despite significant progress, many investors have yet to fully integrate ESG issues into their investment decision-making processes.
The project had three main components:
- Working with investors, governments and intergovernmental organisations, to develop and publish an international statement on fiduciary duty, which includes the requirement to integrate ESG issues into investment processes and practices.
- Publishing and implementing roadmaps on the policy changes required to achieve full integration of ESG issues in investment processes and practices across eight countries.
- Extending the research into fiduciary duties – and, more broadly, investor duties – to six Asian markets: China, Hong Kong SAR, India, Korea, Malaysia and Singapore.
Between 2016 to 2019, the project:
- Engaged with over 400 policy makers and investors to raise awareness of the importance of ESG-issues to the fiduciary duties of investors.
- Published the Global Statement on Investor Obligations and Duties, which has now been signed by 124 signatories from 22 countries.
- Published and started to implement roadmaps on the policy changes required to achieve full integration of ESG issues into investment processes and practices across 11 countries (Australia, Brazil, Canada, China, France, Germany, Ireland, Japan, South Africa, UK and US).
- Extended the research into fiduciary duties – and, more broadly, investor duties – to six Asian markets: China, Hong Kong SAR, India, Korea, Malaysia and Singapore.
- Published ten related reports.
- Engaged with the European Commission and the HLEG (European Commission High Level Expert Group on Sustainable Finance) to help formulate recommendations on the clarification of investor duties throughout the European Union.
- Hosted over 20 workshops and conferences with investors and regulators in 15 countries to discuss regulatory clarification and investor practice on ESG integration as part of their fiduciary duty.
- The project was recognized by Investments and Pensions Europe with a gold award for Outstanding Industry Contribution in November 2017.
As the project’s final report demonstrates, the programme has produced extensive evidence showing the critical importance of incorporating ESG standards into regulatory conceptions of fiduciary duty. Investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge.
Market analysis and global policy reform
Most markets around the world have seen progress on the incorporation of ESG issues into expectations around fiduciary duty - including the EU, UK, Canada and China - with the exception of the U.S.
Looking forward: sustainability impact
While the conceptual debate around whether ESG issues are a requirement of investor duties and obligations is now over, several areas require further work. In particular, investors and policy makers now need to explore how investors might explicitly incorporate sustainability impacts in investment decision making processes.
Fiduciary duties require ESG incorporation, however capital markets remain unsustainable. As currently defined, the legal and regulatory frameworks within which investors operate require consideration of how ESG issues affect the investment decision, but not how the investment decision affects ESG issues. Changing this will be our next phase of work through the project A Legal Framework for Impact.
Fiduciary duties require ESG incorporation, however capital markets remain unsustainable. As currently defined, the legal and regulatory frameworks within which investors operate require consideration of how ESG issues affect the investment decision, but not how the investment decision affects ESG issues. Changing this will be our next phase of work through the project A Legal Framework for Impact.
Looking back: over a decade towards the modern interpretation of fiduciary duty
The origins of the modern interpretation of fiduciary duty date back to 2005. Previously, the commonly held view on the correct interpretation of the law was that fiduciary duties require a portfolio manager solely to pursue profit maximisation. Thus, prior to 2005, the integration of environmental, social and governance (ESG) issues in investment practice and decision-making was vastly ambiguous and often resisted based on a belief that taking account of such issues was legally prevented.
In October 2005, a group of United Nations Environment Programme Finance Initiative (UNEP FI) asset managers together with Freshfields Bruckhaus Deringer, a leading international law firm, published a ground-breaking report titled A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment.
Widely referred to as the “Freshfields Report”, the landmark report argued that, “integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions,” and became the single most effective document for promoting the integration of ESG issues into institutional investment.
In the four years after the launch of the original Freshfields Report, there was more innovation and evolution in the field of ESG integration than in any other similar time span in history. In the context of the 2008-2009 Global Financial Crisis and the predicted ‘Natural Resources Crisis’, it seemed possible that many fiduciaries would look for new approaches to steward and allocate their assets. Furthermore, historically, some world leaders voiced the urgency to combat climate change, the crucial role of finance and business, and the need for a long-term approach.
Thus in 2009, UNEP FI produced a sequel to the “Freshfields Report” titled Fiduciary Responsibility: legal and practical aspects of integrating environmental, social and governance issues into institutional investment. This follow-on report, termed “Fiduciary II”, provides a legal roadmap for fiduciaries looking for concrete steps to operationalise their commitment to responsible investment.
10 years on much progress had been made since the publication of the Freshfields Report in 2005, but even more can and must be done, which is the aim of this project on Fiduciary Duty in the 21st Century.
Read all of the project-related reports on the Publications page.
In October 2005, a group of United Nations Environment Programme Finance Initiative (UNEP FI) asset managers together with Freshfields Bruckhaus Deringer, a leading international law firm, published a ground-breaking report titled A Legal Framework for the Integration of Environmental, Social and Governance Issues into Institutional Investment.
Widely referred to as the “Freshfields Report”, the landmark report argued that, “integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and is arguably required in all jurisdictions,” and became the single most effective document for promoting the integration of ESG issues into institutional investment.
In the four years after the launch of the original Freshfields Report, there was more innovation and evolution in the field of ESG integration than in any other similar time span in history. In the context of the 2008-2009 Global Financial Crisis and the predicted ‘Natural Resources Crisis’, it seemed possible that many fiduciaries would look for new approaches to steward and allocate their assets. Furthermore, historically, some world leaders voiced the urgency to combat climate change, the crucial role of finance and business, and the need for a long-term approach.
Thus in 2009, UNEP FI produced a sequel to the “Freshfields Report” titled Fiduciary Responsibility: legal and practical aspects of integrating environmental, social and governance issues into institutional investment. This follow-on report, termed “Fiduciary II”, provides a legal roadmap for fiduciaries looking for concrete steps to operationalise their commitment to responsible investment.
10 years on much progress had been made since the publication of the Freshfields Report in 2005, but even more can and must be done, which is the aim of this project on Fiduciary Duty in the 21st Century.
Read all of the project-related reports on the Publications page.
Contact the project team.
Partner organisations:
Partner organisations:
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