Fiduciary responsibility. Legal and practical aspects of integrating environmental, social and governance issues into institutional investment

This report is about identifying future challenges within the financial system in order to reduce further crises like the Natural Resources Crisis. The authors integrate environmental, social and governance (ESG) issues into investment analysis in order to engage with companies to promote sustainable business practices. This is in line with UNEP’s Green Economy Initiative4 which aims at:

• making a contribution to reviving the world economy, saving and creating jobs, and protecting vulnerable groups
  
• reducing carbon dependency and ecosystem degradation, putting economies on a path to clean and stable development
  
• furthering sustainable and inclusive growth, achieve the MDGs, and end extreme poverty by 2015.

Taking into account the key legal findings and recommendations, the report calls for the following actions to magnify the extent to which responsible investment is demanded by the capital markets:

• investor advisors are duty bound to raise ESG issues of responsible investment, active ownership and the promotion of sustainable business practices
• principles for responsible investment should specify that investors and their managers should sign and embed ESG issues in their legal contracts
• consultants, managers and other service providers are duty bound to raise ESG issues to the investors
• consultants, managers and other service providers should make available to investors the annual benchmark assessments in relation to each principle

The report's conclusions are that fiduciaries should:

• actively consider the adoption of responsible investment strategies
  
• recognise that integrating ESG issues into investment and ownership processes is part of responsible investment and is necessary to managing risk and evaluating opportunities for long-term investment
• understand the materiality of ESG issues and the systemic risk they pose, and the profound long-term costs of unsustainable development
• apply pressure to their managers to develop investment strategies that integrate ESG issues into financial analysis and sustainable business practices
• global capital market policymakers should make it clear that advisors to investors have a duty to raise ESG issues in their advice for transparency
  
• civil society institutions should bolster their understanding of capital markets in order to play a role in ensuring ESG.