UN bodies work to integrate sustainability into investors’ fiduciary duties

The United Nations Environment Programme Finance Initiative (UNEP FI), the Principles for Responsible Investment (PRI), and The Generation Foundation, the advocacy initiative of Generation Investment Management, have launched a three year project which aims to persuade investors to take full account of material sustainability factors in their investment practices and to see this as their clear fiduciary duty.

The project will be building on the findings of the UNEP, PRI and UN Global Compact report Fiduciary Duty in the 21st Century, published in 2015, and will engage asset owners, asset managers and policy makers across national and international jurisdictions to harmonise a global understanding of fiduciary duty which incorporates sustainability. The project will develop an international statement on fiduciary duty and sustainable development which, the three groups believe, would create a cohort of signatories committed to integrating sustainability into their fiduciary duties.

The  project will also target the countries covered by the report – Australia, Brazil, Canada, Germany, Japan, South Africa, the UK and US – to encourage their governments and regulatory agencies to clarify the scope of fiduciary duty such that investors must take explicit account of environmental, social and governance issues in their investment practices and proactively engage with companies on these issues. Further analysis will also be made of the important Asian markets of  China (including Hong Kong), India, Malaysia, Singapore and South Korea and plans and recommendations will be made for each country to encourage more consideration of sustainability by investors.

Although sustainability is seen as increasingly important by all institutional investors – and there are specialist fund managers in this area – it is principally the large public pension funds in the US and European which will focus on sustainability as part of their engagement and investment programmes. The large Norwegian fund, the Government Pension Fund Global, which is managed by Norges Bank and invests money made from its oil industry on behalf of the government, is one example of a global institutional investor which engages with companies about sustainability and similar issues. The fund recently published its report covering its responsible investment activities during 2015.

The fund reported that its responsible investment approach could lead it to divest from companies following an assessment of environmental and social risk factors. The fund divested from 73 companies on the basis of such assessments in 2015 and in the last four years it has divested from a total of 187 companies. During 2015 the fund expanded its risk analyses to look more closely at social and governance issues relating to health, safety and the environment, human capital and corruption. The fund also began publishing its voting intentions in certain cases prior to company meetings as the fund will use its voting power to promote sustainable development and good corporate governance.

Meanwhile, in the US, shareholder resolutions at company meetings calling for better sustainability reporting by companies have seen increasing support by investors according to James McRitchie, the shareholder activist who writes the Corporate Governance website. Earlier this month at ESCO Technologies AGM a resolution put forward by Walden Asset Management  requesting a comprehensive sustainability report, including greenhouse gas (GHG) emissions reduction goals, received 43.5% support, excluding abstentions. At Emerson Electric’s AGM a  proposal co‐led by Mercy Investment Services and Wespath Investment Management, requesting a comprehensive sustainability report, received 47% support. Similar proposals made in recent years at the two companies have averaged 26% and 37% support at ESCO Technologies and Emerson Electric, respectively Ritchie reported.

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