G20 president China asks OECD to examine fiduciary duty responsibilities of institutional investors

Wide-ranging report due for publication by September

The Organisation for Economic Co-operation and Development (OECD) expects to do a wide-ranging report on the fiduciary duty responsibilities of institutional investors after being asked to explore the issue by China, in its capacity as the current president of the G20 group of major economies.

Adrian Blundell-Wignall, Director in the Directorate for Financial and Enterprise Affairs & Special Advisor to the Secretary-General on Financial Markets at the OECD, announced the expected work at last week’s first formal event held by the FSB Taskforce on Climate Related Financial Disclosures (TCFD), chaired by politician and media mogul Michael Bloomberg.

Blundell-Wignall told the audience, which included members of the TCFD and major players in the ESG standard setting industry, that the OECD had been asked, as part of the G20, to explore fiduciary duty in the investment decision-making process of institutional investors.

He said this was linked with the issue of disclosure on climate-related issues as institutional investors “had to be able to look at what they are investing in and know what’s disclosed. Companies must report to clients on exposure on these things”.

The planned study will be the latest look at fiduciary duty, following a review in the UK and recent work by the European Commission.

Speaking to Responsible Investor after the event, Blundell-Wignall said during the COP21 climate change talks in Paris, G20 officials called a meeting with the OECD to ask them to explore fiduciary duty of institutional investors.China, which is currently leading the G20, wants a preliminary report by this September in time for the G20 Summit it is hosting in Hangzhou. But Blundell-Wignall said the work would likely go beyond that due to the complexity of the issue.

Blundell-Wignall said the issue was at the forefront of many minds currently, highlighting the recent UNEP FI report on Fiduciary Duty in the 21st Century –

He added that at the OECD was already meeting on this with industry stakeholders, for example in Paris the OECD Insurance And Private Pensions Committee and the International Organisation of Pension Supervisors had met. “For the International Organisation of Pension Supervisors it’s a really big issue in many ways,” he said.

Talking about its links with the TCFD, Blundell-Wignall said that, “more disclosure will only come about if pension funds and insurance companies demand it.”

He continued: “When you think about where to get the mechanism for change. The fiduciary angle will be equally important on voluntary or private sector disclosure mechanism. There is an interplay between the two: demand from institutional investors and supply of what private sector discloses.

“The supply and demand determines where you get fiduciary duty of institutional investors.”

Blundell-Wignall also admitted that the task of trying to define fiduciary duty would be very challenging. “At COP21 there were lots of institutional investors there who are working with us and are very helpful. But defining all these things will be very difficult.”

More on the work by the OECD on fiduciary duty prompted by the G20 is expected to be announced in the coming months. In a report last year the OECD said
a lack of clarity on fiduciary duty an obstacle to low carbon investment.