Law firm sought to analyse legal framework for impact in investment decision-making

PRI/UNEP FI/Generation aim to map out ‘third generation’ of responsible investment

The Principles for Responsible Investment (PRI) and the UN Environment’s finance arm (UNEP FI) are seeking a law firm to analyse legal frameworks for sustainability impact for investors, in a project hoping to build the third generation of responsible investment.

The request for proposals is being backed by the Generation Foundation, the body founded alongside Al Gore and David Blood’s Generation Investment Management sustainability boutique.

The background to the call is the groups’ A Legal Framework for Impact project launched in January and it is hoped it will “explore the legal contours” around when and how investors can or are even required to assess and manage sustainability impacts as part of their investment process. The $200,000 project will make recommendations that “have not previously been formulated”.

“The UNEP FI, PRI and The Generation Foundation believe this project will be key to influencing, unlocking and advancing investor practice such that, within the next decade, assessing and managing the sustainability impact of investment decisions becomes a core part of investment activity.”

The first generation of RI, as explained by the document, was kicked off by the Freshfields report in the 2000s. The second was the wave of regulatory clarification about ESG requirements.

“The third generation of responsible investors are beginning to assess, measure and manage the real-world sustainability impact of their investment activity,” it states – although as currently defined, investor duties do not require a fiduciary to account for the sustainability impact of their investment activity, beyond what is financially material.“In other words, fiduciary duties require consideration of how sustainability issues affect the investment decision, but not how the investment decision affects sustainability issues.”

The project, which targets institutional investors, will be responsible to a Steering Committee comprising the CEO of the PRI (Fiona Reynolds), the UNEP FI Director (Eric Usher) and representatives of the Generation Foundation; a secretariat will be formed by members of the three groups.

“The third generation of responsible investors are beginning to assess, measure and manage the real-world sustainability impact of their investment activity.”

It focuses on the management of impact in investment decisions and not solely on the impact investment community/asset class.

The project is expected to be completed in the fourth quarter of 2020 and law firms are asked to confirm their interest by June 26. Final proposals should be submitted by July 26.

Meanwhile, the PRI has told the Financial Times that 50 investors with $1trn in assets risk being de-listed, although it declined to name them.

Last year the PRI put 180 of its signatories on notice after finding they had not met minimum standards.

Reynolds has been on a mission to get rid of what she calls the “box tickers”, those firms who sign up to the PRI for marketing or other reasons.