Fiona Reynolds: Global statement on investor obligations and duties: Looking at ESG is obligatory

Investors must pay attention to long-term investment value drivers like ESG

Fiduciary duty continues to be a concept that is often misunderstood and widely interpreted. But a statement launched yesterday (June 29) in Paris, with the support of the French government, will attempt to bring clarification to this issue.

The Statement on Investment Obligations and Duties clarifies that investors must pay attention to long-term investment value drivers, including and most significantly, ESG issues, in their investment processes. It follows the publication of Fiduciary Duty in the 21st Century, published last September by the PRI, UNEP FI and the UN Global Compact.

This Statement is being launched against a backdrop of significant domestic policy change. Last year, the Department of Labor clarified that ESG issues are consistent with fiduciary duty. The UK, Japan, Malaysia, South Africa and others have introduced Stewardship Codes. China established a Green Finance Study Group as part of its presidency of the G20. France’s Energy Transition Law strengthens carbon reporting by both companies and their investors.

Despite these achievements, there are gaps and variations in both the specific obligations and duties that are placed on investors, and in the manner in which these are interpreted and implemented in each country. As the Statement says, there is a lack of explicit mechanisms for investors to take account of ESG issues in their investment processes, in their dialogue with companies, and in their engagement with policymakers. Weaknesses in policy frameworks and in the interpretation and implementation of policy remain barriers to progress.

Many countries remain hesitant to take action in clarifying investor obligations and duties.There remains the perception that ESG issues are not important to investment practice or that clarification will disadvantage domestic companies through the imposition of additional regulatory requirements. The lack of regulatory clarification has been interpreted by many investors as a signal that ESG issues are not important to short and long-term investment performance.

The Statement will provide a consistent point of reference across countries and serve as a sign-up statement which investors can use both to frame their engagement on investor duties with policymakers and to demonstrate that this is an issue that is of real concern to investors. It will enable the PRI and UNEP FI to work with international and supranational organisations including, but not limited to the G7, the G20, the OECD and the European Union. It’s backed by the UN and will be launched with the French Treasury and OECD

As a critical next step, international policy makers need to introduce a national policy instrument to clarify investor obligations and duties, in particular, to make explicit reference to the requirement to integrate environmental, social and governance issues in investment decision-making.

The Statement has already been signed by bcIMC, ERAFP. Mirova, IL&FS, AP4, Generation Investment Management, Hermes, Inflection Point, Calvert, PAX, Bâtirente, SynTao Green Finance and CBUS.

French Finance Minister Michel Sapin recently said that, “Meeting the Paris agreement’s goals will require the full mobilization of all stakeholders, including financial sector actors. I fully support PRI’s and UNEP FI’s efforts to make financial flows consistent with the needed limitation of greenhouse emissions and the financing of climate resilient development.” His words are a testament to just how seriously senior policymakers are taking this issue.