Policy-makers and leading investors feed into new PRI fiduciary duty roadmaps for US and UK

Leading policy makers and investment industry figures have contributed to two new fiduciary duty ‘roadmaps’ for the US and UK from the Principles for Responsible Investment (PRI) that aim to show how environmental, social and governance considerations should be incorporated into investment decision-making.

Among those that fed into the two publications are former SEC Chair Mary Schapiro and investors such as CalPERS, BlackRock, JP Morgan (for the US report) and the Bank of England, government departments and the pensions regulator and investors like Hermes, Alliance Trust and the BT Pension Scheme (in the UK).

The new documents are the first fruits of a project that will eventually cover eight countries (the others being Canada, Germany, Japan, Australia, South Africa and Brazil).

The project has been put together by the PRI with the United Nations Environment Program Finance Initiative (UNEP FI) and the Generation Foundation, the charitable arm of the Al Gore/David Blood sustainability boutique Generation Investment Management.

It sets out recommendations to embed ESG factors in the fiduciary duties of investors in capital markets. “Underlying the roadmap is the understanding that ESG integration is less a product than it is part of the broader process and technology of investment analysis,” the PRI says.

It builds on the recent Fiduciary Duty in the 21st Century report published in September 2015 and draws on interviews with asset owners, investment managers, industry service providers and academics.

But, ultimately, it’s the latest in a series that stretches back to the landmark A legal framework for the integration of environmental, social and governance issues into institutional investment – the ‘Freshfields report’ – in 2005.That report was commissioned by the UNEP FI and Eric Usher, the current head of the UNEP FI, is on the latest project’s steering committee alongside Peter Knight (President, Generation IM), PRI Managing Director Fiona Reynolds and Nick Robins, the Co-Director, UNEP Inquiry into a Sustainable Financial System.

The world has moved on in the 11 years since Freshfields, not least suffering a financial crisis that has led to questions about the role of investors. The US report takes place in the context of a pivotal change in stance by the Department of Labor last year when it clarified that ESG factors can be part of the “primary analysis” of prudent investment decision-making by fiduciaries operating under Employee Retirement Income Security Act (ERISA) rules.

And the context in the UK is the Law Commission’s Fiduciary Duties of Investment Intermediaries report from 2014 that grew out of the Kay Review.

But views about fiduciary duty are entrenched, if this comment in West Yorkshire Pension Fund’s annual report released this month is anything to go by: “The panel noted the regulatory and fiduciary requirements of the WYPF and the duty of the panel to maximise returns for the benefit of members while taking account of the likely volatility of returns.” That’s in the context of fossil fuel and tobacco divestment.

The PRI is encouraging signatories to sign a Global Statement on Investor Obligations and Duties on its website.

The statement aims to “give governments the confidence to act” to provide clarity on the extent ESG factors should be part of investment decisions. As at October 17, 68 of the PRI’s 1,576 signatories had signed it.