PRI kick-starts fiduciary duty project, looking at changes needed for integration

The Principles for Responsible Investment (PRI) has kick-started its three-year fiduciary duty project that includes building ‘roadmaps’ for integrating ESG into mainstream investment practice around the world, with recommendations for the UK market including compelling UK pension schemes to reflect on consolidation and scale and extending the Stewardship Code to include ESG.

The project, which is funded by the Generation Foundation, builds on the findings of the UN Environment Programme Finance Initiative, PRI and UN Global Compact 2015 report on Fiduciary Duty in the 21st Century.

It will look at the policy changes required to achieve full integration of ESG issues in investment processes and practices in the countries covered in the 2015 report. It will also extend the research into fiduciary duty to five major Asian markets – as well as working with investors and governments to publish an international statement on investor duties.

Speaking at a PRI event this week focused on ‘Fiduciary Duty in the 21st Century’, Brian Tomlinson, Associate Director of Fiduciaries Duties at the PRI, said the initiative would promote fiduciary duty as a “lens” for looking at the investment industry and a “lever” for achieving change.

“It’s foundational and full of potential, but often misunderstood and a bit perceived as a barrier of ESG,” said Tomlinson. There needed to be a “fiduciary” mindset rather than a “compliance” mindset.Tomlinson added the PRI had started talking with people in the UK to test its proposed recommendations on a roadmap for the country.

There are six recommendations:-

• Focus on stewardship: Extend the Stewardship Code to include ESG. Investment regulations should include explicit stewardship duty
• Substance over form in pensions regulation: scheme structure should not dictate the standard or existence of fiduciary projection; ESG built into scheme governance
• Investment consultant advice and oversight: structure ESG factors into mandates, conversations and performance review.

• Standardisation of reporting; assurance and potential possible UK version of the Sustainability Accounting Standards Board.

• Pension scheme consolidation: compel schemes to reflect on scale and report on this to the Pensions Regulator and members.
• Shorten the equity intermediation chain.

Speaking to RI, Tomlinson said after engagement with UK stakeholders it would launch a formal consultation with its final recommendations in a couple of months.

Nathan Fabian, Director of Policy and Research at the PRI, said it expected to release its investor statement on fiduciary duty towards the middle of the year, and have its report on fiduciary duty in Asian markets: China (including Hong Kong), India, Malaysia, Singapore and South Korea published in September.

Along with the UK, the PRI will be developing roadmaps for Australia, Brazil, Canada, German, Japan, South Africa and the US.