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Report Links ESG and Fiduciary Duty
By Christie Renner

The world's largest institutional investors must play a central role in the transition to a low carbon economy, according to a report released yesterday by the Asset Management Working Group of the UN Environment Programme Finance Initiative (UNEP FI).

Fiduciary Responsibility – Legal and Practical Aspects of Integrating Environmental, Social and Governance (ESG) Issues into Institutional Investment states that investment options which take into account ESG issues should be the default, not the exception, and outlines the need for global capital market policymakers to support this investor duty.

Produced in partnership with over 180 financial institutions worldwide with over $2 trillion in assets, the report provides legal language for including ESG issues in the legal contracts between institutional investors and their asset managers.

It also makes the case for market incentives that reward long-term investment, and states that failing to incorporate ESG factors into investment decision making puts firms at "a very real risk that they will be sued for negligence."

Achim Steiner, UN Under-Secretary-General and UNEP Executive Director, said, "As investors return to the markets, the question remains whether the funds will only go to the brown economy of yesterday-or to a new Green Economy. Market signals, creative market mechanisms and other signals and incentives can play a transformational role."

Butch Bacani, Programme Officer, Insurance & Investment, UNEP Finance Initiative, pointed out, "The worst financial and economic crisis in generations pales in comparison to a looming 'Natural Resources Crisis.' Investors and financial markets should put an end to 'short-termism' and embed inherently longer-term ESG issues in their organizational DNA. [This report] offers a legal roadmap for responsible investing and marks an enlightened step towards a green, inclusive and sustainable global economy."

The UNEP FI is a collaborator in the Principles for Responsible Investment (PRI) initiative, to which First Affirmative was an early signatory. Over 560 institutions from around the world have signed onto the PRI, which provides a framework for investors to incorporate ESG issues in the investment process.

This new report was released just one day before the launch of the PRI in Person conference in Sydney, Australia, where PRI signatories (including many of the world's largest investors) from over 32 countries will come together to discuss the report's findings in the context of larger discussions on incorporating ESG criteria into investment decision making.

The 20th annual SRI in the Rockies Conference, October 25-28, 2009, produced by First Affirmative, will have a session focused on the evolving definition of fiduciary duty.

Christie Renner
Assistant to the CEO

Posted: July 16, 2009