Fiduciary duties exist to ensure that those who manage other people’s money act in their beneficiaries’ interests, rather than serving their own interests. Decisions made by fiduciaries cascade down the investment chain affecting decision-making processes, ownership practices, and ultimately, the way in which companies are managed. Some institutional investors believed that environmental, social and governance (ESG) issues were not relevant to their portfolio value and were therefore not consistent with their fiduciary duties. This assumption is no longer supported.

Following the launch of the original report Fiduciary Duty in the 21st Century (2015), the Principles for Responsible Investment (PRI), the United Nations Environment Programme Finance Initiative (UNEP FI) and The Generation Foundation launched a four-year project to clarify investors’ obligations and duties in relation to the incorporation of ESG issues in investment practice and decision-making.

As the project’s 2019 final report demonstrates, there is extensive evidence showing the critical importance of incorporating ESG standards into regulatory conceptions of fiduciary duty. Investors who fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenges.

Hear from governments, regulators, and investors around the world how they are supporting the updated conception of fiduciary duty.

The project set out to end the debate on whether fiduciary duty is a legitimate barrier to the integration of ESG issues in investment practice and decision-making. Additionally, it published roadmaps with recommendations to fully embed the consideration of ESG factors in the fiduciary duties of investors across ten capital markets. ​

Former US Vice President and Chairman of Generation Investment Management, Al Gore, introduces UNEP FI, the PRI and The Generation Foundation’s Fiduciary Duty in the 21st Century Programme, which seeks to update conceptions of fiduciary duty and in doing so create the conditions for a more sustainable global economy.

The project had three components:
  1. Working with investors, governments and intergovernmental organisations to develop and publish a Global Statement on Investors’ Obligations and Duties.
  2. Publishing and implementing roadmaps on the policy changes required to achieve full ESG integration in investment practices across eight countries (Australia, Brazil, Canada, Germany, Japan, South Africa, UK and US).
  3. Extending research into investor’s obligations and duties to six Asian markets: China, Hong Kong SAR, India, Malaysia, Singapore and South Korea.
The project concluded that modern fiduciary duties of investors require them to:
  • Incorporate financially material ESG factors into their investment decision-making, consistent with the time-frame of the obligation.
  • Understand and incorporate into their decision-making the sustainability preferences of beneficiaries/clients, regardless of whether these preferences are financially material.
  • Be active owners, encouraging high standards of ESG performance in the companies or other entities in which they are invested.
  • Support the stability and resilience of the financial system.
  • Disclose their investment approach in a clear and understandable manner, including how preferences are incorporated into the scheme’s investment approach.​​
There are three main reasons why the fiduciary duties of loyalty and prudence require the incorporation of ESG issues:
  1. ESG incorporation is an investment norm.
  2. ESG issues are financially material.
  3. Policy and regulatory frameworks are changing to require ESG incorporation.

UNEP FI’s work on fiduciary duty was undertaken collaboratively with the Principles for Responsible Investment (PRI), and The Generation Foundation.

The Next Frontier:

While the conceptual debate around whether ESG issues are a requirement of investor duties and obligations is now over, further work is required. As currently defined, the legal and regulatory frameworks within which investors operate require consideration of how ESG issues affect the investment decision, but not how the investment decision affects ESG issues. Changing this will be our next phase of work through the project A Legal Framework for Impact.