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Build a good green economy – or get sued

"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," says Achim Steiner, UN Under-Secretary-General and UNEP Executive Director.

But a powerful group of asset managers, representing around USD 2 trillion in assets under management, are arguing that green investment is no longer just a luxury, but a legal responsibility.

The case, outlined in a new report, Fiduciary Responsibility - Legal and Practical Aspects of Integrating Environmental, Social and Governance Issues into Institutional Investment, with the United Nations Environment Programme (UNEP), underlines how the world's largest institutional investors -such as pension funds, insurance companies, sovereign wealth funds, mutual funds and foundations -have a central role in assisting the transition to a low carbon and resource efficient Green Economy.

However, investors have a legal obligation to raise environmental, social and governance (ESG) considerations or face legal repercussions. "In tendering for investment mandates, it would be expected that the investment consultant or asset manager would raise ESG considerations as an issue to be taken into account and discussed with the client even if the pension fund had not specified ESG considerations as material to the tender," says Paul Watchman, principal author of the original 2005 "Freshfields Report", the prequel to this new Fiduciary Report. "If the investment consultant or asset manager fails to do so, there is a very real risk that they will be sued for negligence on the ground that they failed to discharge their professional duty of care to the client by failing to raise and take into account ESG considerations." He emphasises that financial professionals on all levels need to "proactive" on the relevant issues of ESG.

The original "Freshfields Report", was one of the first legal interpretations of ESG issues in the context of fiduciary law in nine major capital market jurisdictions, and is considered by key opinion formers in the investment industry as the single most effective document for promoting the integration of ESG issues into institutional investment.

Financial institution and government bodies are recognising the need to marry fiscal responsibility with ESG issues on both a macro and micro level. "By virtue of our long-term investments in a large number of the world's companies, we have a responsibility for and an interest in promoting good corporate governance and safeguarding environmental and social concerns," says Kristin Halvorsen, the Norwegian Minister of Finance who wrote the Foreword for the report.

Source: UNEP

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