1. UNEP FI has been talking about fiduciary duty and ESG integration for a long time.
Fiduciary duty may well be two of the most important words in finance. Words that are widely interpreted and often misunderstood.
This is the genesis of a work programme, set up by UNEP FI, with our partners, PRI and The Generation Foundation – to end the debate about whether fiduciary duty is a barrier to the consideration of environmental, social and governance issues in investment decision-making.

2. What is Fiduciary Duty?
Fiduciary duties (or equivalent obligations) exist to ensure that those who manage other people’s money act in the interests of beneficiaries, rather than serving their own interests. The most important of these duties are:
Loyalty: Fiduciaries should act in good faith in the interests of their beneficiaries, should impartially balance the conflicting interests of different beneficiaries, should avoid conflicts of interest and should not act for the benefit of themselves or a third party.
Prudence: Fiduciaries should act with due care, skill and diligence, investing as an ‘ordinary prudent person’ would do.
Fiduciary duties, investor duties, determine the way in which investment decisions are made, ownership practices are conducted, and ultimately, the way in which companies are managed. Fiduciary duties are foundational.
Read definition
2 duties: loyalty and prudence
There is mounting evidence that ESG issues can affect the performance of investment portfolios and have implications for a company’s earnings and prospects as well as broader economic functioning.
Richard F. Lacaille, State Street Global Advisors
Fiduciary Duty in the 21st Century
Sustainability is an important factor in the long-term success of a business. Therefore as with any other issue related to the prudent management of capital, considering sustainability is not only important to upholding fiduciary duty, it is obligatory.
Al Gore and David Blood, Generation IM Fiduciary Duty in the 21st Century

3. Fiduciary Duty in the 21st Century: Key Findings
The purpose of this report is to end the debate about whether fiduciary duty is a legitimate barrier to investors integrating environmental, social and governance (ESG) issues into their investment processes.
Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty.
Despite significant progress, many investors have yet to fully integrate environmental, social and governance issues into their investment decision-making processes.
The report we launched last year, Fiduciary Duty in the 21st Century, found that:
Fiduciary duty is not a legitimate barrier to ESG integration.
There is no discretion to not consider factors that are financially material.
Indeed, failing to consider long-term investment value drivers, of which ESG issues are a core element, in investment practice is a breach of fiduciary duty.
Ø  Despite our findings – investors, legal advisors and consultants continue to define FD in narrow terms, considering ESG issues as reducing investment returns or political interference.
Ø  And despite significant progress and the growth of PRI, Institutional investors do not systematically integrate ESG issues in investment decision-making.
“As asset owners, we recognise that we have responsibilities to deliver pension benefits to our beneficiaries and we believe responsible investment is a keystone to continue reaching this objective, now and in the future.”
Marcel Barros, PREVI
Fiduciary Duty in the 21st Century

4. Three year project: The project has three components:
Working with investors, governments and intergovernmental organizations to develop and publish an international statement on investors’ obligations and duties.
Publishing roadmaps on the policy changes required to achieve full integration of ESG factors in investment practices across eight countries (US, Canada, Germany, UK, Japan, Australia, South Africa and Brazil).
Extending research into fiduciary duties to major Asian markets: China (including Hong Kong), India, Korea, Malaysia and Singapore.
The report recommended that:
Ø  We need enhanced regulatory frameworks that reflect the modern interpretation of fiduciary duty; one that requires investors to consider long-term value drivers, of which ESG factors are a core component.
Following the publication of the report in September 2015, we set up a 3-year programme to see the recommendations through to implementation. We will:
1)      Develop 8 country roadmaps with specific interventions for pension and securities regulators to help clarify investor’s obligations in each of these 8 countries.
we released the UK and the US roadmaps and I’ll come back to that.
2)      We launched the Global Statement on Investor Obligations and Duties that calls for policy makers at the international and national levels to take action and adopt a modern interpretation of fiduciary duties.
·         The French Minister of Finance has backed the Statement.
·         There are currently 70 signatories to the statement, and we’re looking for more.
3)      The third component is a report that explores investor duties and obligations in 6 Asian markets.
·         Hong Kong, Japan and Malaysia have introduced investor stewardship codes.
·         China chairs the G20 green finance study group.
·         Singapore’s stock exchange requires listed companies to publish sustainability reports.
·         South Korea’s National Pension Service must consider ESG in investment decisions.
“Meeting Paris agreement’s goals will require the full mobilization of all stakeholders, including financial sector actors. I fully support PRI and UNEP FI's efforts to make financial flows consistent with the needed limitation of greenhouse emissions and the financing of climate resilient development.”
Michel Sapin
French Finance Minister

5. UK Roadmap: summary recommendations
ESG factors in investment processes: Re-visiting the Investment Regulations.
Stewardship: A Stewardship Duty for investors to deploy their rights as shareholders, incorporation of ESG factors into the Stewardship Code and better reporting by signatories of compliance under the Code.
Investment consultants: Expansion of FCA asset-management market study. Guidance to be issued by The Pensions Regulator (TPR) on the interaction of trustees with investment consultants to help trustees review advice and performance.
Corporate reporting: The development of a common disclosure framework and metrics for reporting material ESG factors relevant to
Governance: Enhanced consideration of ESG factors and stronger governance arrangements in defined-contribution (DC) schemes. Schemes to reflect on the impact of scale on governance quality and to consider consolidation.
Country roadmaps:
·         The country roadmaps build on in person stakeholder’s consultations.
·         They deepen the recommendations made initially in the report Fiduciary Duty in the 21st Century.
To illustrate I’d like to take an example from our UK Roadmap.
Investment Regulations
The Law Commission in its 2014 report Fiduciary Duties of Investment Intermediaries clarified that “there is no impediment to trustees taking account of ESG factors where they are, or may be, financially material”.
·         Despite such clarification, the wording of the current Investment Regulations conflates ESG and ethics in a misleading way, and does not reflect the modern interpretation of fiduciary duty.
·         A significant number of investors and NGOs supported the revision of the Investment Regulations to address the issue - last November. Which did not happen.
Ø  As a result the project would seek to convene investors and engage the Department of Work and Pension to revisit the Investment Regulations. For that we aim to use the window opened by the implementation of the European IORP Directive.

6. Regulatory Progress:
2013: The UK Law Commission said that there is “no impediment” to trustees consider ESG issues in their investment decision-making and investment processes. 2015: The US Department of Labor clarified that ESG issues should be part of the “primary analysis” of investment decision making. 2014, 15 and 16: Malaysia, Hong Kong and Japan introduced stewardship codes which include commitments to sustainability considerations. 2016: France introduces the Energy Transition Law. 2016: South Africa and Brazil are strengthening pension fund governance with respect to sustainability issues. 2016: The European Parliament recently backed a directive (IORP ii) requiring Europe’s 125,000 corporate pension plans to report on the extent to which they consider ESG issues.
In the last few months and years, we’ve seen policy makers begin to act.
The US Department of Labor clarified that ESG issues should be part of the primary analysis of investment decision making.
The UK Law Commission said that there is no impediment to trustees consider ESG issues in their investment decision-making and investment processes.
The European Parliament recently backed a directive requiring Europe’s 125,000 corporate pension plans to report on the extent to which they consider ESG issues.
Malaysia, Hong Kong and Japan introduced stewardship codes which include commitments to sustainability considerations.
South Africa and Brazil are strengthening pension fund governance with respect to sustainability issues.

7. www.fiduciaryduty21.org​ Find out more:
Fiduciary Duty in the 21st Century (English, Portuguese and Japanese)
Investor Duties in Six Asian Markets (English, Chinese)
US Roadmap (English)
UK Roadmap (English)
1)      The objective of the FD project is to enhance regulatory frameworks for them to reflect the modern interpretation of fiduciary duty.
2)      We cover 8 major developed and developing economies, and have started to explore 6 more in Asia.
3)      And last –ESG integration as part of prudent investment decision making, is the “do no harm” approach that we will need to achieve sooner rather than later.