1. Fiduciary Duty: Risk, Liability and Reward in a Changing Fiduciary Environment TUC Conference
Paul Watchman
5 JUNE 2006

2. The question
“is the integration of ESG into investment policy voluntarily permitted, legally required or hampered by law and regulation?
Asset Management Working Group

3. Overview of study About Freshfields Bruckhaus Deringer
The scope of our review
pension funds
mutual funds
insurance reserves
Teams involved

4. The Jurisdictions Australia France Canada Germany UK Italy US Japan
Spain

5. Common law fiduciary duties
Apply special knowledge + skill
Act reasonably
Consider suitability of investments
Carry out the terms of the trust
Common Law
Duty to act for a proper purpose
Duty to act prudently
Consider relevant considerations
Act in beneficiaries’ best interests
Diversify
Act with care skill + diligence
Take proper advice

6. Civil law duties Civil Law
Duty to act conscientiously in the beneficiaries’ interests
Duty to seek profitability
SPAIN “diligently”
ITALY “professionally”
FRANCE “prudently”
No particular level of profitability is prescribed
Civil Law
Modern portfolio approach
Other duties
Either express or implied through a requirement for diversification
In relation to liquidity and the types of assets that may be selected

7. Government endorsement of ESG considerations
ESG disclosure requirements apply in -
Australia
Canada
France
Germany
Italy
pending
Japan
Spain UK US     

8. Y N Y N Y STEP ONE Formulate investment strategy
Must have regard to the risk and return objectives of the fund
The consideration must be taken into account together with all other relevant considerations
Is the ESG consideration the subject of consensus?
STEP TWO Gather information. What regard must / may be had to an identified ESG issue? Y N
Is the ESG issue likely to affect financial performance? Y N
The consideration may be taken into account together with all other relevant considerations
Is the ESG issue a point of differentiation between investments? Y
STEP THREE Weigh up the relevant considerations
This is a decision for the decision-maker taking into account legal duties

9. Value -v- Values
Integration of ESG considerations into investment decisions is mandatory
Provided that
Provided that
The ESG consideration is reasonably expected to have a material impact on the financial performance of the investment
The ESG consideration is reasonably believed to be the subject of consensus – express or implied - amongst the beneficiaries
We believe that ESG considerations may also be used to differentiate between otherwise equally attractive investments

10. Conclusions
A decision-maker must have regard to ESG considerations as relevant considerations
The weight to be given to each relevant consideration is a matter for the decision-maker
ESG considerations may also be integrated into investment decision-making where there is consensus or as a “tie-breaker”

11. End of presentation:LC1481994
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Fiduciary Duty: The Risk, Liability and Reward in a Changing Fiduciary Environment TUC Conference
End of presentation:LC