UNEP FI and the PRI provide an updated look at Fiduciary duty in the 21st Century with the release of its final report. In 2014, the PRI, UNEP FI and additional UN partners identified the misinterpretation of fiduciary duties as the primary barrier to environmental, social and governance (ESG) incorporation in investment practice. The Fiduciary Duty in the 21st Century programme sought to “end the debate about whether fiduciary duty is a legitimate barrier to ESG incorporation.”

As the project’s final report demonstrates, the programme has produced extensive evidence showing the critical importance of incorporating ESG standards into regulatory conceptions of fiduciary duty. The programme has also advocated for global policy reform to clarify fiduciaries’ duties to their beneficiaries.  Most markets around the world have seen progress on the incorporation of ESG issues into expectations around fiduciary duty – including the EU, UK, Canada and China – with the exception of the U.S.

Today, the fiduciary duties of investors require them to:

  • Incorporate environmental, social and governance (ESG) issues into investment analysis and decision-making processes, consistent with their investment time horizons.
  • Encourage high standards of ESG performance in the companies or other entities in which they invest.
  • Understand and incorporate beneficiaries’ and savers’ sustainability-related preferences.
  • Report on how they have implemented these commitments.

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.

Investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge.

These changes in investors’ duties and in financial system regulation are not occurring in a vacuum. Policymakers, regulators and governments recognise that issues such as climate change and sustainable development represent systemic risks and opportunities that require explicit and targeted interventions. Many countries have started to implement the Paris Climate Agreement and the Sustainable Development Goals in national policy and regulations.

Some governments have formally incorporated sustainability in the mandates of their financial regulators. This integration of finance into sustainability policy, and the integration of sustainability considerations into finance policy, suggest that we are moving towards a much more integrated and aligned approach to policy across these two areas.

While the conceptual debate around whether ESG issues are a requirement of investor duties and obligations is now over, the report identifies several areas where further work is required.

It is encouraging that many regulators and investors are making progress, but time is not on our side. We need comprehensive action – from everyone in the investment chain – to move towards a more sustainable economy, at stake is a viable and prosperous world for all.


Read the full report here.