1. In two sentences, what is A Legal Framework for Impact? 

It is a project to establish the extent to which legal and regulatory frameworks in 11 jurisdictions enable or encourage investors to consider the sustainability impact of their investments.  

In the future, this analysis may serve as a foundation for a new way of thinking about how the financial sector serves beneficiaries beyond financial returns for their savings: to flip the debate from the effect of “real world outcomes” on investments, to investments’ effect on real world outcomes.  

 

2. Who is involved?

The project secretariat is PRI, UNEP FI and The Generation Foundation. The secretariat appointed Freshfields Bruckhaus Deringer in September 2019 to compile the legal analysis and author the project report following a competitive tender process. The secretariat is supported by a reference group of industry experts, including institutional investors’ legal counsel and sustainable investment specialists.  To learn more, visit the project partners page.

 

3. What is the timeline?

The report is due for release in Summer 2021. There will be a number of launch events throughout the end of the year.  

4. What does “sustainability impact” mean?

The project is underway using the term “sustainability impact” as broad intellectual net to capture the change in sustainability outcomes (positive or negative) caused by an organisation, directly or indirectly, wholly or partially, intended or unintended on people, the environment or the economy.  

We are engaging in detailed discussion on terminology and related concepts with the project’s stakeholders, especially UNEP FI, GIIN and the Impact Management Project as we progress in conversation with local legal counsel, interviews with investors, undertake analysis and draw conclusions for the final report.  

This project is aiming to test the extent to which large institutional investors – like pensions funds and insurance funds – can take the impact into consideration in their core investment activities where this is not explicitly set out in an investment mandate, through activates such as: investment allocation; stewardship activities and dialogue with policymakers.  

 

5. What type of investor is covered?

Different actors in the investment process will have different duties, so the project splits out different parties.  

“Asset owners” are defined to include pension funds, regulated mutual funds, insurance companies (general and life). The range of asset owners relatively narrow, given the bespoke legal regime covering some types of sovereign wealth fund, charitable foundations and other specific fund types.  

The beneficiaries of those asset owners are those who have the principal economic interest (even if they do not have a legal interest) in the management of a fund, such as a pensioner, fund unit holder or policy holder under a life contract.  

“Investment Managers” means firms who are appointed by an Asset Owner to investment manage a portfolio on their behalf. The project will also address the duties of investment consultants and fiduciary managers, to the extent they differ from asset owners or managers.    

The project is not considering funds with specific impact mandates. 

 

6. Why did you choose the 11 jurisdictions in the report?

During the process of appointing the specialist law firm, the secretariat required at least 6 jurisdictions be covered – Canada, China, France, EU, US and UK. Freshfields agreed to add further jurisdictions – Australia, Brazil, Japan, Netherlands, and South Africa.  

As well as being jurisdictions managing a large proportion of the world’s financial assets, the jurisdictions cover both common law and civil law systems and represent a variety of approaches to addressing sustainability in mainstream investing.  

 

7. How does this project relate to fiduciary duty and the Fiduciary Duty in the 21st Century project?

Fiduciary Duty in the 21st Century considered the extent to which investors were required to consider financially material ESG factors within their investment portfolios. A Legal Framework for Impact examines the extent to which legal frameworks enable investors to incorporate sustainability impact  into their investment activities, regardless of their financial materiality. 

 

8. Who do I contact for more information?

Jes Andrews, Investment Programme Lead, UNEP FI

Margarita Pirovska, Director of Policy, PRI