Fiduciary Responsibility: Legal and Practical Aspects of Integrating ESG Issues into Institutional Investment

A powerful group of asset managers, representing around USD 2 trillion in assets under management, are arguing that integrating environmental, social and governance (ESG) considerations into investment decisions is no longer just a luxury, but a legal responsibility.

The case, outlined in a new report 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.

Indeed, the report says that professional investment advisors and service providers — such as investment consultants and asset managers — to institutional investors may have a far greater legal obligation to incorporate ESG issues into their investment services or face “a very real risk that they will be sued for negligence” if they do not.

The 120-page report has been produced by the Asset Management Working Group of UNEP Finance Initiative (UNEP FI), a unique partnership between the UN’s environmental arm and over 180 financial institutions worldwide.