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Redefining 'Fiduciary Duty' For The 21st Century

Posted on September 9, 2015 at 5:35 PM

The Principles For Responsible Investment (PRI) conference in London is in full swing. Like all the best movements, there is inevitably a sense of preaching to the converted. But anyone in corporate leadership who still sees concern around Environmental, Social and Governance (ESG) issues as a niche area of interest for woolly thinkers would be well mistaken.

One of the important issues under discussion over these three days (Sep 8-10) has been lobbying. In what is being seen as a significant shift in the investor voice on corporate climate lobbying, a worldwide group of investors representing over $3.8 trillion in assets under management (AUM) is explicitly calling for  improvements in practice and transparency from investee companies.

This group of more than 60 investors has made it clear that company lobbying on climate change related policy and regulation must be in line with the universally accepted goal of limiting global temperature rises to two degrees Celsius. The statement, Investor expectations on corporate climate lobbying, including the full list of signatories, can be downloaded here.

The start of the conference coincided with the launch of a new resource for stock exchanges created by the United Nations Sustainable Stock Exchanges (SSE) Initiative, along with a diverse advisory group led by the London Stock Exchange Group. 

Until now, less than a third of stock exchanges worldwide provide written guidance to their listed companies on ESG disclosure. But yesterday at the LSE opening, representatives of the SSE initiative, along with nearly 100 investors, officially launched a new resource for exchanges – the Model Guidance on Reporting ESG Information to Investors: A Voluntary Tool For Stock Exchanges to Guide Issuers.

This launch marked the start of a global campaign to have all exchanges provide their issuers with written guidance on reporting ESG information by the end of 2016 - when the PRI will mark its 10th anniversary.

As well as its Report On Progress 2015, PRI has launched another very important publication.

Fiduciary Duty In The 21st Century runs to 88 pages. It is a joint report from PRI, UNEP FI, UNEP Inquiry and the UN Global Compact, and takes a comprehensive look at fiduciary duty across eight markets: US, Canada, UK, Germany, Brazil, Australia, Japan and South Africa - through a series of events, interviews, case studies and a legal review.

I won't pretend I have read it all. But importantly, it finds that fiduciary duty is not an obstacle to asset owner action on ESG factors. Which has to be a good thing - as 'fiduciary duty' has too often become one of those catch-all descriptive terms to which people retreat when they will do anything to prevent a change of thinking.

No longer. Aviva, the British insurance group, recently told 40 coal companies it would sell its shares in their businesses unless they could prove they were serious avout tackling climate change.

At the launch of a report in July commissioned on the financial implications of global warming, Steve Waygood, chief responsible invetsment officer at Aviva Investors (the insurer's asset manager) told the Financial Times that the report underlined the fiduciary duty the insurance industry had to take action in relation to climate change.

If you want the PRI recommendations for the UK - take a look at the report around page 64 - including food for thought for the Financial Reporting Council (FRC):

"The Financial Reporting Council (FRC) should:

■ conduct a more detailed analysis of current implementation of the UK Stewardship Code by analysing asset owners’ oversight of their investment managers’ implementation and by analysing the investment and other outcomes that result from the code;

■ highlight those asset owners and investment managers that it considers to be doing a good job of implementing the stewardship code, and those whose implementation appears to be lagging;

■ strengthen the stewardship code by:

■ making it clear that environmental and social issues are important drivers of long-term investment value;

■ providing clear guidance to asset owners that outsource investment management (and associated activities) on how they are expected to deliver on their stewardship obligations." (p64 Fiduciary Duty In The 21st Century)

Categories: Investors, Governance, Green Issues