Fund managers are failing in their fiduciary duty if they do not incorporate sustainability criteria into investment decisions...
...said a study today backed by U.N. partner organisations including the Principles for Responsible Investment.
According the the report, U.S. managers fared poorly in making sure environmental, social and governance (ESG) views were considered alongside other aspects when discussing a company's invest-ability. This is due in part to an outdated view of fiduciary duty, or acting in the best interests of customers.
A lack of consistency when incorporating ESG information into investment decisions, and poor communication with clients such as pension funds also hampered its take-up, it said.
"Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty," the authors of the study, said.
“Lawyers and consultants too often characterise ESG issues as non-financial factors", they added.
ESG factors could include failures in governance, such as those that contributed to the 2010 Deepwater Horizon oil spill that resulted in BP paying out $18.7 billion in damages. European managers have led the way in incorporating ESG factors into their investment process but some managers are still concerned they could be liable to a claim by investors if they use ESG factors to pick an investment that drops.
The report therefore called on regulators and policymakers to clarify ESG factors importance to fiduciary duty in investment, asking for greater transparency from companies and fund managers when reporting ESG issues as well as calling for a globally harmonised approach to legislation and policy instruments.