The ground-breaking report, A Legal Framework for Impact, set out to clarify how regulators in eleven jurisdictions view investing for sustainability impact. The goal was to provide concrete support for impact investors in these markets. Building on this work, the PRI hosted a webinar focusing on UK-specific findings of the report, which was commissioned by The Generation Foundation, the PRI and the UN Environment Programme Finance Initiative (UNEP FI).
The webinar featured an expert panel, including Guy Opperman MP, Parliamentary Under Secretary of State (Minister for Pensions and Financial Inclusion) at the UK Government’s Department of Work and Pensions (DWP); David Rouch, Partner at Freshfields Bruckhaus Deringer and a lead author of the Legal Framework for Impact report; and Faith Ward, Chief Responsible Investment Officer at Brunel Pension Partnership. The session was moderated by the PRI’s Director of Policy, Margarita Pirovska.
Pirovska opened the discussion by explaining that, despite broadly shared agreement that ESG issues affect investment decisions, capital markets still operate in a disconnect with global sustainability challenges. A Legal Framework for Impact, which was commissioned to address this disconnect, built on earlier work that explores how fiduciary duty requires ESG integration. The report sought to increase the understanding of how legal frameworks permit or require investors to pursue positive sustainability impacts.
Freshfield’s Rouch set the scene by providing further background on the report, as well as summarising the report’s analysis and findings, both generally and with regard to the UK-specific annex. Put simply, the report answers the crucial question of the extent to which institutional investors are legally required or permitted to invest for sustainability impact (IFSI). The report found that, to a significant extent, UK law both permits and, in many cases, requires investors to intentionally pursue positive sustainability impact goals. IFSI is required when it is necessary to help manage financial risks and achieve financial return objectives. Rouch also explained that, to make the pursuit of positive sustainability impacts part of mainstream investment, a collective exercise between policymakers and investors is needed to overcome barriers to action and enable investors. If you would like to hear more about the legal findings, Rouch and Pirovska discuss the report and its findings in this PRI podcast.
Through the lens of a policymaker, Opperman explained that the ultimate driver of legislative reform was the UK’s net zero commitments as well as the legally binding sixth carbon budget. He explained that, with effective tools such as investment stewardship, investors could contribute significantly to achieving societal goals. When describing policy reforms needed to ensure that managing impacts became a core activity for investors, the minister stressed the importance of reporting and disclosures. These include the TCFD -aligned disclosures currently being implemented across the UK economy, with a particular emphasis on harmonising reporting both domestically and globally during the lead up to COP27. He explained that disclosures include explanations of why investors chose particular stocks or shares, whether they had a net-zero pathway, and how they would actively monitor ongoing progress and change. Returning to the key question of whether investors are able to achieve attractive returns through active management, while undertaking high quality stewardship and considering climate change, Minister Opperman concluded that they absolutely are, and that many pension fund trustees are doing this successfully within the current framework.
Brunel’s Ward told the audience about the deep-rooted need for investors to feel confident when pursuing impact goals and feel assured that such ambitions are not only permitted under UK law, but in some cases, required. She made a powerful case for A Legal Framework for Impact as an important resource to raise investor awareness and provide much needed clarity. The discussion then flowed to the role of stewardship for asset managers that seek to act more robustly on sustainability issues, and the example of engagement as an avenue to manage the interests of different cohorts of beneficiaries.
The need to accelerate progress toward the Paris Agreement goals and the SDGs is more urgent than ever, and investors understand ever more clearly both the opportunities to be found in a successful transition and the risks of failure. These facts drive home the importance of policy reforms that empower investors to use their investment decisions and engagement activities to create positive impact.
The findings of A Legal Framework for Impact and the policy reforms it identifies provide a solid foundation for investors and policy makers to make IFSI a core part of mainstream investment activity. The PRI will shortly be publishing a UK briefing that will build on A Legal Framework for Impact and provide policy recommendations designed to fit the UK landscape.
The PRI policy team would like to extend sincere thanks to our speakers, Guy Opperman MP, David Rouch, and Faith Ward for a timely, lively, and progressive discussion on investing for sustainability impacts in the UK.
You can watch the webinar recording here.
The PRI welcome any thoughts, questions, or feedback on the session. Please get in touch at [email protected]