Though there are variations between countries – reflecting national priorities, the current development of responsible investment in the country in question and prevailing legal requirements – our research suggests areas in which progress is needed globally.

Institutional investors

  • Publish commitments to ESG integration and responsible investment, including explanations of how these commitments align with fiduciary duties.
  • Implement these commitments effectively in investment processes.
  • Monitor how investment managers (internal and external) are implementing these commitments.
  • Report to beneficiaries on how these commitments have been implemented and the outcomes that have resulted.
  • Ensure that trustees, boards and executives have the resources and knowledge to hold investment managers and advisers to account on ESG integration.
  • Require companies to provide robust, credible and detailed accounts of their management of ESG issues, and of the financial significance of these issues.
  • Engage policymakers on issues relevant to long-term performance, including strengthened corporate reporting.

Intermediaries

Legal advisers, investment consultants, stock exchanges, brokers and data providers

  • Publish commitments to ESG integration and responsible investment, including explanations of how these commitments align with fiduciary duties.
  • Implement these commitments effectively in research and advice provided to fiduciary clients.
  • Report to fiduciary clients on how these commitments have been implemented and the implications for the research and advice provided.
  • Advise fiduciaries that, as an integral part of fiduciary duties, they need to analyse and account for long-term value drivers, including ESG issues, in their investment practices and processes.
  • Support research on the relationship between ESG issues and investment performance, and on the relationship between engagement and corporate performance.
  • Support efforts to change market views on ESG issues by making these issues an integral part of professional training, through ensuring that ESG issues are an integral part of codes of professional ethics such as the CFA, and by raising market awareness of the investment case for ESG integration.

Policymakers and regulators

  • Clarify that fiduciaries must analyse and take account of ESG issues in their investment processes, in their active ownership activities, and in their public policy engagement.
  • Clarify that fiduciary duty requires that investors pay attention to long-term investment value drivers, including ESG issues.
  • Encourage or require institutional investors to support public policy efforts promoting responsible investment.
  • Require investor transparency on all aspects of ESG integration and investment practice.
  • Require better corporate reporting on ESG issues and on how these affect business performance over the short and long term.
  • Heighten expectations of trustee competence and skill.
  • Better implement existing responsible investment legislation and policy instruments (e.g. stewardship codes and asset owner disclosure requirements) and clarify that these refer to environmental, social and governance issues, and analyse and report on how these affect investor and company performance.
  • Support efforts to harmonise national and regional responsible investment legislation and policy instruments (e.g. stewardship codes and disclosure requirements).
  • Develop an international statement or agreement on the duties that fiduciaries have to their beneficiaries, reinforcing the core duties of loyalty, prudence and competence and stressing that investors must pay attention to long-term investment value drivers (including ESG issues) in their investment processes, in their active ownership activities and in their public policy engagement.
  • Support the development of guidance on implementation processes: investment beliefs, long-term mandates, integrated reporting and performance.

Integrating ESG issues in compliance with fiduciary duty

Asset owners generally have significant freedom to decide how they wish to take account of ESG issues in their investment practices and processes. However, they should:

  • Pay close attention to decisions that lead to skews in portfolios and explicitly assess the implications of these skews for the overall risk profile of the fund.
  • Base investment decisions on credible assumptions (e.g. about future regulation) and a robust decision-making process.
  • Be prepared to review the investment outcomes achieved.
  • Be willing to change if the data changes or if it is clear that the decision is causing significant damage to the beneficiaries’ interests.