Investment consultants advise on the investment practices of trillions of dollars worldwide.
However, many are failing to consider environmental, social and governance (ESG) issues in investment practice – despite a growing evidence base that demonstrates the financial materiality of ESG issues to portfolio value—concludes a new report from the PRI, Working towards a sustainable financial system: investment consultant services review.
The report is based on interviews with 22 investment consulting firms and industry experts (primarily in the UK, the US and Australia), data from the PRI’s Reporting and Assessment framework, data on investment consultants, their clients, philosophies and staff provided by IC Research, and a review of the academic and practitioner literature on investment consultants and their clients. Interviews included both ESG-specialist consultants and field consultants. The research also draws on the PRI and UNEP FI’s fiduciary duty programme, which has covered 14 markets.
“It is time to reconsider what investment advice should look like as a part of a sustainable financial system that serves beneficiaries and individual investors,” said PRI Director of Policy & Research Nathan Fabian.
“ESG must be a core part of investment advice, because ESG is a core part of investors’ fiduciary duties. We see market structure, market practice and regulatory reasons why ESG is not currently a core part of investment advice. Addressing these reasons is a necessary step for a more sustainable financial system.”
ESG must be a core part of investment advice, because ESG is a core part of investors’ fiduciary duties
Nathan Fabian, PRI Director of Policy & Research
The report identifies barriers relating to market structure, industry practice and policy and regulation in the consulting market. This includes barriers on the demand (i.e. asset owner) side, on the supply (i.e. investment consultant) side and within the wider regulatory and policy framework that asset owners and investment consultants operate. The report suggests actions that could be taken to overcome these barriers.
The PRI is currently undertaking a consultation of asset owners and investment consultants to develop and extend the solution set and welcomes feedback, which can be sent to firstname.lastname@example.org.
The PRI believes the full suite of investment consultants’ service delivery should be reviewed from an ESG perspective and that there needs to be a deeper discussion in the industry about the inclusion of ESG issues as a standard part of consulting advice.