What is “fiduciary duty”? That’s probably one of the biggest questions, if not the biggest at all, when it comes to the way institutional investors approach Sri and specifically the integration of Esg criteria in their investment process. Although it would be more correct to talk about asset owners, rather than investors, since at the end of the day it’s up to asset owners the right and duty to take the first step in this respect.
Usually, when big investors like pension funds don’t want to consider Esg factors, they go back to the fiduciary duty and the “best interest” of their beneficiaries to justify – it seems a sort of mantra. But what they have in mind, or pretend to, is a traditional, old-style, not up-to-date (out of reality?) idea of fiduciary duty. I mean: how many of you can actually think that in 2015 fiduciary duty is only about the financial returns you’re supposed to guarantee for example in 10, 20, 30 years’ time? Not me. And I’m sure I’m not alone, we’re many (don’t know if we’re the 99%, it might be…).
To be even clearer: look into your sons’ or grandsons’ eyes just for a while. You really, really think their best interest is having more money to spend, rather than a better, healthier, safer, in a word more sustainable world, to live in when they grow up? Then again: when you retire, you really, really think your best interest is having more money, how to say being richer, rather than living in a better world for the rest of your life? You think more money alone will prevent your life from being turned upside-down because of a climate-crazy and natural resources-poor world?
You may doubt, of course. But you may not, when you think that probably – and with growing evidence coming from a number of studies published mostly in the last two decades – the two things go hand in hand: the integration of Esg factors in the investment process, in fact, usually drives to better returns especially in the medium and long-term. The former vice president of the United States, Al Gore, days ago spent some relevant words on the topic.
I’m not skilled to debate fiduciary duty from a legal point of view. My perspective is an Sri and Esg one. But, I’d say, it’s first of all a common sense perspective. By the way, if it’s the legal perspective which you’re mostly interested in, some years ago the UnepFi published a remarkable study which argued that if you don’t pay serious attention to the integration of Esg factors in your investment process, you may breach the fiduciary duty and consequently there’s a real risk you may be sued. It was 2009. Now we’re in late 2015. And we’re still debating fiduciary duty. Even though in the last 7-8 years we have all experienced a world severely and increasingly affected by financial, economic, environmental, climate, energy, humanitarian crisis.
I think, and hope, this new study will finally make theory and practice regarding fiduciary duty enter the third millennium.