Jul 15 2009
A powerful group of asset managers, representing around USD 2 trillion in assets under management, are arguing that integrating environmental, social and governance (ESG) considerations into investment decisions is no longer just a luxury, but a legal responsibility.
The case, outlined in a new report with the United Nations Environment Programme (UNEP), underlines how the world's largest institutional investors -such as pension funds, insurance companies, sovereign wealth funds, mutual funds and foundations -have a central role in assisting the transition to a low carbon and resource efficient Green Economy.
Indeed, the report says that professional investment advisors and service providers -such as investment consultants and asset managers -to institutional investors may have a far greater legal obligation to incorporate ESG issues into their investment services or face "a very real risk that they will be sued for negligence" if they do not.
The 120-page report has been produced by the Asset Management Working Group of UNEP Finance Initiative (UNEP FI), a unique partnership between the UN's environmental arm and over 180 financial institutions worldwide.
The report also provides indicative legal language that can be used to embed ESG considerations in the investment management agreements and related legal contracts between institutional investors and their asset managers.
Achim Steiner, UN Under-Secretary-General and UNEP Executive Director, said: "The significant environmental investments underpinning the current multi-trillion dollar stimulus packages are signalling the determination of some governments to make a transition to a more sustainable, 21st century economy."
"As investors return to the markets, the question remains whether the funds will only go to the brown economy of yesterday -or to a new Green Economy. Market signals, creative market mechanisms and other signals and incentives can play a transformational role," he said.
"This report also makes a powerful legal case for leadership in this area, underscoring the considered opinion of an influential group of asset managers that ESG issues are not peripheral but should be part of mainstream investment decision-making processes across the industry," said Mr. Steiner.