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Resource Efficiency and Fiduciary Duties of Investors Final Report

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Resource Efficiency and Fiduciary Duties of Investors Final Report Resource Efficiency and Fiduciary Duties of Investors Final Report ENV.F.1/ETU/2014/0002 DG Environment mmmll Resource efficiency and fiduciary duties of investors Resource Efficiency and Fiduciary Duties of Investors Final Report European Commission, DG Environment This report has been produced by Ernst & Young Cleantech and Sustainability Services (France) on behalf of the European Commission. Contract details European Commission, DG Environment, ENV.F.1/ETU/2014/0002 Study on resource efficiency and fiduciary duties of investors Main authors: Contributing authors: . Eric Mugnier . Rita Schuster . Caroline Delerable . Marine Dehayes . Adrian Tan . Antoine Hélouin Disclaimer The information and views set out in this study are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. 2 Resource efficiency and fiduciary duties of investors Table of Contents Abstract ........................................................................................................... 5 Résumé ............................................................................................................ 6 Executive Summary ........................................................................................... 7 Synthèse .........................................................................................................12 1. Introduction ............................................................................................18 1.1. Context ........................................................................................................... 18 1.2. Objectives ....................................................................................................... 19 1.3. Definitions ....................................................................................................... 19 1.4. Scope ............................................................................................................. 20 1.5. Methodology .................................................................................................... 20 1.6. Organisation of the report ................................................................................. 21 2. Fiduciary duty and institutional investors ....................................................22 2.1. Definitions of fiduciary duties ............................................................................. 22 An ancient legal concept that has evolved over time .................................................... 22 The key elements of fiduciary duty ............................................................................. 22 Fiduciary duties and the investment value chain .......................................................... 23 What are the “best interests” of beneficiaries? ............................................................. 24 2.2. UNEP FI and the Freshfields report ..................................................................... 25 2.3. Review of legal frameworks: fiduciary duty and integrating ESG issues into institutional investments .............................................................................................. 26 Fiduciary duty in EU legislation .................................................................................. 27 Fiduciary duty in EU Member States ........................................................................... 29 State of play of the inclusion of environmental factors into fiduciary duty outside of the EU ............................................................................................................................. 31 2.4. Fiduciary duties in practice: facts & figures in the European asset management industry ..................................................................................................................... 32 Keys facts & figures ................................................................................................. 32 Major trends and their impacts on fiduciary duty ......................................................... 33 3. Fiduciary duties and the integration of environmental factors in the investment decisions .........................................................................................................36 3.1. Arguments for including environmental and resource efficiency factors as part of fiduciary duties ........................................................................................................... 36 3.2. State of play of the inclusion of environmental factors in the investment decisions of institutional investors .................................................................................................. 46 A quick outlook of responsible investments in the EU ................................................... 46 Focus on environmental and resource efficiency issues ................................................. 48 The inclusion of environmental factors in investment decisions in practice ...................... 49 3 Resource efficiency and fiduciary duties of investors 3.3. Environmental and resource efficiency related information and indicators used in investments ............................................................................................................... 51 ESG Indicators ........................................................................................................ 51 Types of ESG information ......................................................................................... 54 3.4. Summary ........................................................................................................ 56 4. Analysis of the opportunity and feasibility of including resource efficiency and sustainability more explicitly into fiduciary duties .................................................58 4.1. Legal requirements to integrate sustainability criteria in fiduciary duties ................. 58 4.2. Incorporation of environmental considerations in the statutory provisions of public funds 59 4.3. Policy briefs and guidance documents explaining fiduciary duty .............................. 60 4.4. Raising awareness to engage beneficiaries........................................................... 60 4.5. Incentives for responsible and long-term investments ........................................... 61 4.6. Ensuring that ESG issues are considered throughout the investment chain .............. 62 4.7. Ensuring better ESG information for investors ...................................................... 63 4.8. Providing institutional investors with the right skills and competences ..................... 63 4.9. Overview ......................................................................................................... 64 5. Policy recommendations ...........................................................................66 6. Conclusion ..............................................................................................68 Bibliography .....................................................................................................70 Annex 1 – List of interviews ...............................................................................74 Annex 2 – Country fiches ...................................................................................75 Denmark ........................................................................................................... 76 France ............................................................................................................... 84 Germany ........................................................................................................... 92 Italy .................................................................................................................. 99 The Netherlands ............................................................................................... 107 Latvia .............................................................................................................. 113 Poland ............................................................................................................. 115 Annex 3 – Stakeholder meeting ........................................................................ 118 4 Resource efficiency and fiduciary duties of investors Abstract The objective of this report is to provide clarification and policy advice on the integration of environmental and resource efficiency issues into the fiduciary duties of institutional investors (e.g. pension funds, insurance companies, asset managers, etc.) in the European Union. While the term fiduciary duty might not exist in all Member States, similar concepts regarding duty of loyalty and prudence exist in EU and national legislation. It is clear that the integration of environmental factors in the investment policies and decision- making process of institutional investors is compatible with the existing legal framework related to fiduciary duties in all jurisdictions across the EU – as long as it is relevant to financial returns and the management of risk. This is also evident in practice: most of the leading institutional investors in the EU have sustainable and responsible investment policies that take into consideration social and environmental issues.
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