Investors with US$1.9 Trillion Support ESG Risk Management Legislation for Global Financial Systems
European Union’s (EU) Regulation on Disclosures Relating to Sustainable Investments and Sustainability Risks highlighted as noteworthy model for creating accountability for investor impact on people and planet.
NEW YORK, NY, MONDAY, MARCH 25TH 2019 – In a statement sent to European Union (EU) policymakers, members of the United States Congress, UN agencies, and the Organization for Economic Co-operation and Development (OECD), a group of institutional investors representing $US 1.9 trillion in assets under management called for enhanced due diligence on behalf of global investors to address environmental, social and governance (ESG) risks, including human rights risks, throughout the investment lifecycle.
The statement, Making Finance Work for People and Planet, notes that the world is facing urgent environmental and social challenges including food and water shortages, and millions of refugees due to climate change, some 40 million people living in situations of modern slavery, and half the world without access to essential health care. Signatories to the statement argue that investors have the ability to help mitigate these challenges and achieve the vision laid out by the 2030 Agenda for Sustainable Development and the Paris Agreement by applying more robust ESG due diligence. When they do, investors say, they are not only making a positive contribution to global sustainable development, they help achieve higher risk-adjusted returns and increase the robustness of corporate risk management as well.
To this end, investors express support for the goals of the EU Action Plan on Financing Sustainable Growth, which calls for the mainstreaming of sustainability issues (also referred to as ESG issues) in investors’ risk management. They further note with enthusiasm recent developments indicating that the European Parliament and Council have reached a political agreement on a new set of rules known as the Disclosure of Sustainability Risks regulation, requiring European investors to carry out ESG due diligence and to disclose the steps they take to address the adverse social and environmental impacts of their investment decisions.
“Given today’s social and environmental challenges, integrating ESG factors, including risks to human rights, in portfolio management must be a priority for all investors on a global scale” said Sabrina Ritossa Fernandez of Sycomore Asset Management, one of the signatories to the statement.
Carola van Lamoen of Robeco said, “Institutional investors increasingly recognize that they have a vital role to play in ensuring that businesses are environmentally and socially sustainable. We welcome the European Union’s leadership in clearly communicating due diligence expectations of investors, helping to ensure finance works for people and planet.”
Investors point to a 2018 UN report which found that too many businesses and investors are ignoring their human rights responsibilities. To help address this, the UN calls on investors to implement human rights due diligence as part of their own responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs). Due diligence as outlined by the UNGPs has been integrated as a key feature of the OECD Guidelines on Multinational Enterprises and its guidance on institutional investors, and a growing number of countries, business associations, companies, and NGOs have incorporated this framework into legislation, policy commitments, and advocacy efforts.
“As fiduciaries, we recognize that conducting robust ESG due diligence is not just good for society, it can also be a valuable reporting and accountability tool that will help the financial community answer to increasing demand from clients and beneficiaries who want assurance that their money is being managed in line with their values” said Lauren Compere of Boston Common Asset Management.
Rachel Owens, Head of EU Advocacy at Global Witness, said, “This bold statement marks the start of a changing tide in investors taking responsibility for the impact of their financing on people and planet. Global Witness has been campaigning furiously over the last few years to ensure that investors in the EU don’t bankroll widespread environmental destruction and human rights abuses – and this statement, as well as a recent move from the EU agree on due diligence requirements for investors, demonstrates much needed global leadership by sending a strong message that business as usual is no longer acceptable. But too many in the financial sector still put profit above people and planet - others must take the example set by the Investor Alliance for Human Rights and follow suit.”