A team of more than 25 lawyers from around the world has concluded that
the prevailing belief among mainstream investors that it is unlawful to
take environmental and social issues into account when investing assets
is ‘mistaken’ – and that, on the contrary, failure to do so ‘will often
be a breach of legal duties’.
The conclusion comes in a 150-page report from the world’s
third-largest law firm, Freshfields Bruckhaus Deringer, that looks at
the legal responsibilities of institutional investors in nine capital
markets – Australia, Canada, France, Germany, Italy, Japan, Spain, the
UK and the US.
The team found that laws in Australia, France, Germany, and the UK
required ‘investment decision-makers’ for private and public pension
funds, insurance company reserves, and mutual funds to disclose the
extent to which they take environmental, social and governance
considerations into account, and such legislation was pending in Italy.
In the other countries there was no impediment to investors doing so.
Paul Watchman, a Freshfields partner and one of the five lead authors,
said the findings showed that the legal basis of objections to
investors considering SRI issues was ‘illusory’. In all the territories
examined by the firm ‘the law clearly permits and, in certain
circumstances, requires that this be done’. Watchman added that this
has ‘far reaching implications for the institutional investment
community worldwide’ as it demolishes the argument that investors
cannot take SRI issues into account.
The United Nations Environment Programme’s Finance Initiative, which
commissioned the study, believes this legal opinion will add weight to
its forthcoming ‘Principles for Responsible Investment’ which are being
devised with 20 investment institutions, among them BNP Paribas
(France), Citigroup (US), Morley (UK) and Nikko (Japan). They had hoped
to agree the principles by autumn 2005, but are now expected to do so
in March or April this year. The voluntary principles, the draft of
which has not been made public, will suggest how institutional
investors might best incorporate environmental and social matters into
investment decision-making.
