In the U.S., anti-ESG has repeatedly pushed the narrative that considering ESG factors in financial decisions violates fiduciary duty. However, practices are emerging in the EU and UK that directly contradict this notion. There, fiduciaries are increasingly recognizing that ESG issues impact financial performance and require consideration. A recent Debevoise & Plimpton memo discusses this trend in detail:
“Investors are increasingly aware of the environmental and social impacts of their investee companies’ activities, including in overseas supply chains, with more data available in many fields. In the United Kingdom and EU, it is largely uncontroversial that fiduciaries take into account ESG factors in their decision-making. Investment approaches which take into account ESG factors are consistent with the fiduciary duties of investors, to the extent that ESG factors relate to the long-term value of their investments, including by reducing risk, improving a company’s resilience and generating financial returns.”
The memo notes that statutory frameworks like the EU’s SFDR may compel financial institutions to disclose material ESG issues, raising their profile among investors. Additionally, the authors write that while fiduciaries may be obligated to take ESG issues into account, they typically do not base decision-making on moral or political considerations. Instead, ESG issues are weighed based on risk exposure, value creation, and resilience.
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