Fiduciary Duty & Accountability

On Tuesday October 13th, GreaterCapital attended the launch of the Fiduciary Duty in the 21st century report compiled by the UN Principles for Responsible Investment (PRI), UNEP Finance Initiative and Inquiry into the Design of a Sustainable Financial System, and the United Nations Global Compact.  The report aims primarily to end the debate on whether fiduciary duty is a barrier to integration of environmental, social and governance (ESG) criteria into investment decisions.

A series of recommendations to advance the practice of making good on ESG commitments were advanced by the report, and centered on improving transparency around how ESG is accounted for in investment decisions, as well as strengthening trustee skill in understanding how ESG interacts with their fiduciary duty.  According to the Financial Services Board (FSB), South African pension funds largely limit expression of their use of ESG to investment policy statements “which provide little, if any, information on specific policy decisions by the funds with which the regulator can enforce compliance”[1].  Therefore there is a need to make practical the commitments expressed by pension funds.

Discussions focused on strategies to improve the practical application of ESG criteria, and on the upskilling and professionalization of pension fund trustees.  As regulator of the financial markets, the FSB is responsible for holding pension funds accountable for integration of ESG criteria into decision-making.  While here was some debate on the FSB’s ability to do this, the regulator did insist that it is a role that it actively plays, and cited examples of where retirement funds have been held to account, in spite of the FSB’s limited human resource capacity.  The need for improved trustee understanding of their fiduciary duty, and the integration of ESG into decision-making, stems from the fact that the majority of trustees come from professional backgrounds other than financial services.  Panelists revealed that trustees have been found to benefit from technical support in making investment decisions that are in line with their responsibilities to pension fund holders.

The report findings also showed this to be the case in other countries, including the United States of America.  Members of the audience generally agreed with suggestions to professionalize the “cadre” of pension fund trustees, but highlighted that this upskilling would need to be carried out in a manner sensitive to South Africa’s history and perceptions of trustees from historically-disadvantaged groups.  The event concluded with a call to action to make ESG commitments a reality.

By Refilwe Mokoena

[1] Rosemary Hunter, Deputy Executive Officer: Retirement Funds; Financial Services Board, South Africa.

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