The Principles for Responsible Investment (PRI) has launched a project to address “fundamental legal questions” surrounding the consideration of investing activity’s impact on sustainability.
The PRI is collaborating with the United Nations Environment Programme Finance Initiative (UNEP FI) and The Generation Foundation on the project, dubbed ‘A Legal Framework for Impact’.
The organisations said assessing and accounting for the sustainability impact of investment decisions needed to become a core part of investment activity within the next decade.
The project would involve preparing and publishing legal analysis as well as practical recommendations for investors seeking to make “sustainability impact” a core part of their activity.
According to the three organisations, a “third generation” of responsible investors was beginning to do so, with “pockets of excellence” emerging in technical understanding of integrating impact in investment decisions.
The PRI said investors were increasingly considering “impact duties” such as decarbonisation targets, gender equality, or the impact of their investments on wider society.
However, fundamental legal questions remained, including whether investors were legally required to integrate the sustainability impact of their investment activity in their decision-making processes, or whether there were any legal impediments to investors adopting “impact targets”.
Another question, according to the project organisers, was “on what positive legal grounds could or should investors integrate the realisation of the Sustainable Development Goals in their investment decision-making”.
PRI, UNEP FI and The Generation Foundation will appoint a law firm to carry out the legal analysis work, which is scheduled to go on until the second quarter of next year.
The organisations indicated the study would look at how investors should manage their multiple duties – a fiduciary duty to integrate all financially material factors, including environmental, social and corporate governance factors, and their “impact duties” – within existing legal frameworks.
“In some jurisdictions, the legal analysis may find that there are legal impediments to incorporating sustainability impact, in which case the project will recommend policy change,” they said.
According to the project timeline, a reference group of experts from investment firms was due to have been set up during the first quarter of this year, but this has not yet happened and the project organisers are currently looking for members.
The PRI said the group will help support the research by sharing policy developments, questions, concerns and information on the legal, regulatory and fiduciary implications of managing sustainability impact.
The new project comes as EU lawmakers are negotiating over the European Commission’s sustainable finance action plan, a major policy initiative that seeks to harness the power of investors to, in the first instance, rein in man-made climate change.
Last week the European Parliament and EU Council reached a political agreement on a regulation to create new categories of low-carbon benchmarks, one of three regulations put forward by the Commission last March.