Forewords

The forewords highlight that while ESG integration has become common practice, many investors still do not systematically assess how their portfolios affect real-world sustainability outcomes. The report, commissioned by PRI, UNEP FI and the Generation Foundation, aims to clarify the legal frameworks governing investing for sustainability impact (IFSI). It stresses that sustainability challenges present systemic financial risks and that clearer legal guidance would support more effective investor action.

Introduction

The report analyses how legal regimes across 11 jurisdictions shape investors’ ability to pursue sustainability impact. It explains that investors must prioritise financial returns, yet sustainability factors increasingly influence long-term performance, risks and beneficiary expectations. It introduces IFSI as an approach that intentionally seeks to influence enterprises or systems to address sustainability challenges.

A. Investing for sustainability impact

1. What is investing for sustainability impact?

IFSI refers to intentional investor actions aimed at influencing enterprise behaviour or broader systems to achieve sustainability outcomes. It differs from ESG integration, which focuses solely on financial risk and return. The report differentiates between instrumental IFSI (undertaken to support financial objectives) and ultimate-ends IFSI (pursued alongside financial objectives). Evidence indicates strong beneficiary interest in investments that contribute to climate, environmental and social improvements.

2. Ifsi: Goal certainty, assessment of impact and understanding an investor’s contribution

IFSI requires three elements:
Goal certainty: Clear sustainability impact goals supported by frameworks such as the PRI Impact Investing Market Map and the Impact Management Project’s five dimensions of impact.
Assessment: Reliable sustainability data are needed, though current disclosure and reporting frameworks are inconsistent.
Contribution: Investors must understand whether their actions can influence outcomes. Individual leverage in public markets is limited, making collective action, stewardship and engagement more effective tools.

3. What portion of global assets under management is currently subject to investment approaches involving Ifsi?

While many assets integrate ESG information, only a smaller share is managed with intentional impact goals. Ultimate-ends IFSI remains confined to specific product structures or mandates.

4. In what ways do people want their assets invested to bring about sustainability impacts?

Surveys show beneficiaries increasingly want investments to contribute to decarbonisation, social wellbeing and environmental protection, provided that financial return goals remain prioritised.

B. The extent to which the law requires or permits Ifsi

1. Methodology

The analysis is based on detailed legal reviews conducted by specialist law firms across 11 jurisdictions: Australia, Brazil, Canada, China, the EU, France, Japan, the Netherlands, South Africa, the UK and the US.

2. Investing for sustainability impact: different legal regimes but common themes

Most jurisdictions permit IFSI, and many provide scope—explicit or implicit—for investors to consider sustainability factors where financially relevant. Legal duties regarding care, skill and prudence increasingly imply that sustainability impacts must be assessed when they pose material risks.

3. Investing for sustainability impact in eleven jurisdictions – summary of findings

The report finds broad legal support for instrumental IFSI. Ultimate-ends IFSI is also permitted in several jurisdictions, especially where product mandates or beneficiary preferences incorporate sustainability goals. However, inconsistent regulatory guidance and varying interpretations of fiduciary duties create uncertainty.

4. Do existing market features create a risk that sustainability factors are given insufficient weight by investors in complying with legal duties?

Yes. Market conventions—such as benchmark-driven performance assessment, short-term orientation, stock-lending practices and consultancy models—may unintentionally reduce attention to sustainability factors, despite legal scope for IFSI.

C. Areas for legal reform

1. Potential impediments to investing for sustainability impact investment approaches

Key impediments include unclear legal duties, limited investor confidence in their influence, inconsistent sustainability data, and market structures that disincentivise long-term sustainability considerations.

2. Reform options

The report presents policy options, including clarifying fiduciary expectations, enabling mandates to reflect beneficiary sustainability preferences, strengthening corporate sustainability disclosure, improving labelling and governance of sustainability-branded products, and supporting collective investor action. Research into market features that underweight sustainability factors is also suggested.