About this report

This report summarises findings from a four-year project by the PRI and UNEP FI, supported by The Generation Foundation, to clarify investors’ fiduciary duties regarding environmental, social and governance (ESG) issues. It builds on the 2015 report which identified failure to consider ESG factors as a failure of fiduciary duty. The final report shows that ESG integration is now a regulatory and legal expectation for institutional investors globally, requiring attention to sustainability-related preferences and transparent reporting.

The origins of fiduciary duty

Fiduciary duties ensure those managing others’ assets act in beneficiaries’ best interests, guided by loyalty and prudence. These duties differ between common and civil law jurisdictions but share core obligations of acting diligently and in good faith. They evolve as markets and norms shift, with ESG factors now recognised as integral to responsible long-term investing.

The new policy context

Across the 50 largest economies, over 730 hard and soft law policy revisions require or encourage ESG consideration. Forty-eight have formal frameworks such as stewardship codes, pension fund regulations and corporate disclosures. The EU’s Sustainable Finance Disclosure Regulation, France’s Article 173 and the UK’s pension disclosure rules exemplify this trend. Integration between sustainability and finance policy, seen in China’s Green Finance Guidelines and the UK Green Finance Strategy, makes ESG duties explicit and enforceable.

The financial and investment relevance of ESG issues

Empirical research confirms that ESG factors affect risk and return. Studies such as Eccles et al. (2014) and Khan et al. (2016) show positive links between corporate sustainability and financial performance. Neglecting ESG can lead to significant losses, as seen with BP and Volkswagen. Between USD 5–7 trillion annually is needed to achieve the Sustainable Development Goals, indicating large investment opportunities. A meta-analysis of over 2,000 studies found around 90% show neutral or positive relationships between ESG and returns, validating ESG’s financial relevance.

The changing landscape of investment practice

By 2019, PRI’s 2,500 signatories managed USD 86 trillion in assets, embedding ESG across asset classes. ESG-linked ETFs grew from USD 1.7 billion to USD 20.2 billion between 2015 and 2019. Over 90% of investors view ESG as part of fiduciary duty. Collaborative initiatives such as Climate Action 100+ represent USD 34 trillion in assets engaging with high-emission companies, signalling that ESG integration is mainstream.

Modern fiduciary duty

Modern fiduciary duty requires integrating financially material ESG factors, understanding beneficiaries’ sustainability preferences, practising active ownership, supporting financial system resilience, and disclosing approaches. These align with the duties of prudence and loyalty, demanding foresight of systemic risks such as climate change and demographic trends.

Next steps

The report identifies four key priorities: closing policy gaps, ensuring effective implementation, engaging all actors in the investment system and aligning investment duties with sustainability outcomes. It urges regulators and investors to institutionalise ESG obligations and move beyond considering how ESG affects investment, to how investment affects ESG outcomes.

Country analysis

Country roadmaps for eleven markets (including Australia, Brazil, Canada, China, France, Germany, Japan, South Africa, the UK and US) show progress in embedding ESG into legal and policy frameworks. Each roadmap highlights national reforms—such as France’s disclosure laws and South Africa’s Regulation 28—that clarify ESG as part of fiduciary obligations.

Fiduciary duty in the 21st century programme

Launched in 2016, the programme engaged over 400 policymakers and investors, published eleven country roadmaps, and established the Global Statement on Investor Obligations and Duties, signed by 124 institutions across 22 countries. It significantly influenced EU sustainable finance policy and international guidance on ESG integration.

Evolution of fiduciary duty

Since the 2005 Freshfields Report, regulatory action has expanded rapidly. Major milestones include the 2015 UK Law Commission report, EU sustainable finance legislation, and global regulatory updates between 2016–2019. The report concludes that ESG integration is now a defining component of fiduciary responsibility worldwide.