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A breach of fiduciary duty?

Investor nonprofit Ceres calls on policymakers to protect the freedom to incorporate ESG concerns in decisions.

Cracks in a white facade

Image via Shutterstock/Fluke Samed

"We're not woke — we’re awake and we need to be awake to pay attention to our fiduciary duty," Anne Simpson, global head of sustainability for Franklin Templeton and former managing investment director for board governance and sustainability for CalPERS, last week told an audience of investment, corporate, government and nonprofit climate leaders at the Ceres Global conference in New York. 

During her remarks, Simpson broke down a few duties that make up fiduciary duty to highlight how anti-ESG legislation being put forward and enacted by Republicans actually require financial professionals to violate their duty as fiduciaries. She pointed to three in particular while making her case:

  • Duty of Prudence: You need to be awake and pay attention to everything happening. 
  • Duty of Loyalty: You have to tune out the noise from people to whom you have no fiduciary duty of loyalty. 
  • Duty of Care: You need to figure out what information is relevant to pricing risk and predicting returns. 

Simpson isn’t alone in thinking this. During the event, Ceres CEO Mindy Lubber announced that 270 investors have signed a statement calling on policymakers to protect the freedom to incorporate material environmental, social and governance data into the investment process as fiduciaries. 

Ceres, a Boston-based nonprofit that cultivates investor and corporate networks, was founded in 1989 in response to the Exxon Valdez oil spill, and works to integrate the principles of sustainability into capital markets. And it’s had great success. From launching what is now known as the Global Reporting Initiative in 1997 to being a founding partner of Climate Action 100+ in 2017, Ceres has not only been part of the sustainable business movement, it also has been leading it. 

The more than 220 members of the Ceres Investor Network, which work together to advance sustainable investment practices, engage corporations and advocate for policy solutions, oversee more than $60 trillion in assets —roughly twice as much as the total market cap of all of the companies in the S&P 500.

How has Ceres convinced the world’s investors to join them in driving the sustainability transformation of capital markets? 

The same way most projects get approved in the investment world: It made the business case for sustainability. 

Ceres, perhaps most known for its success in establishing "climate risk" as a mainstream investment concept, is doing the same for "water risk." 

Water week  

Indeed, the Ceres Global conference overlapped with events across New York related to the United Nations 2023 Water Conference — its first water conference in nearly half a century.

The need to address water — both shortages and deluges — with specific solutions is palpable. At a co-hosted session during one water event, dubbed "The Business Case for Better Water Management," Paul Reig, founder of water risk strategy firm Bluerisk, and Simpson shared their views on the need for businesses and investors to value water.  

Reig, who has advised over 40 of the world’s largest companies, said those that need to make a return on investment (ROI) case for water projects have started asking, "What’s the true value of water?" 

Simpson jokingly quoted Benjamin Franklin: "When the well’s dry, we know the worth of water." 

Reig recommended organizations perform scenario analysis of action and inaction on water security. Armed with the insights from these exercises, business leaders can conduct a cost-benefit analysis of various water strategies, he said. 

It is important to note that while a project may have a negative ROI when supported by just one company, it could have a positive ROI when undertaken by a coalition of companies that share the costs, according to Reig. 

I, and all of those at the various water-related events last week, certainly hope to integrate the worth of water into business decision-making well before the wells run dry.

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