PRI responds to growing corporate governance and ESG concerns in Brazil
LONDON, 22 February 2017
Recent environmental and corporate governance failures in Brazil and their economic impact have focused the attention of investors, regulators and policymakers more closely on corporate governance issues and the need for greater transparency in financial markets.
In response to these concerns, the Principles for Responsible Investment (PRI), UNEP FI and The Generation Foundation have launched a Brazil Roadmap, also available in Portuguese, following on from their flagship project, Fiduciary duty in the 21st century, which concluded that failing to consider long-term investment value drivers including environmental, social and governance (ESG) issues, in investment practice is a failure of fiduciary duty.
Produced through extensive consultation with Brazilian regulators and investors, including via a roundtable hosted by the Brazilian Central Bank and during the annual LatAm ESG conference held at BM&FBOVESPA in October 2016, the report's recommendations address five themes: regulatory action, investor education, corporate reporting, stewardship and engagement, and regulatory guidance. Action across all of these areas is critical to accelerate adoption of ESG integration.
Brazil has been actively engaged on ESG issues for over a decade. Its corporate law recognises duties to an array of stakeholders, rather than only shareholders Brazil has led many positive ESG initiatives over the last decade through Resolution 4.327 from the Central Bank and the ISE Sustainability index offered by BM&FBOVESPA, which has outperformed its benchmarks. Companies in Brazil recognise that looking at ESG factors represents a significant business opportunity for Brazilian companies and investors, particularly those seeking to attract international liquidity to the Brazilian capital market.
"An investment industry that aligns with the modern interpretation of fiduciary duty enables shared benefits for pension beneficiaries, the environment and societies, and ultimately, helps us in achieving the Sustainable Development Goals,” noted Eric Usher, head, UNEP Finance Initiative.
“The consideration of ESG issues has become one of the core characteristics of a prudent investment, and therefore a requirement of an investor’s fiduciary duty because of the recognition that ESG issues are in fact financially material to a portfolio," said Fiona Reynolds, managing director of the PRI.
The PRI, UNEP FI and Generation Foundation-sponsored discussions on fiduciary duties are valuable and timely. They focus directly on a hot topic on investor’s agenda, whose importance will only grow in years to come,” said Mauro Rodrigues da Cunha, President, AMEC.
"The fiduciary duty roadmap was a very valuable exercise for Brazilian market participants. It has helped us benchmark our country's regulations and market structure, as well as getting recommendations from independent experts on the way forward. It is now in the hands of our regulators, industry associations and leading players to start implementation," said Gustavo Pimentel, Managing Director, SITAWI
“The discussion on including ESG factors in fiduciary duty is critical to advancing the sustainability agenda in investor decision making. That is why the Brazil Roadmap gains strategic importance. Congratulations to the PRI, UNEP FI and Generation Foundation for the initiative,” said Sonia Favaretto, Press, Sustainability and Communication Managing Director at BM&FBOVESPA.
About the Principles for Responsible Investment (PRI)
The United Nations-supported Principles for Responsible Investment (PRI) Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision making and ownership practices. In implementing the Principles, signatories contribute to the development of a more sustainable global financial system.
About the UNEP FI
The United Nations Environment Programme Finance Initiative (UNEP FI) is a public-private partnership established between the United Nations Environment Program (UNEP) and the financial sector. It counts over 200 members among leading banks, investment funds, and insurance companies. The UNEP FI seeks to encourage the better implementation of sustainability principles at all levels of operations in financial institutions, namely through the incorporation of environmental, social and governance factors (or ESG) in risk analyses - a concept it pioneered in the 1990s.
About The Generation Foundation
The Generation Foundation ('The Foundation') is the advocacy initiative of Generation Investment Management ('Generation'), a boutique investment manager founded in 2004.
The Foundation was established alongside Generation in order to strengthen the case for Sustainable Capitalism. Its strategy in pursuit of this vision is to mobilise asset owners, asset managers, companies and other key participants in financial markets in support of the business case for Sustainable Capitalism, and to persuade them to allocate capital accordingly.