Executive summary

Investment consultants advise on the investment practices of trillions of dollars worldwide. They are a recognised source of authority and knowledge. However, most consultants and their asset owner clients are failing to consider ESG issues in investment practice – despite a growing evidence base that demonstrates the financial materiality of ESG issues to portfolio value.

Neglecting ESG issues can lead to asset owners mispricing risk and making poor investment decisions. This is why effectively managing ESG issues is a core part of the fiduciary duties owed by asset owners to their beneficiaries. Investment consultants need to ensure that their asset owner clients navigate these challenges effectively if they are to retain their position as trusted advisers and if they are to grow and develop their future businesses, for example, in fiduciary management.

The PRI believes the full suite of investment consultants’ service delivery should be reviewed from an ESG perspective. See our report below.

Our aim is to a deeper discussion in the industry about the inclusion of ESG issues as a standard part of consulting advice, and which new or additional ESG integrated investment services are needed. The Investment Consultant Services Review sets out barriers in market structure, industry practice, and policy and regulation that need to be overcome and preliminary interventions that the PRI will develop over the coming months. These are to:

• Enable small to medium and resource constrained asset owners to pool and clearly express their ESG service demands, develop quality standards and provide guidance on fiduciary management;
• Develop investment practices: including ESG investment beliefs, assisting investment consultants to develop more advanced ESG integrated services, and more guidance for asset owners on how to identify, select, appoint and monitor investment consultants and enable industry-wide expertise on ESG issues;
• Extend the PRI’s and UNEP FI’s fiduciary duty programme to investment consultants, work with professional bodies to incorporate ESG issues within regulation, support policy interventions to increase pension scheme pooling and put sustainability at the core of financial regulation.