The purpose of this report is to end the debate about whether fiduciary duty is a legitimate barrier to investors integrating environmental, social and governance (ESG) issues into their investment processes. Its precursor, a 2005 report commissioned by UNEP FI from law firm Freshfields Bruckhaus Deringer concluded that integrating ESG considerations into investment analysis is “clearly permissible and is arguably required.” In the decade that followed, many asset owners have made commitments to responsible investment. Many countries have introduced regulations and codes requiring institutional investors to take account of ESG issues in their investment decision-making. These changes – in investment practice and in public policy – demonstrate that, far from being a barrier, there are positive duties on investors to integrate ESG issues. Failing to consider long-term investment value drivers, which include environmental, social and governance issues, in investment practice is a failure of fiduciary duty. When evaluating whether or not an institutional investor has delivered on its fiduciary duties, both the outcomes achieved and the process followed are of critical importance. For example, a decision not to invest in a high-carbon asset because of financial concerns about stranded assets is likely to be seen as consistent with fiduciary duties, providing that the decision is based on credible assumptions and robust processes. Despite significant progress, many investors have yet to fully integrate environmental, social and governance issues into their investment decision-making processes. This report identifies a series of challenges: • Outdated perceptions about fiduciary duty and responsible investment. This is particularly the case in the United States where lawyers and consultants too often characterise ESG issues as non-financial factors. • A lack of clarity within prevailing definitions of fiduciary duty about what ESG integration means in practice and, in particular, whether active ownership and public policy engagement form part of investors’ fiduciary duties. • Limited knowledge of the evidence base for responsible investment, including the strength of the relationship between ESG issues and investment performance. • Lack of transparency on responsible investment practices, processes, performance and outcomes, limiting investors’ accountability to their beneficiaries, their clients and wider society. • Inconsistency in corporate reporting, including inadequate analysis of the financial materiality of ESG issues, making it hard to assess investment implications. • Weaknesses in the implementation, oversight and enforcement of legislation and industry codes on responsible investment. Our research finds that fiduciary duties have played, and continue to play, a critical role in ensuring that fiduciaries are loyal to their beneficiaries and carry out their duties in a prudent manner. However, we conclude that action is needed to modernise definitions and interpretations of fiduciary duty in a way that ensures these duties are relevant to 21st century investors.