The Principles for Responsible Investment (PRI) has recommended that the European Commission use its Capital Markets Union (CMU) project as an opportunity to clarify that fiduciary duty requires that asset owners pay attention to long-term factors, including ESG, in their decision-making.

The Commission should do this as part of providing guidance to EU member states on responsible investment in the context of the CMU initiative, according to the organisation.

Specifically, it said the Commission should incorporate in EU financial services legislation a definition of risk and transparency that integrates so-called ESG (environmental, social and governance) issues as part of investment practice.

The UN-supported organisation made its comments in a submission to the Commission’s call for evidence on the EU regulatory framework for financial services.

It welcomed a “sustainable” CMU, particularly proposals to increase opportunities for long-term investors in sustainable infrastructure.

It also highlighted as a positive the Commission’s link between investment, climate change and sustainable development in Europe.

“The PRI believes the CMU should explicitly incorporate ESG issues to form a key component of Europe’s plan to develop responsible financial markets,” it said.

It also recommended that the Commission reference the PRI responsible investment reporting framework, which would “strengthen and streamline” institutional investor reporting on responsible investment.

“In particular, the PRI reporting framework is relevant for pension fund risk-evaluation requirements in the IORP Directive and annual disclosure on equity investment strategy in the Shareholders Rights Directive,” it said.

ESG data, as part of companies’ reporting through the Non-Financial Reporting Directive, should be published alongside annual financial reporting, it added.

Another responsible investment organisation, however, argued for a different reporting framework to be the reference for the Commission.

Eumedion, the Dutch corporate governance and sustainability forum for institutional investors, called for the International Integrated Reporting Council (IIRC) reporting framework to be used.

“We would encourage the European Commission to consider requiring listed companies to draft its annual report in accordance with the IIRC reporting framework,” it said.

Like the PRI, Eumedion believes it is critical for investors to take non-financial information into account as part of their assessment of a company’s overall, long-term performance.

Such integrated reporting is also helpful for the “preparers” of such information, it said.

The IIRC framework, Eumedion added, “draws an accurate picture of what long-term investors need for their investment analysis and their engagement activities”.