Brussels-based think tank Bruegel has suggested the European Commission should seek an EU-wide definition of “fiduciary duty”, echoing a call made by Aviva Investors in its response to a consultation the asset manager said could be “a game changer”.

In a paper prepared for an informal meeting of EU member state economic and finance ministers (ECOFIN), the think tank warned that the “unsustainable” use of the environment represented an economic imbalance that could lead to financial crisis.

ECOFIN ministers met over two days, with “sustainable finance” being the topic of a session chaired by Klaas Knot of the Dutch financial regulator, De Nederlandsche Bank (DNB).

A Commission briefing note for the meeting discussed the financial-stability risks linked to the ongoing efforts to limit global warming and how the financial policy framework could contribute to an orderly transition.

DNB recently warned of the risks to local pension funds if the Netherlands were to shift too quickly to a carbon-neutral economy.  

Bruegel, for its part, identified various policy solutions to the financial risks posed by climate change, including that the European Commission “could provide greater stability through an EU-wide definition of fiduciary duty” and “join investors in their call for the Organisation for Economic Cooperation and Development (OECD) to consider a convention on fiduciary duty and long-term investing”.

As acknowledged by the think tank, these positions are shared by others, with Aviva cited as an example.

Indeed, the call for an EU-wide definition of fiduciary duty and the involvement of the OECD is one of five key recommendations Aviva Investors set out in its response to a European Commission consultation on sustainable and long-term investments.

The consultation “could be a game changer”, said Steve Waygood, chief responsible investment officer at the asset manager.

“The EU now has a window of opportunity to turn sustainability rhetoric into reality by shifting how the markets deliver sustainable growth,” he said.

Aviva Investors, in addition to calling for action on fiduciary duty, which it said could often be misinterpreted, said the EU should:

  • adopt a more coordinated and centralised strategy on sustainable capital markets for Europe in partnership with industry and the wider financial community;
  • create comparative public benchmarks of corporate environmental, social and governance (ESG) performance;
  • develop greater standardisation across stock exchanges for corporate disclosure of sustainability performance, which could be led by the International Organisation of Securities Commissions (IOSCO); and
  • require credit ratings agencies to consider long-term ESG ratings in their bond ratings, on a comply-or-explain basis

Several of the recommendations were backed by Bruegel in its paper and are shared by others in the institutional investment community.

The UN-backed Principles for Responsible Investment, for example, is drumming up support for an initiative on credit ratings before it launches a statement on ESG in credit ratings in May.  

As at 15 April, 14 investors had signed, mostly asset managers but also France’s €36.3bn national pension reserve fund, Fonds de Réserve pour les Retraites (FRR), and MN, the €114bn asset manager and pensions provider for the Dutch metal schemes PMT and PME.