The existing definition of investors’ “best interest” is about maximising financial returns while adjusting risk to the profile of the client. It says nothing about the impact the investments have on the future of the investor or his/her children.
When a professional of finance advises an investor, he is legally bound to stick to his client’s “best interests”. This definition doesn’t include Environmental, Social and Governance Criteria (ESGs) yet. It only means “balancing financial risk and profit maximisation” according to the investor’s objectives.
But as evidence piles up, non-financial considerations such as climate risk (see for example the disinvestment movement), poor governance practices (see for example the case of Crédit Suisse in Mozambique) or bad buzz related to human rights can significantly impact financial return. In other words, even from an investor’s traditional “best interest” definition perspective, a consistent approach of profit maximisation should include sustainability reporting on ESG criteria: the two notions aren’t conflicting but working together.
To put it visually, our cartoon below addresses this definition problem: What is investor’s “best interest”?
- Our response to the European Commission consultation on the legal duties of institutional investors and asset managers
- Our Blueprint on Sustainable Finance: Building a financial system for a sustainable future