On April 27, the New York Stock Exchange witnessed an unusual ringing of its opening bell by Kofi Annan, the Secretary General of the United Nations, and Denise Nappier, the Treasurer of the State of Connecticut. They were there to announce the Principles for Responsible Investment. A year in the making, these groundbreaking Principles were developed by 20 major institutional investors from around the world in conjunction with the United Nations. They are composed of six overarching Principles, underpinned by 35 possible actions for investors who wish to practice responsible investing. The focus of the Principles is more on engaging companies and active proxy voting and less on screening or divestment. Initial signatories invited to support the Principles included large pension funds and investment managers.

Giving credence to the “if you build it they will come” theory, more than 50 institutional investors with an astounding $4 trillion in assets announced support for the Principles in the first week. While the Principles are voluntary and aspirational, we are very encouraged to see widespread support of the concept that environmental, social, and governance (ESG) factors can affect financial performance. The Principles underscore Walden’s belief that ESG analysis is a legitimate consideration in the investment process and a fiduciary responsibility that helps protect shareholder value. In fact, a strong legal foundation supporting the link between ESG evaluation and fiduciary responsibility was established previously in a 2005 legal brief prepared by the renowned international law firm Freshfields Bruckhaus Deringer. The signatories do not claim to be guided by a passion for environmental protection, social justice, or good governance, but by fiduciary responsibility. Nonetheless, their commitment to communicate with companies about the importance of ESG leadership sends a powerful message to management. While the motives of Walden and other social investors may be more expansive, our collective voices on issues like climate change, director accountability, workplace equality, and labor practices work in tandem. The result: Companies will hear more and more often that investors expect management to step up and step forward on these issues.

ISS, a leading corporate governance services firm, had this to say: “In effect, the Principles for Responsible Investment and this [Freshfields] legal brief are turning conventional thinking about fiduciary prudence on its head. Rather than making exceptions for analyzing the shareholder value impacts of environmental, social, and governance issues, they say, fund managers should make such analysis the rule.”

—T. Smith