A new report from the Rose Foundation for Communities & Environment titled "The Environmental Fiduciary: The Case for Incorporating Environmental Factors into Portfolio Management Practices" documents how environmental risk and liabilities can be a drag on shareholder value, while positive environmental management can lead to improved shareholder value. The Rose Foundation joined other institutional investors in petitioning the SEC to adopt better environmental disclosure guidelines.
In this report, we show that fiduciaries who manage funds for institutional investors such as pension funds, foundations, and charitable trusts should incorporate environmental factors into their portfolio management policies. We show how a corporations ability to profit from environmental innovations and prepare for future environmental risks and exposures can have a significant impact on corporate earnings potential, cash flow and growth opportunities. Consequently, we argue that
fiduciaries for institutional investors should institute financially sound policies to encourage strong corporate environmental performance in the corporations held in their portfolios. The report:
Reviews the significant body of evidence, both academic and anecdotal, which illustrates that strong environmental performance often has a positive influence on financial performance.
Explores the potentially significant risks of environmental mismanagement, as well as macro-economic environmental factorssuch as global climate changethat threaten portfolio value regardless of investment style or objective.
Illustrates how the law allows fiduciaries to consider environmental factors in portfolio management, and in some particular instances may actually require them to do so.
Argues that fiduciaries of pension funds, foundations, and charitable trusts should encourage good environmental performance in corporations owned in institutional portfolios through specific portfolio management policies.
Outlines a set of recommendations to help fiduciaries control their portfolios environmental risk and unlock hidden environmental value.