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What is driving responsible investment?

Fiduciary duty

At the heart of many discussions about responsible investment is the question of fiduciary duty. As the field of responsible investing has grown, and investors seek to better understand the impacts of ESG factors on their investments, a key question has arisen: is the incorporation of ESG criteria consistent with the fiduciary duty that asset managers have to their clients?

For respondents to RBC GAM’s surveys, there is little doubt: most cite fiduciary duty as the reason they integrate ESG criteria into their investment processes. In 2021, 57% of all investors identified fiduciary duty as a decision factor, and it has ranked in the top two factors since 2018.

The UN Principles for Responsible Investment (UN PRI) agrees. It defines fiduciary duty as the requirement to “incorporate all value drivers, including environmental, social, and governance factors, in investment decision making1."

However, many survey respondents have also cited fiduciary duty as the reason for not employing ESG strategies. The proportion of US respondents citing that employing ESG is inconsistent with fiduciary duty has been on the rise for the past few years, while in Europe it has dropped dramatically from 50% in 2019 to zero in 2021.

Role of fiduciary duty in ESG implementation


57% identified fiduciary duty as a reason for incorporating ESG. It has ranked among the top two factors since 2018

This is a direct reflection of regional political differences that have arisen in the last few years as well. The debates are still ongoing in the U.S., where certain states are undertaking actions to separate ESG factors from fiduciary duty. For example, in Florida, the State Board of Administration adopted a resolution prohibiting state fund managers from considering ESG factors in their portfolio strategies, updating their fiduciary duties to direct them only to consider financial factors.2

The European Union, on the other hand, has taken a far different approach. There, the debate centers more on how to implement sustainability and ESG considerations, not whether these considerations should exist in the first place. In 2022 alone, legislative initiatives have included increasing disclosure obligations for financial market participants and companies in the EU under the Sustainable Finance Disclosure Regulation, or SFDR (more on this topic), and regulations aimed at creating a Green Bond Standard within the EU.

These rulings have intensified public discourse about the impact of ESG factors on financial performance. Research continues in an attempt to understand the precise relationship between investment performance and various ESG strategies. Indeed, several studies have shown that, when properly applied, sustainability criteria can enhance investment returns of investment portfolios – which would indeed prove consistent with fiduciary duty.3,4 We will explore the performance relationship in greater detail here.

Climate change

Over the past five years, the increasing frequency and intensity of extreme weather events has demonstrated that climate change is having significant physical effects on the planet.

Devastating wildfires across western Canada, California and Australia, floods in Europe and Asia, and major storms and heatwaves have claimed many lives and caused much damage.

Rising average temperatures threaten to make significant areas of the planet uninhabitable. Research by the World Bank forecasts that more than 143 million people in Sub- Saharan Africa, South Asia, and Latin America could be displaced by climate change-related issues by 2050. 5

To address these risks, government and policy action on climate change has accelerated. In November 2021, the COP26 climate conference saw more than 190 countries meeting and signing a number of global agreements to further environmental and climate-related causes. Notably, the climate targets set at COP26 marked the first time that country commitments have the world on a temperature pathway aligned to below 2 degrees Celsius.6 Now, countries are working to translate these commitments into sector transition plans, government policies, and concrete actions - all of which can have material financial implications for investor portfolios. For more on this top ic, please see this insight from RBC GAM here.

Investors’ attitudes reflect an acknowledgment of this reality: Climate change has consistently ranked as a top concern for respondents to RBC GAM’s Responsible Investment Survey over the past three years.

Top ranked ESG concerns

 RBC GAM survey





Climate change







Climate change


Shareholder rights/voting







Climate change


The adoption of ESG investing varies according to geography and jurisdiction, and has been heavily influenced by politics and regulation.

Countries such as Sweden, Denmark and Norway have led the way on one side of the spectrum, aiming to align investments with sustainability and impact goals. Institutional investors there have allocated significant amounts of capital to companies involved in renewable energy, as well as aligning portfolios with international standards such as the UN’s Sustainable Development Goals (SDGs) (more on this topic).

In the US, ESG investing has been politicized, resulting in significant changes in policy in a relatively short space of time. Soon after his election in 2016, President Donald Trump withdrew the US from the Paris Agreement, and the debate on whether the legal definition of fiduciary duty includes ESG and/or sustainability considerations heightened.

While the US rejoined the Paris Agreement and several policies related to ESG began to be reversed with the change of administration in 2021, the country continues to be divided.

The EU and the SFDR

Regulatory change has had a significant effect on the behavior of investors. Almost half (45%) of European respondents to RBC GAM’s 2021 survey said government regulations were a top reason for integrating ESG criteria into their investment portfolios, and with increasing regulatory requirements for investors in Europe, this could increase in future surveys.

Respondents that chose ‘government regulations’ as a reason for incorporating ESG in investments

(Total 2021 responses)











Europe is widely seen as the first mover in the development and adoption of responsible investing. Based on the past five years of responses to our global survey, European investors have consistently ranked highest for their inclusion of ESG principles as part of their investment approach and decision making, averaging 89% versus 70% for total responses.

Much of this work has been influenced by the development of a number of regulations across Europe and the UK. For example, the Sustainable Finance Disclosure Regulation (SFDR), introduced in 2021, has put heightened onus on financial services and asset management. In the UK, the government has begun developing its own taxonomy with the same purpose, expected to start being implemented from early 2023, according to the country’s Green Taxonomy Advisory Group.7 One implication of this is that investment funds in covered jurisdictions are now required to meet stringent criteria before they can market themselves as ‘sustainable’ or ‘green’ products.

Similar work is being undertaken across the globe. For example, in the US, the Securities and Exchange Commission (SEC) published a proposal for its own rules in late May 2022 setting out requirements for funds labelling themselves as ‘green’, ‘sustainable’, or similar.8

In Canada, the Canadian Securities Administrators (CSA) introduced guidance in January 2022 regarding investment funds’ disclosure practices related to ESG considerations, particularly funds whose investment objectives reference ESG factors and other funds that use ESG strategies. The purpose of these disclosures across the globe is clear: to ensure transparency for investors and beneficiaries.9

Social factors

The winds of social change are blowing stronger. Over the past few years, pressure on institutions and governments has been growing to address inequalities and discriminatory practices against women, racial minorities, people with disabilities, and the LGBTQ+ community.

The pandemic served to highlight societal inequalities – and, in many cases, enforced remote working and partial economic shutdowns exacerbated these.10

The winds of social change are blowing stronger

Other events have pushed diversity and inclusion up the corporate, regulatory, and social agendas. Within the US, in 2020, mass protests against racial bias and inequalities revitalized the Black Lives Matter movement and highlighted the importance of diversity and equality on both Main Street and Wall Street.

In Canada, the Truth and Reconciliation Commission’s 2015 report included a call to action for Canadian businesses to engage actively with Indigenous communities. Since then, many companies have improved their approach to development, but there remains much still to be done, according to a 2021 report into the Canadian responsible investment sector’s role in the welfare of Indigenous people. The report’s authors urged “economic actors” to “address social inequalities and systemic racism to contribute to an inclusive growth that creates opportunities for all”.11

From an investment perspective, there is a growing body of evidence demonstrating that more diverse leadership groups result in improved outcomes for corporations and workforces. Research by McKinsey has shown that racial, ethnic and gender diversity metrics are correlated with financial returns, making diverse boards and management teams more likely to result in better financial performance.12,13 As a result, work to improve diversity on corporate boards is well underway. In 2020, 67% of diversity-related resolutions at US and Canadian AGMs received majority support, with an average of 59% of ‘for’ votes.14

Preferred approach to achieving more diversity on corporate boards

(Total 2021 responses)
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