Fiduciary Duty
Definition
Fiduciary duty is the legal obligation of one party to act in the best interest of another, particularly in financial and investment contexts. For corporate directors and investment managers, this includes the duty of care, loyalty, and prudence. The modern interpretation of fiduciary duty increasingly incorporates consideration of ESG factors as material to long-term value.
Why It Matters
The evolving understanding of fiduciary duty has been a catalyst for ESG integration in investment management. Regulatory guidance in multiple jurisdictions now confirms that considering ESG risks is consistent with, and may be required by, fiduciary duty.
Related Terms
ESG Integration
ESG integration is the systematic inclusion of environmental, social, and governance factors into investment analysis and decision-making processes. Unlike negative screening or exclusion, ESG integration uses ESG data alongside traditional financial analysis to build a more complete picture of risk and opportunity. It is the most widely practised responsible investment approach globally.
Corporate Governance
Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. It defines the distribution of rights and responsibilities among the board of directors, management, shareholders, and other stakeholders. Good governance ensures accountability, fairness, transparency, and responsible decision-making.
Impact Investing
Impact investing refers to investments made with the intention of generating positive, measurable social or environmental impact alongside a financial return. It spans asset classes including private equity, debt, and public equities, targeting outcomes aligned with the SDGs. Impact investments are distinguished from ESG integration by their explicit intentionality and impact measurement requirements.