One year on – United Nations Environment – Finance Initiative

August 29, 2022

July this year marked one year since the release of a groundbreaking legal analysis that helps investors advance their practice towards investing for lasting impact. A Legal Framework for Impact (LFI), a report written by Freshfields Bruckhaus Deringer and commissioned by the Principles for Responsible Investment (PRI), the Generation Foundation and the United Nations Environment Program Finance Initiative (UNEP FI) has paved the way for a work program that helps investors engage with policymakers to transform global financial systems.

What is a legal framework for impact? The report presents an in-depth legal analysis carried out by Freshfields to determine the extent to which traditional investors can pursue positive environmental or social impacts or avoid negative impacts. The authors call this investment approach “investing for lasting impact (IFSI)”. Freshfields reviewed international and national legislation, regulations, guidance and case law. The result is an in-depth study that sheds light on investors’ legal obligations and freedoms to invest for lasting impact in 11 major markets around the world. The report also details the legal position on investors’ use of investment powers, stewardship activities and engagement with policy makers to pursue sustainability goals.

Why is the report important? Currently, many investors only consider environmental and social issues when they are likely to affect the financial return of an investment. Ultimately, this mode of operation will not substantially contribute to achieving environmental and social goals, such as those of the Paris Agreement, and therefore risks undermining capital markets themselves, as well as as long-term financial returns to investors. Aligning Investor Behavior and Capital Markets with Global Sustainable Development Goals calls for a new investment model in which decisions are made based on three key considerations: sustainability impact, risk and return.

What does the report conclude? In all of the jurisdictions examined, the report’s authors found that investors can and often should do more:

  • In most cases, investors have a legal obligation to consider improving their impacts on sustainability outcomes when relevant (“instrumental”) to achieve financial performance objectives.
  • In some cases, investors are legally permitted to pursue sustainable development goals separate from financial return goals, subject to the investor’s personal circumstances. The report calls this “the ultimate IFSI ends”.

The report shows that, while investors generally have a duty to prioritize financial goals, that’s not the end of the story. Investors’ fiduciary duties allow – and in many cases – oblige them to manage their sustainability impacts. However, this is not always widely understood or practiced by the investment community. Inertia is a significant barrier to change.

And after? The LFI report presents recommendations for legal reforms that would enable the investment community to pursue sustainability goals. Project partners are now working in five jurisdictions to help investors meet their existing obligations and seize growing opportunities to improve their sustainability impacts. Project partners are also developing roadmaps for policy makers in these jurisdictions to facilitate move towards sustainable and responsible investment practices.

This update on the LFI project outlines key findings, relevant developments and next steps across the five jurisdictions – Australia, Canada, European Union, Japan and the United Kingdom.

Please contact us using the details below if you would like to find out more or discuss the project, legal findings and policy recommendations.


  • In August, Australia’s new climate change and energy minister declared “a new era of climate and energy certainty” when passing a landmark climate change bill in the House of Representatives. Going forward, this change could allow investors to deal with the impact of their activities on the climate.
  • Existing fiduciary obligations allow consideration of sustainability outcomes. However, except in certain circumstances (for example, where sustainability outcomes negatively affect investors’ ability to meet their legislated objectives), there is no obligation for investors to do so.
  • Australia’s current legal framework also limits investors’ ability to pursue desired sustainability outcomes as a separate objective (not linked to financial objectives).

And after? An upcoming Australia-focused LFI report will provide policy recommendations to help investors pursue positive sustainability outcomes and mitigate system-level sustainability risks. Recommendations will draw on the Australian Sustainable Finance Roadmap from the Australian Institute of Sustainable Finance.

Contact Mayleah House to learn more.


  • Canada’s legal framework allows, and in some circumstances likely requires, investors to invest for sustainability impact where it is financially beneficial.
  • Yet investors seeking to invest for sustainability impact are uncertain of their legal obligations and face barriers such as a lack of sustainability data useful for corporate decision-making. beneficiaries.
  • The formation of the Canadian Sustainability Standards Council, announced in June, is expected to accelerate progress towards sustainability disclosure by companies, investors and agencies providing environmental, social and governance (ESG) ratings.

And after? The upcoming LFI report on Canada will explore options for policy reform and provide recommendations on, among other things, necessary disclosure mechanisms and measures to remove legal barriers to IFSI. The report will also recommend clarifying existing obligations regarding the pursuit of sustainability impact goals.

Contact Kelly Krauter to learn more

European Union

  • EU policymakers have introduced a number of sustainable finance policies in recent years, showing a clear ambition to ensure investments in the bloc support their climate and other sustainability goals.
  • The Financial Services Sustainability Disclosure or SFDR Regulations 2019 require disclosure of measures taken or planned to avoid or reduce adverse sustainability impacts.
  • Many investors remain uncertain about how the IFSI fits into their legal obligations.
  • The EU LFI report published in April 2022 proposes reforms to investor duties, processes and disclosures to foster IFSI in the EU.

And after? The PRI is engaging with policy makers and investors on measures to clarify that the IFSI is consistent with the ‘prudent person’ principle and the concept of ‘best interests’ of the beneficiary for pension funds and insurers.

Contact Alina Neculae to learn more.


  • Existing investor obligations generally allow for the pursuit of desired sustainability impacts where this is essential to ensure better returns on investment. However, investors seeking such impacts still face practical hurdles and, in some cases, a lack of legal clarity and guidance.
  • In December 2020, the Financial Services Agency (FSA) established its Expert Group on Sustainable Finance and has since developed measures to improve corporate disclosure on sustainability issues, improve the underlying market infrastructure and clarify the role of financial institutions in managing material sustainability risks.
  • The FSA is considering revising Japan’s stewardship code and oversight guidelines for ESG funds. This could provide new opportunities to integrate consideration of sustainability impacts into Japan’s financial regulations.

And after? An upcoming LFI report on Japan will include recommendations for reforms to fiduciary duties, stewardship, corporate disclosures, market infrastructure, and investor disclosures and product labeling to to facilitate the IFSI.

Contact Kazuma Osaki to learn more.


  • The law is not explicit about the freedoms and obligations of UK investors to invest for lasting impact, and there is no clear guidance on when and how to engage in this practice.
  • Government actions, such as the launch of the Green Finance Strategy in 2019, among others, underscore the critical role that private investment can play in helping the country meet its climate commitments, as well as the need for investors to in the face of climate-related financial risks. .
  • To achieve both of these objectives, policy makers need to clarify why the IFSI is compatible with the fiduciary duties of UK investors and how investors can assess and address their sustainability impacts.

And after? A UK-focused LFI report (expected to be released in autumn 2022) will outline the policy reforms needed. It will also inform the PRI’s engagement with UK policy makers on sustainable finance measures such as the green finance strategy, sustainability disclosure requirements (including those aligned with the Financial Disclosures Task Force recommendations climate-related) and transition plans for listed financial institutions and companies.

Contact Eliette Riera to learn more.

To learn more about A Legal Framework for Impact, see the following resources:

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