Linking ESG to Fiduciary Duty is Short-Sighted | Armin J. Kammel

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INTERVIEW with Armin J. Kammel. For further expert opinions please use the question-level hyperlink.

The EU and UK, as well as many others, work on ESG-related standards aiming at leadership in the field. Meanwhile, entities like the SEC Investor Advisory Committee urge developing jurisdiction-level standards to avoid other countries imposing their ESG-related requirements on US issuers. What impact do you expect from the competing standards, and what will it mean for asset owners in terms of ESG investing efficiency?

We do expect competing standards in the years to come as the holistic approach to introduce a European standard will not fly. Hence those countries with an already high standard (including Austria) will further enhance their domestic standards whereas those countries that have not yet been this active will be confronted with much more pressure to do more ESG standard-setting. In any case, it is obvious that the next decade will, aside from other macro topics, be dominated by ESG.

 

| Whilst EU is focused on fostering green and sustainable recovery from the COVID-19 crisis, do you expect the pandemic to have a tailwind or rather a headwind effect on ESG investing in the US? 

This is difficult to assess because given the CoVID-19-centric environment, some ESG-related dossiers will not be able to meet the expected timeframe of implementation. However, it is clear so far that the EU-CoVID19 response is much more ESG-related than the current U.S. one.

 

| Despite differing political views in the US, there is a high ESG relevance consciousness among many asset owners in several states. What is the driving power moving the ESG investing in the US forward? 

It is the general understanding that we only have one planet and that we are all affected by climate change. It is also an exceptional opportunity for innovation, investment and disruption – all of them very “American” approaches.

 

| Against the backdrop of standard setter warnings like ‘Investors that fail to incorporate ESG issues are failing their fiduciary duties and are increasingly likely to be subject to legal challenge’*, how do you see the future of fiduciary duty in the US in regard to ESG? 

There has been an ongoing discussion about the nexus between ESG and the respective fiduciary duty which is somewhat unfortunate as the concept of a fiduciary duty is a key pillar in most legal systems and hence a legal concept. Simply linking ESG to the fiduciary duty is short-sighted as not all legal consequences are properly reflected. Thus, it may make more sense to tailor ESG in a manner that it can be strengthened by the general fiduciary duty of an asset manager when investing a third party’s money instead of linking two non-compatible dogmatic concepts.

There are certain legal nuances in the understanding of the concept of a fiduciary duty in common law and in civil law. Currently there seems to be much more of a debate on the issue in the EU. However, given the supremacy of the law concept in common law, it would not be surprising to see numerous legal debates and decisions on the fiduciary duty in relation to ESG a few years down the road.

PRI, Fiduciary Duty in 21st Century, Final Report 2019

 

| short bio

Prof. (FH) Dr. Armin J. Kammel, LL.M. (London), MBA (CLU) is an interdisciplinary lawyer, scholar and experienced executive specialized in banking law, securities regulation, business law and financial markets. He holds degrees in both law and business administration from prestigious universities in his native Austria and abroad. Prof. (FH) Dr. Kammel has more than fifteen years of experience as executive in the financial services industry working as Head of Legal & International Affairs with the Austrian Association of Investment Fund Management Companies (VÖIG) and serving on the Board of Directors of both the International Investment Funds Association (IIFA) and the European Fund and Asset Management Association (EFAMA). Moreover, Dr. Kammel has been sworn in as court-certified expert (Allgemein beeideter und gerichtlich zertifizierter Sachverständiger) in the areas of credit, banks and exchanges in November 2019 and also serves in the Consultative Working Group for ESMA’s Investor Protection and Intermediaries Standing Committee (IPISC). Dr. Kammel is Professor (FH) of Banking Law and Securities Regulation at Lauder Business School (LBS), Vienna, Austria and has been Ehrenprofessor (Honorary Professor) and Faculty Member as well as Program Coordinator (LL.M./MLS in International Banking Law and Capital Markets) at Danube University Krems (DUK), Austria. Moreover, Prof. (FH) Dr. Kammel also holds an Adjunct Professorship at California Lutheran University (CLU) in the U.S. In addition to this, Dr. Kammel has been a visiting professor / lecturer with numerous prestigious institutions in the U.S., the UK, Austria, Israel, Switzerland, Ukraine or Thailand. Prof. (FH) Dr. Kammel is Co-Editor-in-Chief of the interdisciplinary Research Perspectives series on “International Banking and Securities Law” with BRILL Publishing, Co-Editor of the traditional commentary on “BWG und CRR” (Austrian Banking Act and CRR) with Manz Publishing as well as Co-Editor of innovative book series on “Vertragsrecht and Vertragsgestaltung” (contract law and contract design) in Austria. Dr. Kammel is a well-published international author of more than 100 publications. Prof. (FH) Dr. Kammel’s primary research interests are in the areas of banking law, securities regulation, financial law, business law and financial markets. Moreover, the economic analysis of the law and economics are also included in his research activities.