The Role of Private Actors in the Governance of Responsible Investment

Anne Marie Bigum Holck

Student thesis: Master thesis

Abstract

This thesis concerns the interaction between public and private in addressing sustainability concerns. Within the field of sustainable finance, there has been little regulation by international organizations (IOs), which has resulted in governance gaps and a field without formalised terminology or standardised processes. In response to the gaps left by IOs, multi-stakeholder and other private initiatives for promoting responsible investment have emerged, a leading example is the UN Principles for Responsible Investment. 2019 saw a growing interest in responsible investment from both the private and public sector, the number of UN PRI signatories reached 2,500 while the EU Technical Expert Group on Sustainable Finance launched its first recommendations for an EU Taxonomy to help set a common framework for environmentally sustainable investments. Amongst others these indicate an increasing awareness and interest in regulating responsible investment to address sustainability concerns. The UN PRI is estimating global policy action in the coming years with the ‘Inevitable Policy Response’ by 2025. Exactly how states choose to enter the area is unknown, as are the consequences of states regulating an area with already established experts, best-practices, and traditions. And while organisations like the EU are hard at work, the United Kingdom is leaving the European Union and the United States is trying to implement policy that is against the spirit of responsible investment. The purpose of this thesis is to increase our understanding of how non-government actors can influence public global governance, and the implications of self-regulation on a global level. The thesis will focus on the private actors involved in global governance and adds to the increasing literature described the move from short-termism to purpose-driven finance. It establishes a theoretical framework based on the fiduciary duty, due diligence, corporate citizenship, and legitimacy that asserts the responsibility of institutional investors in ensuring that their assets or assets they manage do no harm and have no adverse human rights impacts. The analysis conduct content analysis of four expert interviews collected using purposive sampling. The thesis argues that private actors have been the primary administrator of citizens right through responsible investment due to a lack of public authority. Institutional investors have set up a system of different networks that all serves specific purposes in supporting private actors conducting and promoting responsible investment. The increasing presence of public authority in the global governance of responsible invest has created tensions as they are entering as newcomer, but with the inherent legitimacy and authority otherwise only given to ‘best in class’ approaches. The implications of private actors ignoring ESG definitions at set by public authority due to a loss of legitimacy is something that needs to be studied further. Furthermore, the traditional short-term economic thinking as well as the narrow approach to fiduciary duty, are both incapable of uphold the principle of ‘do no harm’. For policy makers, the recommendations of this thesis is to build a rapport and trust with the actors, whose position in the global governance have long since been established. On top of this, there must be a legal framework to emphasise the due diligence responsibilities of investors to ensure their assets do no harm.

EducationsMSc in International Business and Politics, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages64