Seeking Climate Justice in the Financial Sector: Interpreting the fiduciary duty of Estonian pension funds based on their contribution to reinforcing/tackling climate change
Abstract: Climate change – considered as the most acute risk to our planet – is mostly fuelled by the oper-ations of influential corporates who are financially supported by financial institutions, which have traditionally specialised on profit-maximisation and neglected climate risks in investment processes. However, considering economy’s increasing financialisation and the growing science behind the financial materiality of climate risks, disregarding these risks potentially harms in-vestment returns and the society more broadly. This suggests to financial institutions breaching fiduciary duty, their legal obligation to act in their clients’ interest with prudence and compe-tence. Therefore, investors globally are increasingly considering climate risks in investment pro-cesses, necessitating a more holistic fiduciary duty. In Estonia, however, the issue of invest-ments’ impacts on climate and vice versa has not been risen, implying uncertainty around which prudential standards are followed. This study analyses the fiduciary duty of Estonian pension funds, based on how they invest in companies exacerbating climate change and address climate risks in investment processes. The study finds differences depending on where funds are managed or headquartered but argues that they systematically reinforce climate change in their portfolios. Suggesting thus to tradition-al fiduciary duty, which is plausibly encouraged by different economic, contextual, legislative, behavioural and political reasons.
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