25th Sep 2019 – Emily Woodland Co-Head of Sustainable InvestmentHong Kong, China

Milton Friedman and Adam Smith are lions of economic theory. Their influence on organisational responsibility to shareholders, the division of labour and the meaning of fiduciary duty is powerful – but is it out of date?

The financial sector has slowly begun to transform its understanding of fiduciary duty, especially since the Global Financial Crisis. While Friedman’s traditional investment lens perceives the sole purpose of a company to be maximising profits to shareholders, modern thought¹  says ignoring ESG principles may compromise future risk-adjusted returns and could fall short of our fiduciary duty.

Examples of this are clear when one looks: climate change means investment in old technology (where a new green economy is on the rise) results in poor long-term return prospects; companies that support modern slavery in their supply chains risk their social licence to operate.

The notion of embedding social and environmental good is no longer restricted to advocacy groups. The financial sector is beginning to understand that for a company to perform well over the long term, it must be sustainable.