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Seeking Climate Justice in the Financial Sector: Interpreting the fiduciary duty of Estonian pension funds based on their contribution to reinforcing/tackling climate change

Lilleväli, Uku LU (2019) MIDM19 20191
LUMID International Master programme in applied International Development and Management
Department of Human Geography
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... (More)
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. (Less)
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author
Lilleväli, Uku LU
supervisor
organization
course
MIDM19 20191
year
type
H2 - Master's Degree (Two Years)
subject
keywords
ethical finance, responsible finance, ESG integration, fiduciary duty, climate change, climate lobbying, climate risks, pension funds, financial institutions, Estonia
language
English
id
8975944
date added to LUP
2019-10-17 13:53:48
date last changed
2019-10-17 13:53:48
@misc{8975944,
  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.}},
  author       = {{Lilleväli, Uku}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Seeking Climate Justice in the Financial Sector: Interpreting the fiduciary duty of Estonian pension funds based on their contribution to reinforcing/tackling climate change}},
  year         = {{2019}},
}