Fiduciary Duty’s Great Escape

The NZLA clarifies what markets already knew: investors who integrate climate risk and opportunity don’t break the rules. They break ahead.

For two decades, investors have debated whether climate and ESG considerations are part of a fiduciary’s duty, or a distraction from it.

That debate is now over. 

The Net Zero Lawyers Alliance (NZLA) has released a new report on sustainable fiduciary duty that lands with the weight of inevitability. And while I’m not a lawyer (and must make that clear), I am a fiduciary. Which means I read this report with great interest.

Because this document, released 20 years after the landmark Freshfields Report, arrives at a conclusion that should feel familiar:

Failing to consider climate change, environmental impacts, and material social factors is a breach of fiduciary duty, not an optional exercise in virtue.

What has changed is the urgency, the evidence base, and the consequences for those who continue to pretend otherwise.

Let’s pull the signal from the noise.

What Fiduciary Duty Really Means (Per the Lawyers, Not the Marketers)

The NZLA report offers a crisp, unambiguous definition:

A fiduciary’s duty is to act in the best interests of beneficiaries by identifying, assessing, and managing all financially material risks and opportunities.

Not some. Not the ones that feel familiar. All.

Climate risk is not special. It’s material. Climate opportunity is not moral. It’s financial.

And once a risk or opportunity is financially material, a fiduciary cannot ignore it without violating their duty. That’s the core of this report.

Freshfields said the same thing in 2005, but courts, regulators, and markets have now caught up.

Freshfields 2005 vs. NZLA 2025: What’s the Same & What’s New

What’s the Same

• Climate and ESG issues are often financially material, and therefore belong inside fiduciary decision-making.

• Ignoring those issues can undermine long-term value.

• The law permits and in many cases requires consideration of climate-related financial factors.

Freshfields was groundbreaking for its time. But it was still fighting for legitimacy, trying to convince investors that climate risks could be real financial risks.

What’s New in the NZLA Report

• Stronger evidence: We now have irrefutable data linking climate risk to cash flows, asset degradation, liability exposure, credit spreads, operational continuity, and capex plans.

• Clearer obligations: Regulators, courts, and international standards now expect climate literacy from fiduciaries. “We didn’t know” is no longer a shield.

• Integration expectations: Climate considerations are no longer bolt-ons. They must be part of core governance, risk management, and investment processes.

• Explicit guidance on decision-making: The report explains how to make climate-informed decisions, not just that you should.

The bottom line: Freshfields opened the door; NZLA closes the escape hatches.

The Prisoner’s Dilemma, and the Key the Investors Already Hold

One of the report’s sharpest insights is the framing of climate action as a

Prisoner’s Dilemma:

• Everyone benefits if investors act.

• Everyone loses if everyone waits.

• Each investor fears acting alone.

But here’s the twist the NZLA highlights, and the part I find most compelling:

Investors can let themselves out of prison.

Because the investor who moves first, who moves toward climate-aligned cash flows, superior economics, and transition-ready assets, outperforms. Not because of virtue, but because of arithmetic.

Breaking out of the dilemma isn’t a risk. It’s an advantage.

Why Investors Need to Read This Report Right Now

1. Climate risk is now terminal-value risk.

The NZLA report is blunt: climate risk affects valuation, solvency, continuity, creditworthiness, and regulatory exposure.

If you’re not integrating climate variables, you are not valuing assets accurately. And inaccurate valuation is the opposite of fiduciary duty.

2. Climate opportunity is now a core return driver.

The report makes the case that climate-aligned investment strategies, including technology, infrastructure, energy systems, materials, agriculture, and resilience, are not niche strategies but superior ones.

In other words: Return carbon. Return profit.

3. Net Zero is not a slogan. It's guidance on risk and opportunity management.

Yes, net zero is a Paris Agreement imperative. But for fiduciaries, it’s something else:

A framework for managing transition risk and repositioning capital into the growth areas of the future economy.

Net zero equals risk retirement and return enhancement. 

Not ideology. 

Not activism. 

Just portfolio math.

A Quiet Question for the Anti-ESG Policymakers

One thought the NZLA report prompted for me, and this is my question, not theirs, is what this means for jurisdictions where political leaders have tried to “ban” ESG or mandate fossil-heavy investment.

If fiduciary duty requires identifying and managing material climate risks…and a policymaker instructs investors not to consider those risks…

…what exactly are they asking fiduciaries to do?

The report does not take a position on this, nor should it. But the logic is hard to ignore:

Fiduciaries aren’t trapped by climate considerations. They are required to engage with them.

Which means the real “prison” may not be climate regulation…but political pressure to ignore financially material information.

Investors have the keys. The question is whether they choose to use them.

Climate-Informed Decisions: The Real Work Begins

The NZLA report is particularly useful in its practical guidance:

• Identify financially material climate factors.

• Integrate them into investment policy statements.

• Stress test exposures across multiple time horizons.

• Engage with portfolio companies to mitigate transition risks.

• Reallocate capital toward climate-aligned sectors.

• Use science-based scenarios in underwriting.

• Disclose assumptions transparently.

• Monitor outcomes and adjust regularly.

This is not “nice to have.” This is baseline fiduciary competence in 2025.

If you’re an LP evaluating GPs, or a GP evaluating your own processes, this section is worth your full attention.

Net Zero Isn’t a North Star. It’s a Flashlight.

A final point the report makes (and which investors still miss):

Net zero isn’t about 2050. It’s about today’s capital allocation.

The purpose of net zero targets is to:

• Reveal hidden risk.

• Expose mispriced assets.

• Highlight value destruction pathways.

• Identify high-growth transition sectors.

• Make long-term economics visible in short-term decisions.

If you’re not using net zero as a lens for repositioning your portfolio, you’re leaving returns on the table.

This is the part investors underestimate: Net zero isn’t a moral obligation. It’s a competitive advantage.

The Investor’s Imperative

As a fiduciary, I read the NZLA report as a message to the market:

You are not allowed to pretend climate risk isn’t material. You are not allowed to ignore climate opportunity. You are not allowed to act like the next economy isn’t already here.

We are well past the point where climate integration is a debate. The only debate left is who will earn the excess returns.

The investors who break themselves out of the Prisoner’s Dilemma, those who stop waiting, stop debating, and start reallocating, will outperform.

Because the transition is not a story of sacrifice. It is the largest revaluation of assets in modern history.

The lawyers have clarified the duty. The markets have clarified the economics. The science has clarified the timeline.

The question now is simple:

Will you manage climate risk…or subsidize it? 

Will you capture the opportunity…or watch someone else do it first?

N.B. Thank you to Paul Watchman for opening my eyes to this critical question in 2005. May he rest in peace.