Investing in their best interests: considerations for trustees from the rise of ESG

Abstract

The debate about whether a trustee’s fiduciary duties preclude or require consideration of environmental, social and governance (ESG) issues when making investments is rapidly evolving. The orthodox approach, that a trustee must pursue maximum profit to the exclusion of all other considerations, continues to face increasing pressure. A new generation of beneficiaries is increasingly pushing for investment strategies which respond to global pressures and trends (such as climate change-driven extreme weather events, biodiversity loss and inequality). Markets are increasingly taking account of the materiality of ESG considerations to financial value. Trustees following the orthodoxy now find themselves in an increasingly uncomfortable position as these pressures compete with their traditional duties and powers. Today, trustees must be cognisant of and regularly assess ESG issues and be seen to be doing so, failing which they may be exposed to business and reputational—and, increasingly, legal—risk.