Trustee Responsibilities and ESG

Empirical and academic evidence demonstrates that incorporating ESG issues is a source of investment value. ESG analysis assists investors to identify value-relevant issues. Neglecting ESG analysis may cause the mispricing of risk and poor asset allocation decisions and is therefore a failure of fiduciary duty.

¹ “ESG” stands for Environmental, Social, and Governance, representing a set of non-financial factors that investors are increasingly building into their analysis process to identify material risks and growth opportunities. These factors are also being used as a way of assessing the corporate sustainability credentials of businesses.

UN PRI“Fiduciary Duty in the 21st Century”, 2019

The primary risk for trustees in making sustainable investments is around breaching their overarching fiduciary duties to act in the best interests of beneficiaries.

Matthew BraithwaitePartner, Wedlake Bell

The pandemic has highlighted systemic risks for all of us in how we live our lives, and clients are seeing the impact of that on those who are less fortunate in society, causing them to refocus their aims and priorities when it comes to investments.

Ravi FrancisPartner, Gateley Legal

For family offices and private clients, impact minded investors are increasingly asking if their investee company can demonstrate some form of impact framework or accreditation to reflect their mission, such as being or becoming a B Corp. We’re even seeing some NextGens setting up their own B Corps, or evolving their existing businesses into B Corps.

Tze-Wei NgAssociate, Stephenson Harwood LLP

In that context, there is scope to combine ESG objectives with the letter of wishes, family constitution or deed documents when establishing trusts for Asian clients, to bring together family members and set out clearly what ESG means for the family. Doing so can provide greater certainty, clarity and an extra layer of protection for the trustee.

Suzanne JohnstonPartner, Stephenson Harwood LLP

“In a traditional sense, acting in the beneficiary’s interests has meant acting in their financial interests. However, the evidence does point to ESG factors being financially material and increasingly a core part of prudent investing.”

Elizabeth ShawSenior Associate, Bedell Cristin

When investing, capital deployment without sustainable risk assessment is a litigation risk. Such risk is exacerbated in the context of the long-term investment horizons which you might typically find in a Jersey multigenerational trust structure. In this sense, Jersey trusts will find themselves in the eye of the storm when it comes to the transition to net zero. In addition, when you look at litigious cases around the world, the nature of the claims underpinning such cases are becoming broader. That means the duty of care that is expected of fiduciaries is becoming broader too.

Henry WickhamCounsel, Ogier

There is a renaissance in the thinking of European families. Their ideas have evolved from unilaterally directing responsibility towards their own family members, which in the past saw effective legacy as adherence to a fixed set of standards and expectations. They now embrace a positive future through responsibility towards our planet, community and society – vastly increasing the circle of people to whom they commit. This empowers legacy to be achieved through outreach, purpose and impact to people and our planet more widely.

Mustafa HussainManaging Director, Accuro Fiduciary

It’s really important to ask the simple questions; to frame the questions right from the outset; to really understand what the expectations are so that as trustees you can make the right investment management appointment.

David StearnCEO, Affinity Private Wealth

We use stewardship as a way to talk to companies we own, and we do that by asking three questions – do you have a net zero goal, do you have a quantitative mid-term target and do you have a business model that is profitable at net zero? These are fiduciary questions to ask and companies are responsive to them. It’s also an opportunity for us to make a difference in the real economy, through our own stewardship

Dr Chris KaminkerHead of Sustainable Investment Research and Strategy, Lombard Odier

There’s a growing body of academic literature that suggests that to not effectively use engagement and other stewardship tools to manage risk and financial returns may be misaligned with a trustee’s duties to clients and beneficiaries.

Sophie LawrenceGreenbank Stewardship and Engagement Lead, Rathbone Greenbank Investments

We’ve seen a tsunami of regulation come through which is forcing companies to report mandatorily. The UK is asking companies to report on their climate impact with the US likely to follow, whilst the EU looks set to take its ESRS standards and apply them to all listed companies in the EU. The result is that, in a very short space of time, there is going to be a flood of information. What is then done with all that information and data is key.

Harry BriggsDirector, Sustainability, KPMG