Why ESG is Just Part of a Trustee’s Duties
14 February 2025
1. Is there a power to make ESG investments?
2. Is 'ESG' even an investment?
3. Is it a breach of trust for trustees to take into account ESG factors when exercising their discretion to select investments?
Footnotes
- When considering these provisions, it should be noted that, unlike Articles 21(1) and 24(2), Article 21(3) is stated to be “[s]ubject to the terms of the trust”. As a result, this duty is commonly purported to be excluded in discretionary trusts.
- This article assumes that there are no specific prohibitions in the trust deed on the type of investment that can be undertaken by trustees. Any such prohibitions would usually override Article 24(1).
- Equiom Trust (C.I.) Limited v Jean-Pierre Mattas, Philippe Mattas, The Government of Greece, HM Attorney General and the Executors of the Will of Aréty Racadji [2022] JRC288.
- In reality the considerations are rarely clear cut and it would be unlikely that the trustee would know with certainty that any cash injection into the business would not prevent that business failing, although the trustee may consider this highly likely. It would also be unlikely that the trustee would be acting properly in making a 'distribution' to a beneficiary in this manner if it were known that the distribution would effectively be lost. A trustee would normally make a distribution to the beneficiary to enable that beneficiary to continue to meet their living costs despite the loss of the business and their alternative source of income.
- In the matter of the May Trust [2021] (1) JLR 66. The Royal Court in this case held that the question of 'benefit' was both an objective and a subjective one in relation to that beneficiary.
- In this article we have not always distinguished between ESG and impact investments. The uses of the terms are evolving and have different meanings to people. Various of the points made in this article would apply to both equally even if we have not specifically referenced them.
- Cowan v Scargill [1985] Ch 270
- Law Commission of England and Wales Fiduciary Duties of Investment Intermediaries Law Com
- Current Project Status Update Post Completion
- Butler-Sloss & Ors v The Charity Commission for England and Wales & Anor [2022] EWHC 974 (Ch)
- In the matter of the May Trust [2021] (1) JLR 66.
- In the matter of the May Trust [2021] (1) JLR 66. Paragraphs 57 to 59
- In the matter of the May Trust [2021] (1) JLR 66. Paragraph 61
- In the matter of the May Trust [2021] (1) JLR 66. Paragraphs 57 to 59
- For example, In Re Esteem 2003 JLR 188 paragraph 215 Deputy Bailiff Birt stated, “A letter of wishes is not a formal document and does not impose any legal obligation. It may be changed from time to time. As the wishes of a settlor change, these changed wishes may be reflected in an updated letter or may simply be communicated orally. The court has certainly seen numerous examples of letters of wishes the opening of which states something along the lines that the settlor would wish the trustees to have regard to such wishes as he may from time to time express to them during his life, before then going on in the letter to specify his wishes as to what should happen after his death. It is quite clear that a settlor—to whom, after all, the funds belonged before he decided to give them to the trustees—is entitled to express his wishes from time to time to the trustees. The trustees are entitled to take such wishes into account when deciding how to exercise their fiduciary powers."
- Stranded assets are generally defined as those assets which are prematurely or unanticipatedly devalued or written down, and in the case of climate stranded assets due to climate change related impacts.
- This could have tax or other consequences for that beneficiary so would need to be considered carefully in the context of that particular trust. This therefore may not be a suitable solution for all trusts or beneficiaries.
- In the matter of the May Trust did involve a private family trust with a mix of family and charitable beneficiaries.
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