ESG Investing  

Can trustees be socially responsible?

There are of course two elements to the price of a share: one is the value of the trade and the other the desirability of the company (think Facebook). 

It must surely follow that companies that score badly on ESG will be less desirable in a world that values ESG highly, and that desirability element of the share price will reduce, negatively impacting the value to the investor. That in turn will encourage companies to up their game on ESG, until that becomes the norm.  

But until investors start voting with their feet, will that happen? 

It might be that it would require legislation obliging companies to do more on ESG, or perhaps tax on those bits that are quantifiable; carbon emissions, for example, or individual investors making decisions to reduce the exposure to such companies.  

Does that not include trustees? Remembering the fiduciary responsibility, I think the answer is no.  

In the mainstream

What does seem to be happening is that socially responsible investment is itself already becoming more mainstream. 

And as more companies take their ESG responsibilities more seriously, the risks and historic underperformance associated with ESG investing are starting to disappear. 

Clearly this is good news for those wishing to pursue an ESG investment policy, not least trustees, who may soon find that the decision as to whether to make ESG responsible investments becomes the same as sound and sustainable investment in a pre-ESG-aware world. So, for example, doing good for the world does good for the investment portfolio. 

Until then, trustees will have to wait and see whether this increasingly asked question is going to be tackled at a legislation level. 

We await greater clarity on the Charity Commission guidance for charity trustees, and it has been argued that there should be a change to the Trustee Act 2000 – the main piece of legislation that governs the running of trusts – which would help family trustees. 

There is one other possibility for trustees. 

There is a rule that says that if all the beneficiaries of a trust have capacity – that is to say they are over 18 and of sound mind – then collectively they can bring the trust to an end dividing the trust fund between them. 

Given they have that power, they could collectively instruct the trustees to adopt an ESG investment policy. Although if I were a trustee I would want an indemnity from them, lest they change their minds.  

Jeremy Curtis is a partner in the private wealth team at law firm Cripps Pemberton Greenish