Schanzenbach and Sitkoff, ‘Fiduciary Duty, Social Conscience, and ESG Investing by a Trustee’

This chapter, prepared for the 2021 Annual Heckerling Institute on Estate Planning, examines the law and economics of environmental, social, and governance (ESG) investing by a trustee.

Trustees of pensions, charities, and personal trusts invest tens of trillions of dollars of other people’s money subject to a sacred trust known in the law as fiduciary duty. Recently, these trustees have come under increasing pressure to use ESG factors in making investment decisions. ESG investing is common among investors of all stripes, but many trustees have resisted its use on the grounds that doing so may violate the fiduciary duty of loyalty. Under the ‘sole interest rule’ of trust fiduciary law, a trustee must consider only the interests of the beneficiary. Accordingly, a trustee’s use of ESG factors, if motivated by the trustee’s own sense of ethics or to obtain collateral benefits for third parties, violates the duty of loyalty. On the other hand, some academics and investment professionals have argued that ESG investing can provide superior risk-adjusted returns. On this basis, some have even argued that ESG investing is required by the fiduciary duty of prudence. Against this backdrop of uncertainty, this chapter examines the law and economics of ESG investing by a trustee. We differentiate ‘collateral benefits’ ESG from ‘risk-return’ ESG, and we provide a balanced assessment of the theory and evidence about the possibility of persistent, enhanced returns from risk-return ESG …

Schanzenbach, Max Matthew and Sitkoff, Robert H, Fiduciary Duty, Social Conscience, and ESG Investing by a Trustee (October 18, 2021), 55 Annual Heckerling Institute on Estate Planning (Tina Portando, ed, 2021).

First posted 2021-11-11 13:00:17

Leave a Reply