Two persistent misconceptions continue to affect the way fiduciaries think about sustainable investing: (1) fiduciary duties block a fiduciary investor from considering environmental and social factors; and (2) the portfolio will suffer financially if a fiduciary investor engages in sustainable or responsible investing. An examination of socially responsible investing; ESG integration (an investment process that considers material environmental, social, and governance (ESG) factors alongside traditional financial metrics); corporate social responsibility; and impact investing, shows that neither of these assumptions is correct. Analyses of different forms of sustainable investing have found no necessary cost to a portfolio when sustainable funds are compared with traditional funds. The SEC already requires companies to report material information, and reporting standards developed by the Sustainable Accounting Standards Board (SASB) and the Global Impact Investing Network (GIIN) are improving understanding of the financial materiality of ESG factors.
Given the development of new financial products and strategies, fiduciary duties require examination. The duty to act as a prudent investor is of central importance to anyone acting
as a fiduciary, and the available data explain why a prudent investor should consider ESG information. Moreover, since the duty of impartiality protects future beneficiaries, that duty requires a long-term investment time horizon, increasing the need to take ESG information into consideration. It follows that a prudent fiduciary investor not only may, but should, use ESG information in developing financial policy and decisions.
Susan N. Gary,
Best Interests in the Long Term: Fiduciary Duties and ESG Integration,
U. Colo. L. Rev.
Available at: https://scholar.law.colorado.edu/lawreview/vol90/iss3/3