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Trusts and Sustainable Investing: Building the Bridge

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There is little doubt: Sustainable investing is on the rise.

With funds in the universe continuing to multiply and attract record inflows1, the cohort of investors seeking to align their portfolios with their values is clearly expanding and on track to permanently transform the investment landscape.

But one category of investors remains on the sidelines: trustees of personal trusts. Despite modern trust laws in a growing number of states, which permit trustees to consider sustainable investing factors, many trustees may still presume that sustainable investing is inconsistent with their fiduciary duties.

It is no surprise then that we increasingly find ourselves helping sustainably inclined trust clients navigate this dilemma. For grantors, the solution is relatively straightforward: They can draft provisions into their trusts that expressly allow sustainable investments. For beneficiaries of trusts that lack this language, another rising trend provides a promising path forward: family values statements.

To help grantors, beneficiaries and trustees alike, below we discuss these statements and their usefulness in bridging sustainable preferences with fiduciary duties.

Please note the following terminology choices we have made for the sake of clarity when discussing sustainable investments and family values statements — both of which suffer from inconsistent naming conventions:

  • We use “sustainable investment” to describe any investment with a dual purpose to produce both a competitive market return and desired positive outcome.
  • We use “family values statement” to encapsulate vision, purpose and mission statements, all of which are grounded in a family’s consensus values and create a vision for their shared future.

Gaining Momentum

Investor Flows into Sustainable Strategies

Bridging Sustainable Investing with Fiduciary Duties

Trustees are held to certain fiduciary duties that impact how they can invest trust assets. Historically these duties have commonly been interpreted to preclude sustainable investments. Family values statements, however, may offer a new path forward.

Beyond their usefulness in sustainable investing, family values statements have more broadly become a best practice among wealthy multigenerational families, as demonstrated by years of research.2 Based in the guiding principles of the past, validated in the present and projected into a family’s shared future, they provide a common purpose and can foster family unity.

Below we provide background on using this powerful tool — in combination with a prudent investment process — as the key to potentially unlocking the sustainable investing door for trusts.

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How to Align Trusts with ESG Preferences

Bridge fiduciary duties with sustainable investments.

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Sustainable Investing

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Proven Advice for Moments that Matter

Morningstar, Hale, Jon PH.D., CFA, U.S. Investors Continue to Endorse Sustainable Investing. Retrieved on December 16, 2020 from https://www.morningstar.com/articles/1007284/us-investors-continue-to-endorse-sustainable-investing.

Williams, R. O., & Castoro, A. A. (2017). Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy. Higherlife Publishing & Marketing.

Disclosures

This document is a general communication being provided for informational and educational purposes only and is not meant to be taken as investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions or inflation. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed. Northern Trust and its affiliates may have positions in, and may effect transactions in, the markets, contracts and related investments described herein, which positions and transactions may be in addition to, or different from, those taken in connection with the investments described herein.

LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Periods greater than one year are annualized except where indicated. Returns of the indexes also do not typically reflect the deduction of investment management fees, trading costs or other expenses. It is not possible to invest directly in an index. Indexes are the property of their respective owners, all rights reserved.

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