Trusts and Sustainable Investing: Building the Bridge

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.