Responsible Investing for the Modern Fiduciary:
Aligning Goals, Duties, Investments & Impact
Responsible investing is attracting the attention of investors and investment professionals, philanthropists and philanthropic organizations, and trustees and beneficiaries, particularly those identified as next generation “emerging wealth.”
Investors have various motivations for incorporating responsible investing considerations into their portfolios. Some desire to first and foremost “do good” with their financial resources (commonly referred to as “impact first” investment). Some are committed to aligning their investments with their values and, at a minimum, not supporting what they consider to be harmful through their investments. It is from this orientation that the phrase “sin stocks” has emerged. Others have mandated goals – environmental or social for example – arising from reputational or political considerations. And some act on a belief that “responsible” companies will outperform over a long time horizon.
Whatever the motivation, fiduciary investors face some unique considerations as they address responsible investment for the simple reason that they invest not for themselves, but for others, subject to strict fiduciary duties with a high bar. With an exclusively financial view of investment, the concern is the risk of under-performance. But that is not necessarily the end of the conversation. The next question is, in what circumstances are factors in addition to financial return appropriate to consider? If “sin stocks” historically out-perform, is it only prudent for a fiduciary to have a sin-tilted investment portfolio? (Asked rhetorically.) Do the interests of beneficiaries include non-financial elements?
In this paper, we highlight current trends in responsible investing, provide an overview of general concepts and an analysis of issues of particular significance for investors with fiduciary obligations, and conclude with a discussion of the implementation of a responsible investment strategy in the fiduciary context. Read more.