Sustainable Investments and Trustee Considerations

Whilst sustainable investing may have been regarded as a rather fringe movement in the financial world to satisfy the ethical concerns of a few, alarming scientific consensus over climate change, COVID-19  and progressive social considerations has propelled sustainable investing and ESG (Environmental, Social and Governance) considerations to the forefront putting pressure on politicians and policymakers alike to change the narrative and legitimise government spending by wrapping it in a ‘green coat’ and regulating business models. 

The rapid divestment from fossil fuel companies, which amounted to trillions in months, is a prime example of the swing towards sustainable assets. According to a report from the Divest Invest Global Movement, whilst it took two years to shift the first $2 trillion in terms of divestment decisions, the most recent $2 trillion divestment has taken under six months. As of September 2020, approximately 14 trillion U.S. dollars in assets under management had been divested from fossil fuels globally, up from 52 billion U.S. dollars in 2014.[1]

The shift is palpable with many corporates transitioning or altogether pivoting their business models to adapt to a changing market in order to remain resilient. In addition, institutional investors and fiduciaries, global managers, sovereign wealth funds, cities, universities, public pension funds and insurance companies have pledged and put into action investment plans which focus on:

  • divesting from fossil fuels;
  • withdrawing investments with conventional energy focused public equity managers; 
  • building up investments in renewable energy;
  • supporting companies through the transition to renewable energies;
  • reducing their carbon footprints in their private and public equity investment; and
  • investing in new clean technologies, energy efficiency and sustainable mobility. 

Against this backdrop, it is not surprising that Trustees are being challenged to consider investing in ESG assets by both beneficiaries and investment managers alike. With this in mind, what do Trustees need to consider to ensure they are truly fulfilling their fiduciary obligations with respect to investing in sustainable assets?

Legally binding obligations – First and foremost, a Trustee must abide by the terms of the principal Trust Instrument which, in many cases, will have been drafted at a time when ethical and sustainable considerations did not exist. A thorough review of the terms of the Deed of Settlement or Declaration of Trust is essential, however, most modern trust instruments have usually been drafted in such a way to provide maximum flexibility and indemnities to the Trustees in terms of investment. 

Investment Statement – Trusts are succession planning vehicles which are often put in place to benefit multiple generations. Whilst the initial Settlor will likely not have considered ESG factors, Trustees may now be asked by the younger generations to invest ethically, sometimes with specific causes in mind, or more generally not investing in companies which fall outside of their ‘moral appetite’.

The client may wish to:

  • mitigate ESG risks to performance by cutting out unsustainable investments altogether (the exclusion strategy); 
  • focus on investments based on their ethics and morals, with far more flexibility in terms of performance;
  • invest in companies which are making efforts to improve (the inclusive strategy); and/or
  • invest in companies that are developing innovative sustainable practices or products.

The Trustee will need to clarify, ideally through an Investment Policy Statement or a Business Plan, the investment objectives. 

Profitability  Whilst a few years ago, a sustainable investment may not have been lucrative one, and therefore not one that would be attractive to a Trustee who has a duty to preserve, enhance and generate income from the trust fund, we now see that this may no longer be the case.  

Recent research would suggest that corporates in the ‘unsustainable’ sector are now often underperforming and increasingly viewed as volatile and risky by investors. An analysis of S&P 500 companies in 2014 found that corporations with sustainability strategies outperformed others on the index [2] and research by Oxford University and others confirms that good sustainability and ESG practices correlate with lower operating costs, better profitability and superior share price performance. [3] Indeed, research published in 2019 by the IMF found the performance of sustainable funds is comparable to that of conventional equity funds. [4]

In keeping with the times, Investment Managers are rapidly embarking on the sustainable investment offering. However, whilst some Investment Managers have only recently jumped on the bandwagon, others will have been considering ESG factors for decades and Trustees should bear this in mind when selecting an appropriate service provider.  

Greenwashing and lack of metrics – With the environmental issues we are facing today, going green, or at least appearing to, is becoming a profitable business strategy. Greenwashing refers to the act of portraying products or services as environmentally friendly only for the sake of marketing, when in fact the product or service doesn’t have, or hardly has, any environmental benefits. 

MSCI, S&P, FTSE, to name just a few, have all issued their own ratings that are meant to help the investor in their selection of sustainable stocks; we now have indices such as Dow Jones or the Global Sustainability Index which provide investors with a benchmark for such investments. However, these ratings and indices contradict each other as there is, unfortunately, no standardisation of ESG metrics. 

The question is, in the absence of internationally agreed metrics on sustainable investing, how does a Trustee ensure that they are actually investing in sustainable investments?  

Helpfully, the World Economic Forum has spearheaded a commitment from more than 140 CEOs to align their corporate values and strategies with the UN’s Sustainable Development Goals and presented their conclusions to define common metrics for sustainable value creation.[5] This and the EU’s Sustainable Investment Taxonomy are welcomed steps into assessing what is ‘green’ and what is not. However, until global consensus has been reached, the absence of agreed metrics in terms of sustainability is probably the biggest hurdle for fiduciaries.


Whilst some may still see sustainable investment as a fad, underestimating ESG risks is not prudent.  One could argue that ESG considerations should simply be part of a fiduciary’s duty – mitigating ESG risks to be viewed as a key responsibility to their beneficiaries. Offshore Trustees have seen over the past decade their regulatory compliance and disclosure requirements rapidly increase and, whilst sustainable investing is a relatively new consideration, a Trustee may quickly find that overlooking such considerations and not familiarising themselves with concepts of sustainable investing may be unwise, both from a business development standpoint and, more significantly, a fiduciary one.






[5] Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. World Economic Forum White Paper September 2020. Prepared in collaboration with Deloitte, EY, KPMG and PwC.


Anne Marie Levesque, Trust Manager 
Rawlinson & Hunter, Cayman Islands

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