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Good luck to the trustee who would endeavor to forge beneficiary-consensus as to ESG Investing
objectives
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Social investing (SRI/ESG Investing) of assets subject to an irrevocable trust
implicates the trustee’s duty of undivided loyalty unless the terms of the trust
expressly direct/authorize the trustee to engage in such activity. It is no wonder that
default fiduciary social investing has been practiced almost exclusively in the
charitable space. To the extent that there are adverse economic consequences to the
estate of a charitable trust that are attributable to a particular social-investing
program, it is likely that the attorney general of the state in which the trust is
principally being administered is either too busy frying other fish to get involved or
actually supportive politically of the virtues that are being signaled by the social-
investing trustee. In either case, the trustee is likely to have nothing to fear
economically from his politically driven maladministration of the charity’s assets.
Social investing assets held in irrevocable private trusts for “widows and orphans”
whose terms lack express direction to engage in such activity, however, is quite
another matter. After all, the beneficiaries and their surrogates in the first instance
would have the requisite standing to sue the trustee personally for any economic loss
to the entrusted portfolio that is attributable to the social investing.
Maybe trustees of private irrevocable trusts should be authorized by statute to
“take into account” when making investment decisions the socio-political
predilections of their beneficiaries. Easier said than done. Delaware has such a default
statute. It provides that “when considering the needs of the beneficiaries, the fiduciary
may take into account…the beneficiaries’ personal values, including the
beneficiaries’ desire to engage in sustainable investing strategies that align with the
beneficiaries’ social, environmental, governance or other values or beliefs of the
beneficiaries.” See Del. Code Ann. Tit. 12 §3302(a). Oregon and New Hampshire
have statutes that are sort of similar.
But, as we note in §5.1 of Loring and Rounds: A Trustee’s Handbook (2022),
which section is reproduced in its entirety in the appendix immediately below, the
typical private irrevocable trust will serve multiple categories of beneficiary at
various times and under various circumstances. Beneficiaries come in all shapes and
sizes. There are minors; there are the mentally incapacitated; there are multiple
permissible beneficiaries under discretionary trusts the equitable property interests of
whom are perforce contingent; there are yet-to-be-conceived persons ultimately
entitled to take outright and free of trust remainders in corpus whose equitable
property interests also are perforce contingent. One can go on and on. How on earth is
a trustee charged with the duty of impartiality to discern each and every beneficiary’s
particular “values or beliefs,” let alone forge a unanimous working socio-political
consensus as to how the entrusted portfolio should be invested? And what if that
consensus were to conflict with what the settlor would have wanted? And if the
