ESG’s Relationship to Fiduciary Duty – From Counter to Crucial

Details

Author(s):
  • Starr, Megan
Publish Date:
May 27, 2015
Publisher:
Steyer Taylor Center for Energy Policy and Finance
Format:
Other
Citation(s):
  • Megan Starr, ESG's Relationship to Fiduciary Duty – From Counter to Crucial, Steyer Taylor Center for Energy Policy and Finance, May 27, 2015.
Related Organization(s):

Abstract

For decades investors have used the justification of “fiduciary duty” to explain why they cannot participate in socially responsible investing (SRI), or use environmental, social and governance (ESG) factors as part of their investment decisions; strictly speaking this responsibility is “a legal duty to act solely in another party’s interests,” which traditionally fiduciaries have taken to mean maximizing value for that party, called the principal. Hence, a focus on any factors besides the bottom line could be violating that responsibility. The world of the fiduciary is being turned on its head, however, as a new wave of research, legal action, and investor behavior is pointing to a startling conclusion: perhaps considering the ESG factors of an investment is fundamental to fiduciary duty, and neglecting to do so a potential violation of that responsibility. This paper explores the possibility that it could be in the principal’s best interest to incorporate ESG factors into investment analysis, hence integral to fiduciary duty.