Video Friday: No Conflict Between Responsible Investment & Fiduciary Duty

Rob Lake, Director of Strategic Development for the United Nations-backed organization Principles for Responsible Investment (PRI), has years of experience in socially responsible investing. His SRI experience in Europe and the UK has given him unique insights to share in the US — a market in which, he says, there is still “a certain amount of uncertainty and skepticism” about SRI, as well as misunderstanding about the relationship between fiduciary duty and responsible investing.

Successful, long-term investment institutions like pension funds have to consider the factors that affect value and performance over the long term. Lake is definitive:

That means it is absolutely relevant to your fiduciary duty to be very interested indeed in climate change, the social consequences of globalization, corporate governance and indeed the long-term functioning and health and stability of financial markets themselves and all these things are embraced by the concept of responsible investment.

As I blogged the other day, in 1994 there was a 3rd Restatement of Trust Law drafted by the National Conference of Commissioners on Uniform State Laws. This is basically the current standard fiduciaries should be following. Section 2 is the heart of it, setting out the Standard of Care; Portfolio Strategy; Risk and Return Objectives. Subdivision (c) sets out a list of usual considerations, such as economic conditions, tax consequences, expected total return, needs for liquidity, etc. The interesting consideration is that in subdivision (c)(8):

an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries

What “special value” does any specific investment have to one or more of the beneficiaries of a pension  or mutual fund? This provision isn’t limited to money but what other benefits fiduciaries are obligated to consider and to provide.  These could be clean air, clean water, inexpensive living quarters, healthy food, efficient public transportation, convenient places to exercise, continuing education, a healthy local economy to grow old in, etc. (See reference to Bill Sokol’s presentation at the LA Trustees Roundup 2012: Corporate Governance)

Watch the video from Rob Lake.

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